If you've ever wondered why a new company with a ton of potential would suddenly start making moves that seem awkward and desperate, there's usually a good reason.
Actually, there are four good reasons. But they all boil down to one root cause, and that root cause can change as trends come and go.
I've spent 25 years founding, working at, and advising startups. I've seen company priorities go off the rails more times than you might imagine. Another sad story dropped into my inbox last week, and this time the antagonist of the story was A.I.
The Sad Story
The founding CEO of a generative A.I. company wrote to me via my website. Long story short:
They launched their non-A.I. product to some very promising sales numbers.
Then they rode a series of A.I.-fueled catalysts to even more success.
But ultimately, they came crashing down after just a couple of years, looking nothing like the company that the founder initially set out to build.
Reading through the founder's story, I felt an uneasy sense of deja vu. Because it's the same old story I've seen over and over again, only with a different villain this time.
Here are four ways that a change in a startup's priorities can lead to some unpleasant changes in direction.
1. Chasing the Wrong Kind of Attention
One of the more unconventional lessons to learn at a startup is that attention that doesn't directly lead to revenue is usually more trouble than it's worth.
The founder who wrote to me had founded his company a little over two years ago, offering a mental health companion app. The company had achieved some initial success, both clinical and financial, and was slowly but surely on its way to establishing a foothold in what had become a hotly competitive market.
Then the A.I. gold rush started percolating.
While generative A.I. would not necessarily have a material impact on the product's value proposition, the mere mention of A.I. created a lot of buzz in investor meetings and sales pitches. So, against the founder's instincts, the company began referring to itself as an "A.I.-powered mental health companion app."
And while the company's progress had heretofore been slow but steady, it began to pour all its efforts into an A.I.-powered quick and dirty climb.
Attention is nice, and in a lot of cases with early-stage companies, it's absolutely necessary. But that old adage that "any press is good press" is just not true with a startup. The attention received requires attention returned in kind, and that always comes at the cost of time and resources that would be better spent building solutions, chasing leads, and closing deals.
2. Chasing Misaligned Connections
When you're running a small startup with big plans, it can be a lonely mission. Promise and potential are a startup's currency, and stewardship of that potential is as critical as stewardship of any other kind of investment.
The founder turned that potential into a bevy of calls and meetings with investors and influencers, looking to accelerate the progress of the company by striking while the A.I. iron was hot. But those connections, fueled by the power of A.I., weren't aligned with the mission and vision of the company, which was making mental health more accessible.
Again, a startup is a lonely proposition, and there is strength in numbers, in terms of both funding dollars and potential customers. How do you say no to those opportunities?
The company, as it was being promoted, was quickly starting to offer a promise it had no idea how to fulfill, let alone the means and the resources to actually fulfill it.
3. Chasing Mispurposed Funding
I don't have the ratio on this, but for every startup that realizes a huge windfall from outside funding, there are startups for which that funding does more damage than good.
With term sheets on the table and influencers to pay, the startup started shedding more and more of its equity to keep the hype cycle going. Sure, some of that funding, maybe most of it, went to shoving the square peg of A.I. into the round hole of accessible mental health, but now the company goals had changed.
The moment a startup agrees to take money, whether from an angel, an incubator, a VC, or even a single large customer, it immediately seats a new boss at the company table. Furthermore, depending on the size of the infusion of new capital, that boss usually gets what it wants, regardless of -- and here's the dirty secret -- whether or not what it wants is good for the company and its customers.
The founder, now beholden to the desires of several new "bosses," found himself ultimately responsible for generating an outsized return on their investment, and furthermore doing it their way. The runway got shorter, the window started closing, and the mandate became "hit the numbers or else."
Reality chose "or else."
4. Chasing Revenue at All Costs
With or without funding, chasing revenue at all costs is usually a sneaky recipe for failure.
Aside from the ethics, I can tell you that the value of money is always dependent on time, and so revenue force-fed into a business model in the present usually comes at the expense of realizing greater revenue in the future.
And if that trade-off is built on a house of cards of hype, connections, and funding tranches, the odds are always going to be stacked against that once-promising startup. That's exactly how it ended for the founder, who sunk everything into hitting the numbers now, and when that didn't happen, and after a failed attempt at bridge financing, he was forced to wind his company down.
The founder's story was a sad story, a common story, and a cautionary tale. But keep in mind it doesn't always play out that exact way. A startup's leadership can choose any one of those four false priorities, or any combination, and fall prey to the same result.
The solution is to always keep the startup's mission at the top of the priority list, and never start that slippery slope. It's easy on paper, but it requires real leadership in practice. Shiny objects will come at you constantly. The easy path of high-risk money from investors or customers with their own agendas will be a constant temptation. Journalists and marketing agencies will seemingly love your vibe, but in reality they just need your clicks.
Stay on mission. Protect your priorities. It's not a guarantee of success, but it's your best chance.
BY JOE PROCOPIO, FOUNDER, TEACHINGSTARTUP.COM@JPROCO
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