Alastair Mitchell is a partner at EQT Ventures, a venture-capital fund that invests in technology-driven companies from all regions and in every type of businesses. Based in Stockholm, Sweden, EQT maintains offices in various global locations, including in San Francisco.
My mistake was scaling up my business before we had product/market fit.
Seven years ago, I was building a company called Huddle. We had built the company over eight or nine years, raising a lot of capital. We were successful, regarded as one of the best B2B startups to come out of the U.K.
Everyone always asked me how we built this great business and managed to get product/market fit?
I answered that to be honest, we never had product/market fit.
And they said, How can that be? You successfully raised millions of dollars; you’ve got a big business; and a lot of great people are working with you.
I said it’s because every step of the way was hard. While startups are always hard, our growth curve was a straight, upward line, a diagonal of sales increasing every year.
I had a meeting with one of my early investors — a good friend. I remember we were sitting in a bar in San Francisco on a sunny day, and the conversation was pretty dramatic.
My friend showed two lines on a graph: one of our sales, which were growing at a linear rate. The other showed how much money we were spending to get those sales.
Sales were growing, going up and to the right — but not at a very steep angle. Spending, though, was going up, too — and at a steep angle.
Then my friend showed me our cash line, which was going down.
He also showed me the growth curves of businesses similar to mine. They were spending much less to achieve the same growth.
The punchline of all those graphs was that Huddle would run out of money before we hit profitability.
He said the reason was that Huddle didn’t have a product/market fit.
It was like getting hit in the face by a truck. I looked at him like he was crazy. I told him about all the hard work we had done to achieve growth.
And he said, no, this kind of growth should be effortless.
He said that we executed better than 99 percent of startups, and yet a bunch of startups grew faster than we did, though they made way more mistakes. And it’s because they had product/market fit.
Wait until you’re sure you have your product/market fit before you try to scale up.
At first, I didn’t understand what he meant; this lesson took me years to learn. The lesson was that patience is a virtue; wait until you’re sure you have your product/market fit before you try to scale up.
You need to have something that solves a very specific problem for someone, does it better than everyone else and is so highly important that people want to spend money on it right now.
Once you have that kind of product/market fit, you can then grow almost effortlessly.
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Photo courtesy of EQT Ventures