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Ask HN: Shut down a startup despite strong traction?
24 points by Freddie111 on Aug 18, 2022 | hide | past | favorite | 67 comments
We are showing strong traction (100k monthly users) but we're struggling to find investors for our pre-seed round. We're first time founders without a big network and the current market downturn makes it even harder for B2C startups to raise money.

Did you ever have to shut down your early-stage startup despite strong traction?




Fuck investors. Set your product’s price and let the customers run away or stay. Then see if it’s enough. Then and only then, if it’s not enough, drop the product. Or, if you really want to keep working on it even if it isn’t sustainable, find investors.

In the meantime, kill off your cloud. Purchase or rent bare metal servers and stop paying per minute for shit. You can get 100+ of cpu cores, terabytes of ram, and disk space for less than a few hundred USD a month. Self-host the things you need (garage for s3, longhorn for persistent storage, harbor for Docker images, Loft for k8s management, etc).


That depends on where they're spending money. If their cloud costs are 1/10 their labor costs, then doing that won't really move the needle.


A ten percent reduction in costs is huge. In most businesses, you can only move the needle by fractions of a percent (without ruining people’s job security), so being able to get even a whole percent is nice, more than a whole percent is Must Do ASAP.

Most of the time (in life, business, and marriage), you succeed/fail in “death by 1000 cuts”, not in huge gains or losses.


That's true for a more mature business that already has monetization figured out and is trying to optimize its operation, but sounds like OP is running an early stage startup that isn't even monetized yet. If they can't find a way to make solid margins on his operating costs, then it's a real question if the opportunity cost of being distracted by stuff like how they're hosted is worthwhile vs doing work to materially make their product better/more marketable.


OP has 100k potential customers. If they fail to monetize that, there’s no point in continuing. Beyond that, driving costs down before marketing anything and achieving sustainability should be priority number one. That’s the opportunity, and the only one that matters unless they get some other injection of cash.

Trying to market on a short runway is suicide.


I must concur with this excellent advice. However I recommend undertaking it in reverse order:

> In the meantime, kill off your cloud.

This will massively reduce the price you charge your customers. Do it first.


If you are running k8s all day long, then sure, but if you run a slim serverless stack in AWS with dynamodb, lambda, SNS/SQS, eventbridge etc, you can stand up a substantially complex solution for next to nothing.

Source: I am doing it right now.


Not to belittle your achievement at all but 100k monthly can mean many things, many of which are not traction. For example what is your growth curve on that, what percentage of those users are paying or have potential to pay, what is your total addressable market. Many of these are the deeper forward facing questions that investors are looking for when investing. Mainly what is your definition of success, is it big enough, and are you actually in the path to get there.

Ive burned high $xx million/year at only 10k monthly users because the answers to those forecast questions were good. And got to XXX million users and line of sight to X billion in revenue. However I’ve seen plenty of others who had better initial traction but no real path to a multi billion dollar company so they fizzled.

Just food for thought.


It's shitty that the dichotomy being presented here is "direct path to multi-billion dollar company" and "fizzle".

Is there no room for small, stable, profitable companies in startupland?


> Is there no room for small, stable, profitable companies in startupland?

There is room for them but outside of startupland - a small, stable, profitable company is the exact opposite of a startup, and has entirely different funding and ownership models than startups do.

If it's stable and profitable, then it doesn't need investors, and if it's stable and not expected to become huge, investors don't need it.

If it's small, stable and "needs investors" because it's not profitable, well, then it has fizzled already.


Just because you're stable and profitable doesn't mean your business wouldn't benefit from investment.


Sure, but that would be a very different kind of investment than the risk capital / venture capital investing in a startup. A stable and profitable company can (and often will) raise capital by loans, bonds, IPO or normal stock sale to investors outside of startupland on quite different terms and conditions.

And, crucially, a stable and a profitable company doesn't need investment even if it would benefit from it, it wouldn't fizzle out without investment or (obviously) it actually isn't stable or profitable.


I'm sorry but the answer to that is obvious. If you are looking to run a small to medium sized business, feel free to continue self-funded or with traditional forms of finance. If you are looking for VC, you are committing to a higher risk, higher reward agenda for your company.

Its up to you. Its not like VC's owe you investment to make a small business.


The OP is asking for advice whether to shut down their 'successful' company. The parent is pointing out that there are other metrics.

They aren't commited to a high risk strategy. They may have planned it that way but that may because /everyone/ does it that way. What's wrong with putting other options on the table.


That makes it "not a startup"[0] in a lot of people's eyes. It's just a regular small business, and you're probably going to have to bootstrap, investors aren't interested in that type of company.

There's nothing wrong with having a small business, I'm actually somewhat convinced they generate more user value, and can treat their employees better these days.

[0] many people, myself included, define startup as a company seeking rapid growth, using investor capital to do so and will most likely rapidly die if it can't. Versus any new company under the sun that can be sustainable.


If you’re profitable at a small scale there’s always room for you. If you have rich friends you can get seed money that way. But VCs are looking for the big bucks.


VCs are not always needed though


But those are bit target investments for a VC looking for 100x returns no?


You posted 10 days ago that your startup has failed. What has changed?


We're preparing to shut it down or keep it running on low infrastructure costs. And that's why I've slowly started looking for my next job (and considered the startup prematurely as failed in the context of that post).


If you want to consider self-funding, watch https://youtu.be/otbnC2zE2rw - there is some great advice. Good fortune.


Okay, this is a twist I didn’t see coming.


Failure is relative - perhaps they decided that there is still some hope.

At least I would switch regularly between "oh, let's give it up" and "no, there is still hope" :)

Perhaps the "sunken cost fallacy"...


well given it has strong traction but no money another way of describing that might be failed?


Mate, I've read the whole thread / comments, but still couldn't figure out what you're actually doing. Is it possible that you for some reason just make it unnecessarily hard for people to discover/invest in you?

I'm a serial founder, business angel, and LP of two larger funds... But man, where's your pitch? I've tried to find it by looking into your submissions, and all I found is "New Molecule Discovered That Strongly Stimulates Hair Growth ...

Are you seriously looking for investment or just messing around and wasting your and other people's time? If it's the former, then please (with a cheery on top), tell us what you do and at what terms you are raising.


I shut mine down... crowdfunded a 2y runway (living on scraps) whilst I built a forum platform.

We were successful in that we hit all of the numbers we set ourselves and had 50k monthly active users at the end of 2y.

We were unsuccessful in that we hadn't pulled in enough revenue to survive early enough, and were reliant on raising a next funding round. That did not materialise in part because we hadn't understood what angels and investors were looking for given their interests, where they were in their fund, their portfolio. We were too late into our runway to learn that lesson.

The story is over here: https://medium.com/tech-london/the-journey-of-a-london-start...

But my tip for you would be to go harder on getting a "No" from investors... it prevents wasting your time on false promises.

Also... can you get revenue from those users? I could, but not enough to achieve growth which is what we needed to get the product to a place where it could financially sustain itself in a viable way. I could only get it to a modest lifestyle company that would be in decline instantly without the investment to take it further.

I set a hard deadline... we were all in and 100% committed... but when we hit the deadline, it wasn't sustainable, there was no more runway. We'd built something, it was successful by many criteria... but not financially self-reliant and so by the only success criteria that ensures the viability of the company it definitely failed.

I don't regret shutting it down, and I took a lot from the experience. The forums we launched still exist and are now up to 250k monthly active users, it runs on a shoestring entirely from donations.


How much are you getting from donations?


About $900 per month, which is non-aggressively asked for (a single button on a single website with no pushy messaging - just "buy the server a drink").

The costs are below this, in the region of $600 most months except when TLS certs and domain names roll around. I donate extras throughout the year to causes related to the one website that delivers the donations.

I do receive a few other donations from a few other sites based on "pay what you feel it is worth", and those amount to another couple of hundred dollars.


> which is non-aggressively asked for

This just sounds like bad sales. If you aggressively asked for donations, some users will get mildly annoyed, but then the service can still operate - ie not shut down and users can get utility out of it.


If I had a need to be more of a salesperson I would.

But I'm fine just offering a non-profit social service.


There's reasons to pay for TLS certificates, but using Let's Encrypt might be worthwhile to tighten your budget?


Apply to YC - it’s perfect for startups with some early traction and no VC network. Even just doing the application is a great exercise.

An alternative to VC money is monetize your users and live cheaply while you grow revenue.

I shut down a company with really great product-market fit, but a small TAM. I don’t regret it, but I wish I didn’t have to. Real traction is gold.


If there’s any value in your 100k users, you can probably sell it on a site like MicroAcquire:

https://microacquire.com/

Don’t expect a crazy valuation, but anything is better than shutting down?


Do you believe, privately, that there's a really great business here? (I don't mean 'do you believe that if enough miracles happen what you have might turn into a great business?')

In my experience, that's the question that causes people to ditch a startup despite whatever headline metrics it has.


100k mau is hard to achieve. Don’t throw that away. Maybe you set the price too high for investors?


How much income do you generate?

If it's not monetised yet then start doing that instead of chasing investors.


Have you considered a friend's and family round? Or opening up a round to you user base as a kind of crowd funding round.

The startup I'm at did both of these to good effect.

You'll also notice VCs perk up once you've told them you managed to pull that off.


>Have you considered a friend's and family round?

Is this really a good idea? Not judging, just stirring the thought-pot.


yeah, it even has a name "Friends, Family and Fools"


it could be a good idea, if you believe in the business, have shown some good growth, and you make clear to your investors the risks.

A lot of friends/family could get you a lot of smaller investments which could add up.


If there is no other available option, yes.


Well, not doing it is always an option. Burning the money of your friends and family may be suboptimal.


I don’t think “friends and family” means get your parents to bet their 401k on the startup. It means get your rich friends/uncle to give you money they’re willing to gamble.


Sure. But it’s not obviously one or the other.


Of course there is an available option - simply shut it down.

If you aren't really certain of success, then causing friends&family to invest and lose money is much worse than shutting down, that's outright evil. There's nothing inherently good or valuable in the survival of a business - your business surviving is good if and only if it is a valuable, profitable business, and if it is not, then it's wasteful to throw good money (especially good money of people who trust you) after bad. And burning all your personal relationships by acting in this untrustworthy manner to your friends&family has worse long-term consequences than burning a startup.


You assume swindling. Sometimes friends and family invest because they believe in you and/or the idea, and it isn’t always a problem. That’s all I’m saying.


I'm usually one to loathe the use of this word, but is there anything more privileged than casually suggesting "raising investment money from friends and family". It's surely rarified air one breathes when you can casually raise a few hundred thousand from your immediate social circle.


You’d be surprised how many in your circle have more money than they let on, and even then, friends of friends, etc.

Also, just because privilege exists doesn’t mean you shouldn’t use it if it does, for you; if the option is between the death of your startup or calling in some favors, the latter is the one you should take (assuming your bet in the startup is correct, but every founder tends to think it is, heh).


> You’d be surprised how many in your circle have more money than they let on, and even then, friends of friends, etc.

You’d be surprised how many in your circle have waaaaay less money than they let on, like orders of magnitude less.


It is not wrong to consider it, but it's really important to make sure expectations are set well. "Friends and family" investment is not the same as professional investment. That means they'll actually care about the money and the business and you may burn relationships on a failed business you took money for. Professional investors don't really care, and if your business dies, they move on easily enough as long as you didn't cheat them.


I think both can be correct. Some people tend to exaggerate their wealth by buying stupid expensive shit (like clothes/car/etc..). Some people hide their riches by going cheap and not talking about their investments or second-houses.

If you get to know the person more, you can actually know/guess. Usually, it's a redflag that deviates from what their standard is. (ie: A big purchase, having significant instruments that are only accessible to privileged people, or struggling to pay a small a bill when they have an expensive car)


Sure. I grew up extremely poor. I get it.

I just mean that even then, I knew some people who knew some people that had some money.


If you work in the Bay Area you at least know a couple stupid rich people. I worked at a startup where one of the management team was working there mostly to have something to do. She liked the founders and the business. But she (9 figures) didn’t need more money.


Is there a path to profitability near-term? That would give you some time then perhaps you could consider options like taking out a loan instead.

It wasn't my startup, but I was the third employee of a small startup which we had to shut down despite having a few hundred paying customers after failing to raise money. In our case though it was clear the business wasn't financially viable. We would have needed something closer to ten thousand customers to have broke even.

In your case 100k monthly users seems like quite a lot. You'd only need to be making a few dollars per user to have a decent amount of turnover. I'm guessing this is free service or something?


We had the same problem. Our traction was actually profit, growing at 30%/month. We had banks calling to offer loans, and investors were red flagging us for not taking loans, lol.

It was a lot easier to sell a profitable company than raise funding.

You have an asset, even if it's not profitable. For us, we were able to attract the target market of our acquirers cheaply. We'd get a paying customer for cents, while they'd need about $5 of advertising costs for the same customer. So you could probably sell yours as a marketing channel.


Why didn’t you take the loans out of interest?


1. Religious reasons. Bank loans were usury, VC investment was not. Probably a legitimate red flag, but it's why I got into it.

2. Primary goal was runway, or rather paying our salaries. Loans make it... complex. We'd have accelerated growth, but it would still be in that spot of not feeling right about paying our own salaries. If we had to take a job and do it on the side, it would basically be game over as we couldn't have the focus to grow the startup.

3. Loans put a lot of pressure on profitability. For context, we were a recipe app that sold ingredients. First stage has us take about 3-7% margin, but it was all handled by a partner. Second stage had a 7-30% margin, ops handled internally. We were going for manufacturing of ingredients at a 50%-90% margin.

However, that would have locked us far away from being software based. We'd have to start selling to pharmacies and such to make up for the minimum order. That kind of messes up the company DNA.

The ideal end goal for a startup isn't really to become FAANG. That has its prestige, you call yourself a billionaire, and yet all your money is tied up in stocks and you can't really spend it. The ideal end goal is to make something valued at a few billions and sell it to some company that makes like $10B/quarter. Most of those large companies don't have the DNA to hire people and get high growth.

So the irony was that taking loans would make us less attractive to VCs. We'd be a small-medium business group, which is less ideal than just taking a job at a Fortune 500 or something.


Hey thanks for the detailed reply that is very interesting. I think they are excellent reasons not to take a loan.


What is the startup? Is it something you can run solo and charge money for?


I was going to ask something similar. First up, I'm not an investor, nor have I ever started a company, but I have worked with and for a couple of investors.

100.000 users are impressive, but we don't know what the plan for monetization is. Is it ads, data mining or just a straight up you give us money, we deliver a service? What's the cost per user, both in terms of operating costs and acquiring?

If the plan is to run ads, then maybe forget founding for now and run it as a fun little side project. Then add an option to people donate whatever they feel the service is worth to them. Donations could be a way to keep the thing going until the economic situation changes or until you find a subscription model that will work. Most people won't donate, but then again, so will donate much more than you'd have been able to charge them.


Yes, I have. It wasn`t a pleasant experience, but I always think that anything that happens is a natural part of the growth process. And that experience helped me during my second startup (going steady currently).


Is it a business that makes sense to a VC and do you actually need investors? Maybe it could be a nice, sustainable business if you manage to monetize more of the existing user base.


>100k monthly users

how many monetized?


Sounds like you’re not trying hard enough either on investors or revenue.


What feedback are potential investors giving you? What are your pain points?


Link to product or website?


What is the startup?




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