When a Little Startup Success Becomes a Big Problem

Avoid falling for these mirages and head fakes

I can’t tell you how many times I’ve gotten the email from a founder that boils down to “Everyone loves us, but we’re about to close the doors.”

Growth head fakes can take a lot of different forms. It might be an adoring throng of early adopters leading a team to believe they’ve discovered the next big consumer trend. It could be an early-stage investor waving a term sheet. It might even be a revenue number that shows explosive growth over the prior quarter.

Don’t get me wrong. Early success with a startup is great, and it’s not easy to come by. In over 20 years of building, growing, and advising startups from their first days to exit, I know that it can take years to get that first hint of traction.

In fact, just this past month, one of the startups I advise was successfully acquired after four years of “early” success. And during that same month, I got three inbound emails from founders who were watching their own success turn into a giant problem.

Here’s how each one unraveled and what I would do to avoid it.

Damned With Faint Praise

Attention is the most frequent cause of an early success head fake, and for obvious reasons. It’s the one that doesn’t require a lot of money changing hands.

The attention might come from some serendipitous press coverage, or maybe a single social or viral hit, or it could be a more structured cause, like exiting an incubator or publicly landing some seed money. But most often, and in the case that came to me, it happens when a startup attracts an army of early adopters to a free or discounted product that doesn’t have a lot of need-based demand.

This is not a new phenomenon. It happened over and over again when mobile apps first took off in the 2010s, then SaaS in the mid-2010s, and now in a different way with web3 in the 2020s.

It happens when a startup sets itself up to chase engagement with a tier of usage that is either free or cheap (or in the case of web3, uses fake money). The startup then does something right, pick any viral catalyst, and suddenly, a lot of people are talking…