
Zombie Startups - dmor
http://www.daniellemorrill.com/2013/03/zombie-startups/
======
OmarIsmail
The challenge for founders is that one of the most common traits ascribed to
successful founders is perseverance and determination. If you were to put
those litmus' test questions to the AirBnB guys back in the day would they
have folded?

When we changed from Rewardly to Streak, it wasn't an easy process even though
we wanted to "fail fast". The key thing for us was we came up with some
critical hypothesis that we knew had to be true for Rewardly to be a success.
We then came up with various experiments and systematically tested the various
hypothesis, and once we exhausted them, we could confidently say success was
going to be very difficult.

I also think one of the most useful things to come out of YC was having an
office hours with pg and him telling us to do something new. Not many people
have the confidence and candor to say that so bluntly, but also the authority
to be listened to.

This is also one of the reasons why I like Kevin O'Leary on Shark
Tank/Dragon's Den. He often recognizes that people are wasting their life on
broken ideas and isn't afraid to tell them that. The other sharks don't want
to be "mean" or hurt people's feelings, but telling people the hard truth is a
lot more noble in my mind.

~~~
jusben1369
Streak as in my CRM/Deal flow Gmail add on? Power user. I'm worried now that
our deal flow is increasing in depth and complexity and we have more outside
interest if I'll have to ditch it for something "more complete"
(reporting/analytics) I think you should keep it brutally simple like you do
but how do you tackle that issue? Is that the "Premium Plan coming soon"?

~~~
OmarIsmail
Yes, that Streak. So that we don't derail this topic shoot me an email
omar@streak.com and we can take the discussion there.

~~~
chewxy
OT: I use Streak. Love it. Would pay for it. Any plans to bring Streak to
Outlook.com?

------
gregpilling
>> You haven’t hit 10% week-over-week growth on any meaningful metric
(revenue, active users, etc)

Isn't this one a little extreme? I started a company in 2004. In 7 months we
had sold $92,000. It was slow going, since it was a manufacturing company. In
the 8th month we sold $40K, the next month was $60K, the next $72K.... the
point is that I never achieved 10% growth on any metric for 7 months, and then
it grew like crazy. Had I known how hard it was going to be, I wouldn't have
started. Now that I have been through it I have no fear of doing it again. The
company has now shipped its 100,000 product (lift kit for pickup truck).

It is a nice honest essay. I just think the one point was too extreme. It is
extremely hard to tell when persistence turns into stupidity. I have been both
persistent and stupid. I guess if she has spent three years pursuing the
vision and it didn't work, then she knows what she is doing.

~~~
dmor
Maybe your revenue wasnt't growing 10% week-over-week, but some metric
probably was (maybe you weren't measuring the one that was - like value of
leads in your pipeline). Or who knows, maybe the $28k commission we've made on
$350k of merchandise sold (8% commission for those wondering) in the past 7
months is about is explode.

We're not shutting down, we're changing course and there's no reason we can't
make more money doing what's next. I am betting we will grow revenue
dramatically with our new direction.

More context: [http://refer.ly/please-read-referly-discontinuing-rewards-
pa...](http://refer.ly/please-read-referly-discontinuing-rewards-paying-
existing-links-through-march-31st/c/67f9d3fa890311e2bfbf22000a1db8fa)

~~~
gregpilling
In our case we faced a lot of market confusion about what problem we were
solving for the customer. There was also a seasonal effect I didn't understand
until I went through it for several years.

I wish you luck with your new direction. I am sure you thought deeply about
your choice, so it is probably the right one.

~~~
dmor
Seasonal effect is the worst sometimes, we had similar issues that encouraged
us even in the face of other evidence. Thanks for your insights, I'm glad it
ultimately worked out for you.

------
snowmaker
This is an amazingly and refreshingly honest statement. Most startup founders
are afraid to admit failure and so they linger in "zombie" state. Danielle
deserves huge credit for realizing that you have to admit failure to be able
to move on.

I didn't particularly want to invest in Referly because I didn't believe in
the idea. But now I want to invest in Danielle, no matter what she does.

------
nostromo
The affiliate space is so tough. Be proud you managed to raise at all with
that model. When I tried once upon a time, investors looked at me like I was
nuts. (And I was.)

And it's not hard to see why. You need to sell about $2mm worth of stuff on
Amazon to pay for a single engineer (estimating with a 5% payout). It gets
even worse when you add in all the complicating factors that surround sending
someone off your property to convert. And in your case I believe you were
sharing a portion back with the customer, so it's even a smaller slice of a
small slice.

I think affiliate models are perfect for part-time bloggers and the like, but
to build a big venture-backed business on the model is an incredible
challenge.

~~~
hayksaakian
Given this basic math, it amazes me that these ideas still get funded.

~~~
umphetico
There's never a shortage of stupid things and the stupid people willing to
throw money at some rosy prospects. ie. Facebook.

~~~
marcamillion
Everything is always "stupid" until it's not. Another search engine?
Pffft.....dumbest. idea. ever.

Another ad network based on keywords...pssshhh....that'll never get anywhere.

A file storage service to allow you to share files between computers?
Ugghh...been there...done that.

You can see where I am going.

~~~
mfringel
I'm sure you know where you're going, but I'd like you to continue.

Entering a crowded space with no perceivable differentiators means one of two
things:

1\. You intend to grind it out on volume and compete on price.

2\. You intend to differentiate yourself in a meaningful way that the vast
majority of the world does not understand yet.

I put forward that option 1 is _much_ more likely than option 2.

~~~
marcamillion
You may be right....1 is much more likely than option 2, however in the high-
growth startup space, most people tend to try and go for #2. That's where the
returns are. That's where they are usually most misunderstood initially, and
that's where they tend to make the biggest impact on the world.

------
thebear
I have what is probably a zombie company. Here's the dilemma: I'm doing this
alone, I really, really want this thing for my own personal use, and I have a
ton of feature requests. So now on the one hand, I enjoy working on this thing
and I'm delighted to see the next feature being added. On the other hand, I'm
condemned to look at my failed startup every day. How do I deal with that?

~~~
olefoo
Wait a second, who are you getting feature requests from?

It sounds to me like you need to examine your market and talk to the people
who are asking for things and _figure out what problem you're solving for
them_.

If people care enough to send you feature requests, then you need to look at
what's driving them and how you can reach others like them.

It sounds to me like your product is close enough to an unmet need that it's
picking up signal, but that you haven't quite found the place to really dig in
for the results.

~~~
thebear
I was speaking a tad facetiously here: those feature requests come from
myself. Seriously, I am an avid user of this thing who cannot live without it,
and there are missing features that I absolutely want.

~~~
klibertp
I'm not a businessman, just a programmer, and a consumer, so what I think may
be irrelevant, but...

If you have a piece of _something_ that already works for you, to the point
that you cannot _live without it_ , then you already have much, much more than
most of the startups after a year of funding.

Maybe you should hire someone who will be able to sell this thing, or make
such a person a partner, if you are not capable of this yourself. But you
should not, definitely, continue to make this thing only for yourself.

------
trotsky
10% week over week on a key metric or you're failing?

jesus, stop talking to private equity

~~~
dmor
To be clear, I'm saying if you have _never_ hit it you are in trouble - not
that you have to hit it every week. For example, if even on your PR day
(launch, etc) you didn't hit 10% growth for that week then I'd worry (this
does happen).

~~~
redguava
10% week over week is very different to 10% on your biggest week ever.

~~~
moe
10% of 100 users is also different to 10% of 100k users. Just saying...

Absolute figures without context hardly ever tell an interesting story.

------
jonathanjaeger
I think there are two different situations when you think about entrepreneurs
who persevered for years on the same idea to try to hit success:

1) Despite a lack of hockey stick growth at first, there was a gut feeling
that the team was solving the right idea and just needed to iterate long
enough to get there or be at the right place at the right time.

2) Despite a lack of hockey stick growth, the team was too afraid to change
course on an idea that deep down they knew wasn't working and will probably
never work for them.

------
MasterScrat
Reminds me of this article: Killing Your Startup On A Thursday Night

[http://techcrunch.com/2012/10/28/killing-your-startup-on-
a-t...](http://techcrunch.com/2012/10/28/killing-your-startup-on-a-thursday-
night/)

------
joewee
Zombie startups are all over Japan. Failure isn't really an option that you
can easily recover from, so entrepreneurs continue running their business as
long as they can afford to eat.

You find people who use co-working spaces alone in Japan for years working on
the same business or series of ideas but never really growing.

~~~
thebiglebrewski
This sounds pretty interesting. Can you elaborate?

------
eddielee6
What I've taken from reading this. Every blog post should have a backing
track.

~~~
nmcfarl
It’s good blog entry. But the backing track is excellent!

------
spencerfry
I applaud Danielle for writing this piece, but it should be really obvious to
any startup founder. If you're not growing in any important metric: change
course. It's not rocket science. The problem with raising money too early is
that it's an excuse to flounder for longer. You won't have this issue as a
startup if you start off by bootstrapping yourselves.

------
dlevine
It's a lot easier to slink away and hide in a corner than to own up that you
have failed. I did the former twice, so I have a lot of respect for Danielle.

I'm curious to see what you guys come out with next, but I have no doubts that
you will eventually be massively successful!

------
smoyer
When I read Danielle's description of Referly's pivot, I thought (to myself)
that they're going to be entering an even harder market ... and I wondered if
they'd survive at all.

Suddenly I find myself cheering for them ...

------
pbiggar
Totally agree about flaming out hard. I wrote [1] after my last startup
failed. It was actually two months between when it failed and when I could
face actually writing it. However, it's professionally one of the best things
I ever did.

[1] [http://blog.paulbiggar.com/archive/why-we-shut-newstilt-
down...](http://blog.paulbiggar.com/archive/why-we-shut-newstilt-down/)

------
jusben1369
Nice! Good luck with the pivot. We just went through one and are pleased.
Sometimes coming out of something like YC is like being a child star. You
don't really get the chance to grow up normally. It's all bright spotlights.
Given we didn't come out of anything like YC we didn't have that one extra
layer of pressure.

------
mikkom
> You haven’t hit 10% week-over-week growth on any meaningful metric (revenue,
> active users, etc)

10% per week = 313% per year or ~1000% per two years. Or very modest 3000% in
3 years. Good luck getting that kind of growth. (of course it depends on your
initial number but the percentage growth stated here is a bit crazy IMHO).

------
gbog
I have mixed feelings about this never lose one single hour in your life
thing. If you have a normal life, get married, have kids, you will have oh so
many days and month in your life that you would count as lost, if you are not
in denial.

What about the entire life of peasants in developing countries, how does it
count?

~~~
reddit_clone
Growing crops that feed the rest of the population? I would call that
extremely productive.

They may not realize how important their work is. They may not be appreciated
or getting paid well.

But unproductive they are not.

------
jcampbell1
I get the feeling that the author has learned nothing. He is pivoting from a
damn hard startup, to one that is nearly impossible. If you look at the bottom
of the top 10% of YC one of the companies is Octopart. That is a medium hard
startup, which is probably a better target.

~~~
jacalata
She.

------
darkarmani
I worked for a Zombie startup for 4 years. The problem was they had good
enough funding to last too long. 2 years after I left they got purchased as an
asset sale, which was spun into a good thing. The shares were worthless, but
they got to claim that everyone kept their jobs. And instead of having to pay
money on our shares, they gave current employees big fat raises the day before
the acquisition and then big quarterly bonuses.

The raises and huge quarterly bonuses were a way to give out rewards without
paying the shareholders.

------
dmor
Cached copy until site is back up:
[http://webcache.googleusercontent.com/search?q=cache%3Ahttp%...](http://webcache.googleusercontent.com/search?q=cache%3Ahttp%3A%2F%2Fwww.daniellemorrill.com%2F2013%2F03%2Fzombie-
startups%2F&aq=f&oq=cache%3Ahttp%3A%2F%2Fwww.daniellemorrill.com%2F2013%2F03%2Fzombie-
startups%2F)

------
chewxy
It's returning 500 for me. Anyone has a cache?

~~~
andrewmunsell
Yep:
[http://webcache.googleusercontent.com/search?q=cache%3Ahttp%...](http://webcache.googleusercontent.com/search?q=cache%3Ahttp%3A%2F%2Fwww.daniellemorrill.com%2F2013%2F03%2Fzombie-
startups%2F&aq=f&oq=cache%3Ahttp%3A%2F%2Fwww.daniellemorrill.com%2F2013%2F03%2Fzombie-
startups%2F)

------
dm8
Very true for startups where growth is only thing that matters. I work at a
startup and we've been wondering whether mediocrity is worse than failure. I
think it holds true for startups but not much for other things in life.

~~~
unclebucknasty
When you think about why you launched the business and what your expectations
were, you will likely find that it wasn't mediocrity that you had in mind. So,
by that definition, mediocrity is failure.

But, it can actually be worse than failure if you let it keep you in limbo too
long, thus preventing you from reaching your true potential or achieving your
mission elsewhere.

And, if you find that it is not enjoyable or actually painful to continue,
then it can be far worse.

------
rokhayakebe
They could have left the product/site/branding alone, and hired a part time
marketer to push it.

------
raheemm
Good accompaniment music

------
mindcrime
OK, I'll be "that guy" and disagree (at least in part) with the TFA.

First, this obligatory link and quote:

<http://www.paulgraham.com/die.html>

 _If you can just avoid dying, you get rich. That sounds like a joke, but it's
actually a pretty good description of what happens in a typical startup. It
certainly describes what happened in Viaweb. We avoided dying till we got
rich._

That said, I don't necessarily agree with the criteria asserted in TFA for
being a "zombie" startup (which presumably means it's _effectively_ dead, but
just hasn't realized it yet), at least not without a lot more context around
_when_ to apply them.

Given the following as identifiers of a "zombie" startup:

 _You haven’t hit 10% week-over-week growth on any meaningful metric (revenue,
active users, etc)_

 _You’re working on the same idea after 12+ months and still haven’t launched_

 _You’ve launched an enterprise service and have less than 2% week-over-week
growth in revenue pipeline_

I'd say none of those are valid in isolation. If you're doing an enterprise,
B2B play, for example, the lead time to get that first sale can be pretty dang
big, and from the first sale to the second sale can still be pretty big... you
could easily go quite some time without being able to talk about 10% revenue
growth. But getting to even _one_ sale and having _any_ revenue is a binary
difference between _not_ having revenue. So what do you do until you get
there?

Or to use a "hits close to home" example... we have been working on an
enterprise startup for some time, and don't have any revenue yet. Zombie? I
don't think so, we just made a conscious decision to forego seeking outside
funding, and do the bootstrapped, self-funded model (for now anyway) while
working our dayjobs. This necessarily means slower progress, but the thing is,
we _are_ making progress. Not in revenue yet, but in terms of working through
@sgblank's Customer Development process, learning about our customers and
their problems, learning more about how to market the kind of stuff we're
building, learning more about our competitors, and building the product.

Of course, a cynic might look at us and go "Yeah, you guys are exactly what
TFA means, give up now." But we look at it this way: We're running _very_
lean, with almost no burn rate to speak of, learning more every day, and
moving towards product/market fit and that first dollar of revenue. And since
we have no burn rate to speak of, we can "not die" for a pretty long time, as
long as the co-founders stay motivated.

Of course, there probably will be a point in time when metrics like "10%
revenue growth over $SOME_TIMESPAN" will be a reasonable metric, but that time
isn't now for us.

------
michaelochurch
I would really like to see a revival of the path to lifestyle businesses. It's
kind of bizarre that it's nearly impossible to start one without putting your
entire life at risk. We see these bizarre VC-istan gambits (most of which
flame out utterly) because you can start one of those without risking savings
and personal liability, but not a lifestyle business. That's bizarre and
weird.

Lifestyle business != zombie. A zombie startup is a get-big-or-die beast in
which the major stakeholders have lost faith, and for which growth is
unlikely.

On the other hand, a lifestyle business capable of generating a mere 1% per
week, reliably, is doing well. That's a doubling every 16 months. As long as
the company keeps headcount and scope from growing too fast, that's fine.

For headcount growth, anything more than 20% _per year_ is usually unhealthy.
It is very difficult for a company to keep a good culture at a faster growth
rate.

We need to be realistic. Not everything that is useful can grow at 10% per
week, and people who don't want to spend 4 years of their life creating a
build-to-flip get-big-or-die venture shouldn't be shut out of entrepreneurship
in the way that they are now.

~~~
icedchai
How are people shut out out of entrepreneurship now? They can still boot strap
their own businesses just like anyone else.

~~~
michaelochurch
Where, pray tell, do they get the money?

This is made even worse by jurisdictions where employers can claim rights over
side projects.

~~~
mindcrime
_Where, pray tell, do they get the money?_

Their salary from a $DAYJOB?

 _This is made even worse by jurisdictions where employers can claim rights
over side projects._

Pay the couple of hundred bucks to have a lawyer review your current
employment agreements vis-a-vis "Intellectual Property" and let you know where
you stand. If your employer has grounds to claim your independent work,
negotiate a new agreement. If they won't negotiate, find a new job. Or quit
and consult part time, or work as a short-order cook or barista while doing
your startup... I doubt O'Malley's Irish Pub is interested in your startup's
IP.

------
wilfra
Good stuff but are the March active user projections taking into account all
of the traffic you got yesterday for announcing the pivot?

~~~
dmor
We are on track to 150k active factoring in yesterday's posts. Our biggest day
so far this month was 3/6 with 10k+ actives

