Fast, a one-click checkout payments startup was founded in March 2019. In November of that year they raised a $2.5M seed round and then 5 months later they raised a $20M Series A led by Stripe. Their headcount grew rapidly and less than a year after raising their A they raised a monster $102M Series B round. Everything was trending in the right direction and in Februrary 2022 they announced they were looking to double their headcount by the end of the year. 2 Months later the company went bankrupt and shut down. There are many reasons why Fast imploded in such a spectacular fashion and without knowing all the information the best I can do is speculate but I believe their problems stemmed from poor prioritization.
The most important task for the leadership team of any startup is to effectively prioritize work. Moving fast and being productive isn’t enough if it’s not going towards solving the right problems and focusing on the wrong problem once or twice could be enough to kill a young company. During the past few years where money was cheap and plentiful there was more room to experiment, pivot, and make mistakes with prioritization but that luxury is over for the foreseeable future. As the funding markets tighten and runways shorten I predict the companies that more effectively prioritize their efforts will win out. On the surface this seems obviously true but in the day-to-day of a startup grind it can be deceptively difficult to know what work is the most important, especially as the company grows and the number of stakeholders– all with issues most important to them– vie for attention. My CEO at Census gave me the framework for how he deals with the problem of prioritization: focus on the work that most effectively derisks the grand vision.
Think of it this way: when starting a company there is inevitably a grand vision for what you want it to become. This vision is what you want the company to look like in 10 years when it’s mature and has all the bells and whistles, integrations, market dominance, culture, etc. To get from nothing to that grand vision requires a lot of time and effort and throughout that journey there will be a number of risks that could prevent the vision from ever becoming a reality. Your job as a leader is to discern which risks are greatest at any point in time and focus the efforts of the business on overcoming those risks. As your company grows the amount of risks will generally increase but the severity of any given risk most likely decreases.
For example, in the beginning when all you have is an idea the biggest risk is that it’s just a bad idea. If your idea isn’t valuable then it doesn’t matter if you do everything else right you will be unsuccessful which is why investors will always ask what sort of market validation you have done. By speaking to potential customers and experts in the field you can overcome this risk by getting an understanding of the market and its needs. But once you overcome that initial risk and you determine there’s a need for whatever you want to build then you have another risk: are people willing to pay you for your solution and how much? This is similar to the first step but subtly different in the fact that a lot of people will happily say they need a solution to a given problem and they might even say they’re willing to pay for it but when it comes time to fork over money it’s a whole different story. Customers happily willing to pay for a product or service is the so-called Product Market Fit that every startup wants to achieve and it’s the most important risk any new company must overcome initially.
Every company is different but most startups share some big risks that are worth thinking about:
- Do people want your product?
- Will people pay for your product?
- Can you build the product?
- Can you manage a growing team?
- Can you sell to customers?
- Will you run out of capital?
- Can you expand the market?
- Can you capture the market?
- Can you scale?
- Can you be profitable?
As you grow the risks will change and multiply but be less severe individually. Whereas not having PMF can singlehandedly destroy a company later risks such as regulatory risks, culture changes while scaling, technical debt, unit economics, distribution, competitors, etc. are less likely to be the sole downfall of a company. An important distinction is that the risk in question is not necessarily about overall risk to individuals in the company but more about the vision itself. If you’re a young but growing company and you get a buyout offer technically the risk to you as an individual would basically be brought to near zero because an exit event like a buyout could result in becoming financially independent and therefore losing personal risk. Being acquired by the wrong company, however, could mean the original mission is now less likely than ever to materialize. This isn’t necessarily a bad thing and the vision for a company can certainly change over time but it’s worth keeping in mind when assessing what that real goal is and what efforts should be focused on to best get you there.
So where do I see people make mistakes with this? I speak to a bunch of young founders and entrepreneurs and quite often they seem to be following a template for building a company: they have an idea, pitch it to investors, give away about 20% of their company to raise an initial seed round, immediately hire a team of engineers and a designer, and then start building. That might be the right set of moves to make for your given situation but often times it’s really not necessary to do all that. Fundraising is an opportunity to overcome the risk of running out of capital but if you can validate a market, build an MVP, and start generating revenue with little capital then there’s not much need to raise money as you’re just giving away more equity than necessary. But maybe you don’t want to risk your own money when you can risk investor’s money and maybe you can’t build the MVP on the side while working a full time job so you need some money to pay yourself while you work on a prototype. In that case raise money and eliminate that risk but then there’s no need to suddenly hire a whole team. Adding more cooks to the kitchen does not make it easier or faster to build a product in the early stages so you should ask yourself: why am I hiring this person? Is it because I just raised money and feel like this is the “next step” or does hiring someone with this skillset genuinely make the odds of success higher than doing something else? This applies to any area of a business, not just hiring, and it’s common to fall into the trap of doing what feels easy. If you’re a good at engineering you might think your startup’s problems will be solved with cleaner code; if your background is in product management you might think just adding more features or conducting just one more customer interview is always the best path forward; if your background is in operations you might think introducing new processes or increasing headcount is always the best path forward. At any given point in the life of a company one of those strategies might be the optimal one but that analysis should be made irregardless of how comfortable you are in doing that sort of work and focus instead on how much that work will derisk the company.
When using this framework a lot of the classic startup advice around moving fast, validating a market, finding PMF, scaling, etc. makes more sense. It also helps to explain, in part, why some companies fail. When Fast announced they were shutting down operations just a little over a year after raising $100M it became clear that leadership had not been appropriately derisking the company. According to The Information, Fast’s revenue in 2021 was just $600,000 while its burn was $10 million per month! With this context it becomes even more shocking that Fast’s CEO and CTO gave an interview to Business Insider in February 2022– just two months before shutting down– announcing their intention to double their headcount by the end of 2022. This was after already doubling their headcount the previous year. I don’t have all the information they had so I do not want to judge too harshly from the comfort of my armchair but from where I’m sitting I can’t imagine that not having enough engineers was even close to the biggest risk the company faced at that time. In fact the opposite was true: 60% of Fast’s operating budget went to payroll making their employees one of their biggest risks instead of the biggest reductions in risk.
And then you add-on the expensive corporate retreats, paying The Chainsmokers $1 million dollars to perform at a conference, hiring a videographer to follow the CEO around the world to film him skiing, scuba diving, and perform other stunts, all while the engineering team was given a broad array of conflicting tasks not related to the core mission. Throwing a sick concert or making the CEO a celebrity influencer did nothing to derisk the mission of Fast and it’s telling that so much time and money was put into those efforts instead of things that would have been more effective.
One of the few warning signs engineers noticed is how Fast spent far more on infrastructure than the scale of the operation would have called for. Engineers sometimes brought up suggestions to scale infra down, and save costs - given there was not much revenue generated.
I could harp on what I think Fast did wrong (chief among them was their propensity to overengineer solutions) but the actual lesson isn’t about the specifics of their actions and instead is focused on the fact that their actions did not do much to increase the odds of success. If Fast was a consumer social app then it may have made sense to make the CEO a celebrity or to throw fancy parties to build a brand. Fast wasn’t a consumer social app though and their focus on efforts completely unrelated to the performance, user experience, and developer experience led to the shutting down of a company a year after raising $100M.
So if you’re in leadership position of a growing company (at an early stage company everyone is in a leadership position) to best increase the odds of success I recommend identifying the biggest points of risk that threaten the long term vision and then prioritizing your efforts on those areas.