HogMail #20: Why do startups fail?

Jan 27, 2023

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Welcome to HogMail, our newsletter featuring the best of the PostHog blog, tutorials, product guides, and curated articles on building great products and companies. We send it every two weeks. Signup here so you don't miss it.

This week's theme is why startup's fail. It's a simple question to answer... not enough hedgehogs, obviously.

Seriously, though, there are too many ways to count, but bad hiring is one obvious failure point. Charles (PostHog's VP of Ops & Marketing) shares some of his hiring tips on the blog this week.

Here's what's new on PostHog.com:

Words by Andy Vandervell, who just trains AIs to write now.

Why do startups fail? (or why "product-market fit" doesn't guarantee success)

In November, Adam Smith, the founder of AI-assisted programming startup Kite, announced they were closing despite having reached product-market fit and 500k monthly-active developers.

kite

How does a product with 500k active users fail? In Adam's opinion:

  1. They were 10+ years too early to the market. The tech wasn't ready for primetime, citing the launch of GitHub Copilot, which he feels still has a long way to go.
  2. As a consequence, while Kite made its users more productive, the change wasn't significant enough for engineering managers to pay for their teams to use it.
  3. They were trying to solve an engineering intensive problem: "It may cost over $100 million to build a production-quality tool capable of synthesizing code reliably".

But, here's the kicker, he also says:

kite blog

Adam goes onto explain how it took five years to reach product-market fit and, having done so, they focused on growing users rather than working out monetization simultaneously.

By the time they realized their 500k users would not pay to use it and found a viable pivot, the team was too tired from seven years of grind to pursue it. The launch of Copilot (for free) can't have helped morale.

Kite's source code is now open source.

Some takeaways:

  1. Achieving product-market fit is a landmark, not the final destination. Having it won't guarantee your company is successful.
  2. Once you have it, don't delay figuring out revenue. It won't just happen. Kite managed to grow to 500k users with "almost zero" marketing spend, but it feels like they didn't see the problem until too late.
  3. Don't give away too much for free too long – your users will get used to it being free and converting them will be hard.

Further reading on this topic:

More good reads