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Zombie Startups (daniellemorrill.com)
297 points by dmor on Mar 10, 2013 | hide | past | web | favorite | 75 comments



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.


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"?


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.


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


How does Streak work? Is it a browser add on I need to install or does Google let developers create their own hacks? Btw, you should also consider putting up ads of Steak on your website. I misread Streak for Steak, and have been craving for some medium rare steak. I wonder if Streak.com could become the Amazon of steak delivery.


We used Streak for a while too. We moved on after a while seeing no real progress on bringing it to browsers other than Chrome. The main issue for me was that I couldn't check things on the go with my phone/tablet.

We are now delighted users of Base (https://getbase.com/). Great features, super responsive team with very functional mobile apps (tablet and mobile). And it comes from somebody who religiously hate Sugar CRM and Salesforce. We haven't it the limit of the free plan but will gladly pay when we do.


>> 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.


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...


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.


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.


Zombification, a fate worse than death.

Major props for separating the mission from the vision and going with the mission.

I tell myself (and whoever asks) that I'd be okay if our startup turns out not to be viable, but I'd never forgive myself leaving our potential as a big fat question mark. We finally started a beta last week so answers will come in time, I just hope that if it ever comes down to it, we also pick mission over vision.

Best of luck with the next incarnation of Referly.


Interestingly, I think the key challenge is knowing when you've removed that question mark. The post attempts to provide guidelines around that, but mileage certainly varies and there are gray areas.

I think a tougher question (for me anyway) is when you have moderate, sustainable success, but not the stratospheric rise that you envisioned at the outset. At that point, the decision becomes tougher because walking away means that you are giving up something of significant value. I have also found personally that I like building businesses, but running them? Not so much.

So, the business becomes an anchor, keeping you from a greater vision/mission. At some point, you finally realize that it has to be sacrificed in order for you to get back on track, but precious years can be wasted under the illusion of success before you get there.


You are still a zombie, risen upon us by the benevolent necromancy of Paul Graham, believing that without 10% weekly growth in "some metric you weren't measuring" you, somehow, at some indeterminate point, became a "kind of" failure.


I assume the 8% commission average would then be being split with the user? Running anything with an affiliate model is though and getting tougher. Some people running that are essentially spam do well but the higher quality stuff ran by a small team or individual is struggling, from where I see it anyway.

Edit: Out of interest: your best customers, how were they mostly generating commission? Quality Content? Personal Networks? Existing Traffic?


I think she's quoting pg, but pg lists the condition of that growth to be the time a startup is in the YC class

    A good growth rate during YC is 5-7% a week. If you can
    hit 10% a week you're doing exceptionally well. If you
    can only manage 1%, it's a sign you haven't yet figured 
    out what you're doing.
http://paulgraham.com/growth.html


I thinks the growth value really depends on when your compagny will become beneficial. Were you losing money on the 10th month (the one at $72K)?


I lost money for the first 7 months, almost everything I had. Started taking money out in month 9, on Valentine's Day Feb 14th. We were quite profitable by the 10th month, and we bought a building at the 12th month.


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.


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.


I think 'affiliate is great for bloggers' is a bit of a myth as well. I see it work for pro bloggers that have massive traffic and the time to invest in it.

For small bloggers though, there is either a lot of overhead in managing affiliate network accounts and using the right offers or you trade that for smaller commissions with a service that abstracts that from you.

I would love to be pointed to some counter examples of small bloggers for who the affiliate model is working well. For my previous (mostly dead now) startup Affclicks (an analytics tool for affiliate marketers) we considered those type of bloggers as possible niche to target but didn't actually find a lot of them. (granted we didn't push hard on the marketing side)


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


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


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.


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.


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.


Everything you've described is pretty stupid. I hope nobody is working on the next Google killer or yeah another Facebook alternative. All the big names were purely by accident and luck. Tell this to the graveyard of all the smart ideas that never took off because the market didn't need them.


How naive is this reply.

An idea can be smart all day, if the market doesn't need it - it's just an idea. It will never be a successful product.

It's that simple.

Turns out, the hard thing...is not coming up with "ideas"...it is building successful products.


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?


I'm in a similar boat (just newer), what I'm learning is to start getting it out there. Even if it's complex, work out your message and condense it to it's simplest form so that even if the product isn't done you can show people where it's going.

Then try to find people who resonate with that message. If they really believe in your vision they'll sign up for beta, and start paying as useful features come online. But you have to communicate the essence of your vision first.

I think the idea if polishing what you have so it's always usable before moving into new features is also pretty liberating, so you can show rather than tell where the vision is at today


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.


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.


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.


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

jesus, stop talking to private equity


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).


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


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

Absolute figures without context hardly ever tell an interesting story.


Ah, fair enough, I did misunderstand what you meant.


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.


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

http://techcrunch.com/2012/10/28/killing-your-startup-on-a-t...


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.


This sounds pretty interesting. Can you elaborate?


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


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


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.


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!


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 ...


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...


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.


> 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).


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?


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.


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.


She.


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.



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



I get a CloudFlare page basically explaining that they can't help.


anyone else chuckle at the fact that talking about zombie startups is making this site return 500s?


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.


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.


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


Good accompaniment music


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.


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.


because you can start one of those without risking savings and personal liability, but not a lifestyle business.

Why do you think so? There are quite few types of startups (web based SaaS businesses in particular) that can be built with a minimal investment, bootstrapped while working a $DAYJOB, and entail little personal liability. And creating an LLC as a shield against personal loss isn't terribly expensive either. I'd argue that most people who aren't living in outright poverty could make a reasonable stab at building a business 37 Signals style.


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


How do you bootstrap a business without a decent amount of savings and a sizable economic and social safety net? And the whole point of michaelochurch's comment was that some/most people can't bootstrap their business.


How do you bootstrap a business without a decent amount of savings and a sizable economic and social safety net?

You work a dayjob, or consult part-time, and build the startup in the rest of your time. It's what I'm doing, and while it's tough, I think anybody who's really committed to their startup would be willing to make that kind of sacrifice.

Or maybe you have a spouse that works full-time, while you work on the startup fulltime. Or maybe you raise a FFF round. There's more than one way to skin a cat.


Where, pray tell, do they get the money?

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


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.


Starting an online business is cheaper than ever. Beyond that, you live below your means for a couple years and save up the money.

And, about side projects: work on them on your own time, on your own equipment, and don't compete with your employer. (And most importantly, don't brag to your coworkers about your moonlighting ventures.)


How much money does anyone need to start these days? Are you referring to a manufacturing business that requires initial significant funding for machines and supplies?


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


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




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