The most honest book on the startup world — Lost & Founder
Book Review and Insights
Many of my friends and team members always ask about book references or takeaways I have about the book they will see I am reading ( I always have a carefully chosen book to read at any point in time). So, I’ll be sharing my takeaways from the books I read here on Medium.
Here we go, I finished one of the best startups related books recently. What’s absolutely amazing about this book is that I had a feeling that I was having a coffee with one of my best friends Rand Fishkin, who was telling me about his story of founding Moz in the most genuine and honest way.
To say that this book was informative, helpful, interesting is literally the least I got from this book as a reader, a businesswoman, a founder, and an investor myself.
✨ What’s so special about this book ✨
A Painfully Honest Field Guide to the Startup World
Just to reconfirm this book is really amazing.
Lost & Founder is a great story of what startup life as a CEO really is. In my experience as the CEO of Priotix, I relate myself to almost all of the chapters of this book and agree with most thoughts the author brings on startups, marketing, funding, and more. They perfectly align with most of my experience and hypothesis I had about startups.
I decided to write about the highlights that were very unique for me for now as we currently dig deeply into the product world with my team. I will try to be as brief as possible however and combine some chapter takeaways, but I strongly urge you all to read the whole book.
🎯 My key takeaways from this book
Let’s start!
🤔 Key takeaway #1: Why the startup world hates on services (and why You shouldn’t)
This point is quite personal and applicable to my experience as a CEO of Priotix that has started as a software development services company. The issue with services has always been the “scale”.
Indeed, scaling the services business is a nightmare. Even if you are able to contract 100s of clients and 1000s of employees, you will still end up with management and inefficiency nightmares here. Service businesses that want to scale usually lead their transformation to the product market, mostly with a SAAS business model
However, the author also points out the benefits of the service market including:
- It’s safer in the sense that only 25% of product startups survive during the first 5 years vs services companies at a 47.6% rate.
- Starting from services is a great way to fund the development of your product-based business. This is how we fund our in-house product experiments at Priotix.
- Another point is the knowledge, network, market flavor that you get by consulting businesses in the same industry you are planning to transform your product into
📈 Key takeaway #2: Make sure your product fills a gap in the market.
How many of you are trying to come up with a non-existing product idea to hit the market? The fact is that the probability of finding a product idea that doesn’t yet exist and still covers a significant pain of users is super low.
Products like Airbnb and Uber were not an invention of the bicycle but they covered the gap of the market so well that they became unicorns right away. The founders of those products spent countless hours researching and checking how many times for example apartment rental, taxi, or hotel review phrases were searched on search engines, which services the users had to rely on, what gaps existed with the existing services, etc.
By doing good market research, finding a product that fills a gap for potential users, and trying to build a product with much better UX than the existing rivals you are halfway towards success.
🎰 Key takeaway #3: The venture capital model is a gamble, and there are risks involved. (chapters 6, 7)
The very last chapter of this book is called “Cheat codes for the next time” in which Fishkin describes his investment preference for his second startup. Quoting the text from the book.
Venture capital, to me, is too restrictive. It forces the binary outcome-either to succeed spectacularly (a true rarity) or collapse (far more common). It’s absolutely the right call for those who want to go truly big, but I want the freedom to choose a path of slow, profitable growth, perhaps never selling at all, and building a business that yields profits for employees and reliable, high-quality products for customers.
“Percentage rate of growth, not raw dollars added, is the metric by which venture-backed startups measure themselves and are, from the outside, judged. Growing at 30 percent year-over-year at our stage is considered the minimum level for an “interesting” business in the venture world”
― Rand Fishkin, Lost and Founder: A Painfully Honest Field Guide to the Startup World
So, the author decides to fully bootstrap for his next company. As with Moz, Fishkin raised several rounds however he openly discusses the challenges the raised money brought when it came to pushing high-risk strategies, the risk of VCs removing the CEO, limiting your freedom etc.
The thing is that your investors are under pressure from their investors (limited partners or LPs). And success for them means nothing less than a billion-dollar revenue stream. That’s pretty rare — in fact, no more than five percent of investment firms ever achieve that goal. When they do, it’s because they’ve spread their bets and have a portfolio containing dozens or even hundreds of investments. Failure is simply a part and a parcel of investing: five out of ten companies that investors put their money into will fail, while three out of that ten will yield only minimal returns.
Are you ready to fall into the two of the killer ones? Then go ahead.
🤨 Key takeaway #4: Be transparent to avoid mistrust in your company.
I really liked the business principle of transparency that Moz practiced. Like in marriage “for better, for worse” you as a CEO, co-founder commits to being transparent and honestly describe to both your employees and your customers the challenges the company goes through. Usually, startups in the Bay Area are scared of looking vulnerable as if a temporary vulnerability will kill their valuations but that is such a myth according to the author.
In hard times, you just need to be open with the team and explain the situation especially with your financial difficulties and, for example, how hard your team is working to escape layoffs by any means. Or even when you have to cut a part of your team, it is already easier to speak to people when they already knew that the worst was coming.
The same policy applies to customers. At Moz, the executive team and board members would write emails to customers telling them about the temporary difficulties at the company. This would usually lead to support from the customers’ side and decrease the churn that would rise in case of a public leak which is inevitable at some point.
💣 Key takeaway #5: Growth hacks and Minimum Viable Products sometimes do more harm than good.
Growth hacking: well every single company wants to grow. There are a lot of startups that strategically aim to grow as much as possible within a short period of time in order to boost valuation and exit once there is a viable deal. These companies heavily focus on growth hacking experimentations and rapid tactics as they are looking for a quick gain vs long-term customer value and growth.
However, in many other cases, companies play relatively long-term in a sense of creating sustainable value to customers in order to be well-positioned to meet future challenges, growth hacking strategies may cause harm in the long run.
MVPs: In short, if you are a newly formed startup — build an MVP as soon as possible to push to market for early market validation this is probably the best idea startup founders can have. This will allow easy and quick pivoting by keeping your startup’s spending as lean as possible in the beginning.
However, if you are a mature, large company — pushing MVP products (sub-products or features) to the market may do more harm to your reputation. The author describes a couple of such very costly experiments they had at Moz. For such cases, the established company should invest in having maximally valuable new products for existing and new users rather than minimal viable ones.
🌞 Key takeaway #6: Make sure you’re taking care of your existing customers before trying to grow your company.
Startups are obsessed with growth as they always look for the next round of investment to boost up the valuation and give your company a new growth spurt. That’s totally fine unless it gets in the way of other priorities like taking care of your existing customers and products.
Customer retention should ideally be the core of the company while many startups focus on new user acquisition which essentially means filling in the bucket while the other side pours away.
The author brings interesting examples from Moz’s experience when at some point in time they also lost the focus of taking care of existing customers first. I also like the example of showcasing how working on introducing many new products can fundamentally harm your core product and reputation if one of those product experiments or acquisitions is purely built or has no value to users.
The bottom line of the chapter was to concentrate on building one amazingly great product that brings a lot of value to users and they are ready to pay for before scaling up the company. Scale-up only when you are sure your brand reputation won’t be hurt by a poor product or service.
“That’s one of the biggest things I’ve learned about startups: it’s dangerous to go alone.”
― Rand Fishkin, Lost and Founder: A Painfully Honest Field Guide to the Startup World
If you enjoyed the summary, go get the book and make sure to read it especially if you are a first-time startup founder/co-founder, CEO.
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