The Five Worst Pieces of Startup Advice I Received
And how to turn bad advice into a confidence builder
Welcome to the latest entry in The Workaround. You’re in good company with thousands of fellow entrepreneurs and innovators who have subscribed!
I’m your host, Bob, and my mission here is to share personal, behind-the-scenes stories of ups and downs from my career leading tech startups and corporate innovation.
I write to make you think, smile, and discover a shortcut to success or a trap to avoid.
Here we go…
The other day I had a Zoom chat with a fellow founder who was looking for advice on a topic that I’ve had some direct experience with. As I said goodbye and closed the app, a thought came to me…what if my advice was completely wrong?
My thoughts then went to the bad advice that I got when I was at this founder’s stage in my first startup—some of which I followed, to my peril. For fun, I grabbed my notebook and pen and jotted down the first five examples that came to mind. It took about fifteen seconds to pull those out of my memory banks.
Why do I remember the worst advice so well? Well, I have a theory—but let me share those mini-stories first so that you can help yourself to the warnings and laughs…
(For those who are new subscribers, in this case, I’m referring to my first true tech startup, which we sold in 2020. Originally we launched as a Pinterest marketing solution, made tons of classic startup mistakes, eventually pivoted to influencer marketing, became profitable, and got to a great strategic exit.)
1. You don’t need to show profit (or loss)
I’m in my first “real” Board meeting after raising a $3 million round with two top VCs, and somewhere around slide 19, we get to the quarterly income statement and projections. We had a couple hundred grand of revenue but were far from finding product-market fit, much less turning a profit.
One of our Board members stops our presentation to ask why we would even show the bottom line of profit—or, in our case, loss. My co-founder and I asks him to explain. He says, “Profit (or loss) doesn’t matter at this point. It’s all about ARR and MRR and showing enough growth to reach the next funding level. Every SaaS business loses money because they are investing in growth. It’s a distraction to even look at that line.”
We nodded, continued on, and stopped showing (or thinking) about profit and loss in the months ahead. We figure our investors know a lot more than we do, and we need to adjust to this new game. So we focus on growth—at any cost—but never get to that next big round. After a bridge round, another, say goodbye to my co-founder, and planning a down round, we no longer want to play this game. We do a big layoff and decide to get profitable.
2. You should build a Tumblr solution
The big bet we made as a startup was to become a Pinterest marketing-tech partner. We had seen the platform's value long before most brands, and we knew from watching Facebook and Twitter that these rising social platforms believed in supporting (and throwing lots of business to) an ecosystem of partner companies.
But Pinterest is slow to advance, threatening our opportunity and jeopardizing our company. One of our investors noted the rise of Tumblr and knew some brand managers who were trying to figure out this platform, too. He suggested we add Tumblr features to our SaaS platform as a way to upsell and/or pivot past Pinterest’s slow movement.
In this case, I smiled and thanked him for his advice, but we had zero appetite for pinning our hopes on yet another messy, early-stage social platform. Brands never did embrace Tumblr.
3. You should stay focused on Pinterest
It’s December 2015, we’re running out of money, and I’m starting to get desperate to figure out where our business should go from here. In hopes of finding a solution, I manage to get a meeting in New York City with Terry, the most famous investment banker in the marketing tech space. He’s the guy who puts on giant annual events for everyone who’s anyone in the industry. He’s the deal maker who literally creates the map of logos that defines our industry categories.
Our thirty-minute meeting kicks off, and I decide to lay all my cards on the table: Pinterest isn’t sending us any business, our investors can’t put more money in, and I’m looking for a lifeline. Terry is kind and listens closely. He agrees that we’re "in a tough spot.” But he notes that one of our competitors was bought by The New York Times and that “investors and acquirers are like lemmings. When they see something like that, the value of all players can get driven up. I would stick with Pinterest—it’s at least a differentiator for you.”
But I come out of the meeting unconvinced. As I ride in a taxi to LaGuardia for my flight home, I think about how this approach would make sense to an investor/analyst like Terry. They take lots of bets in hopes that one is a winner. But I’m the CEO of just one company—and I’ve only got this one chip on the table to play. We decide to stop betting on Pinterest. Thankfully, we’ve got an Influencer Marketing experiment in progress—and it’s starting to work.
4. You should consider deferring your salaries
In the following months, our Influencer Marketing shift is paying off, but we’re still unprofitable and talking with our current investors about doing one last small raise to see us through the pivot. That means lots of weekly Board meetings.
I’m sitting in one of those Board calls when an investor says, “You and Ryan (our COO) should really consider deferring your salaries—you couldn’t ask Chris (our CRO) to do it, but you guys should seriously think about it.”
I was making less than half the salary the CRO who reported to me, and had never gotten a raise in our company’s four-year history. This investor would not ante up his fair share of our final raise but expected me to sacrifice more. Ironically, I was the first to put $100,000 from my own savings into this round!
We made it work anyway, partly by parting ways with our CRO, who did an amazing thing by coming to me first and saying his salary was getting in the way of our turnaround. Chris and I remain great friends. Our team manages the pivot, we get profitable, and we never have to ask our investors for money again.
5. You shouldn’t have such a big carve out for employees
But I do have to get our investors to approve the acquisition offer we received in Spring 2018. We don’t have to sell, but we got two strong offers and felt the time was right. Both offers have earnout provisions of over a year based on revenue growth goals. I know from previously selling my digital agency (5-year earnout!) that retaining employees during this period is critically important. So I suggest to the bidding companies that incentivizing our employees to stick around is in our mutual interest.
Our preferred bidder returns with a suggested employee incentive pool of 10% of the $30 million in potential earnout, which would run over an 18-month period. It is exactly what I hoped for, and my team and I draw up plans for all of our employees to share in the upside.
But when I present the term sheet to our investors, more than one comes back with pushback on this carve-out. One says, “I’ve never seen such a big incentive plan before.” Another forwards comments from their legal team at the 11th hour: “This deal is kind of on the margin for investors relative to employees.”
It pissed me off, but it wasn’t a shock. When companies are in the final sale process, investors have their fiduciary duty hats firmly affixed. They work for their investors and feel extreme pressure to maximize their returns. And this tends to be a tug-of-war about maximizing the slice of the fixed pie that’s being served. So, as the CEO, you negotiate with both your buyer and your investors. What a joy!
I proceed to have conversations and share my rationale that 10% of the earnout would be both an insurance policy to make sure our team stayed on, as well as a massive incentive for them to bust ass for the next 18 months to get what amounts to about a year’s extra salary for each of them. This is about sharing a larger pie rather than quibbling over the slice of a smaller, static one.
They sign off on the deal, and we go to work. We achieve our earnout in just 15 months. Upon receiving the wire of our windfall, one of the previously doubtful investors tells me, “I’ve never seen a company max its earnout before.” Uh, that’s because I didn’t listen to their advice.
Bad Advice Can Be Good for You
So, back to my original question…why do I remember the little nuggets above so well after so many years?
I think that getting bad advice from smart, experienced people helped me realize two things. First, no one knows what they are doing. We’re all just guessing what will happen and making things up as we go. If the experts were right, then many fewer startup and VC bets would fail, and successful companies would never fade away.
Second, I realized that I knew much more about my business than my investors or advisors did—after all, I was living and breathing it every day. I began to see behind the curtain of how they made decisions and realized a lot of it was faulty. This gave my team and I the confidence to do what we thought was best. We became driven by our customers' feedback in the form of earning more of their business rather than the insights of experts.
Because I saw through bad advice, I felt less imposter syndrome, gained more confidence, and became a better CEO.
Advice For Asking For Advice
If you’re early in your startup journey, you’re going to feel a lot of pressure to ask for and act on the advice of people who have been there and done that. I’d suggest you keep three things in mind to balance out these inputs:
Advice is just opinions - It’s soooo easy to give advice. The giver has no direct responsibility for living with the decisions. Their experience happened at another time and place with countless differences from what you are going through.
Appreciate all advice - Because it’s biased or free doesn’t make it wrong. Just ensure you get input from multiple sources to determine the right answer for your specific situation. But remember that the advice-givers truly care. They want to help you succeed.
Seek the “Why” behind their views - Don’t just jot down what they say—attempt to reason out where their words come from. It’s an extra layer of insight that helps you understand if their advice is more or less relevant. Do they have some ego or financial incentive to think a certain way? Do they spout off lots of stuff all the time (downgrade everything they say), or do they speak up only rarely at key moments (listen closely)?
When I’m asked for my advice, I tend to start with a warning that’s something close to the “this is not investment advice” caveat even podcasts are using now. Mine goes something like this:
“Please don’t follow my advice out the window. You know your business infinitely better than I do, and I could be completely wrong. So talk to 10 other people like me to get to the right decision for you. Feel free to throw my opinion in the garbage and do something that’s the exact opposite of what I suggest—I won’t hold it against you!”
Let this be a lesson to reading what I write here each week, too.
And if you’d like some advice, just remember my open hours link is below.
How we might work together…
My team and I lead Hearty, a boutique recruiting service that helps tech-forward companies hire proven talent. Our senior team of operators sources and screens, saving you time and money. When you need help, let’s chat.
Need help with a software project? Perhaps a product MVP, a project that requires outside help, or a fractional CTO for key strategic decisions? Our team at Shipwright Studio has worked together to build multiple successful startups, and we love helping leaders turn their dreams into reality. We're the team our clients trust for software built to last.
Looking for Influencer Marketing and Content Creation? The team from our previous company is back by popular demand with A2 Influence. We’re ramping up now and would love to share more.
Feel free to schedule time together during my Open Hours for questions, feedback, networking, or any other topic!
BONUS: Cool Content of the Week
A little something I found meaningful. You might agree…
Survivor Bias is a Bitch By Marc Randolph
Today’s topic probably got seeded in my head after reading this post by Marc Randolph. Marc was a co-founder of Netflix, and he shares startup stories and tips like this in his weekly Substack.
He reminds us that most startup advice is dispensed by successful founders—and that success can often come from a lot of luck. So take his post, my writing, and every other piece of advice with a grain of salt.
Love the perspective Bob. Also love the advice to ask “Why”. I’ve found asking this simple question can provide so much context to help identify how good the advice is to follow
Love your posts. I’ve been happily retired from a great brand design firm for over 10+ years. Your post make me smile to relive some wonderful
Moments and some absolutely soul sucking moments on creative projects I was a part of. My hope is that Hearty is thriving due to your leadership and team. Sue Blaney