The Wrong Successes Kill Companies

Just because it’s working doesn’t make it right

Startups are in a constant life and death struggle, where a short succession of failures can destroy them completely, or a sudden string of successes can lead to growth and stardom. Exactly because of this constant risk of death, startups grasp at every flash of success, and their eventual failure can often be traced back to those successes they bet on, rather the roadblocks they hit.

This means what you decide to double down on is as important as the fires you decide to fight. This is true in any company — a specific form of this is covered in depth by Clayton Christensen in “Innovator’s Dilemma”, where successful companies over-solve their customers’ problems rather than finding additional customers. It’s especially true for startups, though, which are so risky that every potential customer, employee, investor, or partner can be the difference between making payroll and going bankrupt.

Steve Blank and Eric Reis have done a great job of teaching the world about the importance of quick learning and iterating until you get wins, but reality is more complicated. Say you’re in the middle of rapid product iteration and you get a rash of customers who sign up but are completely different from those you have been trying to attract. Is this awesome or horrifying?

How could new customers be such bad news, you ask? Easy: They could be the wrong customers. “Wrong” could mean many things. They could be from a very small market, such that success with them isn’t enough to build a scalable business; they could be unprofitable, in that they’ll be very high-cost to acquire and support, so every added customer loses you money over time rather than making it; and most commonly, they’re just not the customer your company strategy set out to find.

Eric Reis might say finding this kind of customer is the sign you need to pivot. That might be true. But it’s not automatically so. You were right enough to get this far, why give up so quickly on your definition of the perfect customer?

Because once you change your direction from focusing on the customer you want to customer you have — that is, once you start focusing on whatever seems to be working rather than your goals — you will quickly find yourself running a different company than you had planned.

This is one of the hardest problems for entrepreneurs: How do you decide when good news is leading to a better place, or a fatal compromise to your dream?

This came up constantly for me while running Puppet, in almost every part of my job. For instance, we did all of our high-growth hiring from Portland. Because of the small market and especially small tech sector, you have to be pragmatic about who you hire. You look up in 2 years, and you’ve got complete teams built off that first compromise hire. That first developer hire was a success, but changed your team’s direction. Now that that person has hired a team, or at least provided the template for the team, are you where you wanted to be, or completely off track?

You can argue that this isn’t a problem we would have had in the Bay Area, but not compromising when hiring is as pernicious a myth as true love. Even if you think someone is perfect, they’re still a real person, with opinions, behaviors, and habits that affect the destiny of your company, in good and bad ways. Again, the point here isn’t that you failed when you hired this person — the point is that the success you experienced changes your destiny in ways you can’t undo or predict.

That first customer started making feature requests and filing bugs, and two years later you’ve built something that can attract a lot more customers like them. Yay, or boo? There’s no right answer. I know one company that was almost destroyed by its biggest customer, and easily lost two years of roadmap progress focusing on them, but I know another company who built an amazing business by initially focusing on a couple of heavyweight customers.

When no decisions have been made, all life in front of you is opportunity. Choosing one opportunity inherently closes off others, and great decision makers know and accept this. If anything, sometimes a decision is great because of the opportunities it rejects, rather than those it selects. Running a startup is an accumulation of these bets, these selections and rejections. It’s hard to predict the consequences of even one of these big decisions, and it’s impossible to know what their legacy will be in a few years. You might end up exactly where you want… but you might be sowing the seeds of your downfall. That’s what makes the job hard.

The only tool I ever developed for managing this over the long term was to hold clearly to a specific set of goals, and to a specific strategy. When successes came along that didn’t fit our goals or strategy, we could decide to change them. But if we chose not to, then we essentially ignored it. It was a false positive. On the other hand, if you look up and a series of false positives starts to look like a trend you want to refocus on, then you must first rethink your goals and strategy, and only then switch your execution.

Or at least, that’s what I did. In truth, though, I don’t think I held the line enough. I think I was too willing to listen to people who were tactically great but didn’t buy into our strategy, and I was too willing to believe someone else’s expertise should take priority over my opinions. That doesn’t mean these were all mistakes, but it does make my time at Puppet easy to see through the lens of compromise and regret rather than the great success it really is.

In the end, when I look at how Puppet evolved, my sharpest pains come from compromises in strategy, and my brightest joys shine from a flawed execution in service of a pure vision.