BlitzFail: How Not to Go Off the Rails

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BlitzFail: How Not to Go Off the Rails
Craft Ventures
David Sacks
Craft Ventures
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If a startup is not maturing its finance function to keep up with its growth, it may discover a margin problem too late, when the company is already operating at scale and a brutal restructuring is necessary.
It is not uncommon for promising startups to saturate their initial distribution channel, at which point growth will stall or, to maintain it, the startup will begin overpaying on customer acquisition cost (CAC).
Examples of channel saturation include: graduating from a startup accelerator whose network delivered the initial customers; running out of email lists or running into email deliverability limits; burning out a viral channel; running out of high-quality inbound leads so sales reps have to spend more time prospecting.
Churn is a well known problem but remains a time bomb for many startups because of the lag between customer acquisition and renewal.
But since new platforms offer opportunities for startups, it’s a risk startups often must take.
In the early days, the fact that the startup is not on many people’s radar may lull the founders into a false sense of security regarding their non-compliance.
So what is a startup to do?
The problem is when the dependency on human fail-over grows to the point where the startup is turking (faking) a lot of its product capabilities.
But in the early stages, it’s a slippery slope that is easy to rationalize: Eventually, the startup believes, it will go back and automate the human pieces; in the meantime it would be foolish to turn down real customers and revenue.
The problem is that it’s hard to go back and automate — in fact there’s now an internal constituency whose interests are not aligned with that goal — and meanwhile the startup becomes culturally dependent on throwing bodies at problems.
The startup’s burn escalates, causing greater scrutiny of the numbers, which reveals a gross margin problem as soon as costs are properly attributed to COGS rather than overhead (see #1)

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