(2023-10-31) Rachitsky Lessons Learned From A Startup That Didnt Make It

Lenny Rachitsky: Lessons learned from a startup that didn’t make it. Recently, in the process of shutting down his startup, Jake Fuentes (co-founder and CEO of Cascade) jotted down his biggest lessons from the journey.

I’m struck by a few key decisions we made that seemed sound at the time but that ended up having a profound impact on the company’s direction

We started Cascade in 2019 destined for glory. Both founders were repeat entrepreneurs with prior exits, we were backed by top investors including First Round Capital and Redpoint, and we had a spectacular starting team.

Over the next four years, Cascade raised a $5.3 million seed round, grew to be a team of 10, and served some marquee customers. However, without a clear path to breakout growth, in 2023 we decided to pursue a soft landing.

Here’s what we learned.

If you allow your ICP to fray, you’ll lose

Simply put, an ICP must be a single market segment: a group of people for whom the value of solving a problem is roughly the same, and who can be reached in roughly the same way.

We defined our ICP as nontechnical business analysts using Excel to crunch big data sets. In retrospect, that was much too broad, particularly because it said nothing about why they were using Excel or the value of the problem they were solving with it.

If we had a properly defined ICP, we would have seen it start to fray with each new use case. ICP fray confuses every decision for a very simple reason: to know what problem you’re solving, you need to know who you’re solving it for.

Encountering demand outside of your ICP may seem like a good thing, but be very careful about supporting those customers and expanding to a new segment.

Horizontal products are only as good as their best vertical use case

We looked at Airtable, Notion, and Webflow as successful examples of horizontal plays, and we salivated when thinking about the aggregate TAM

We needed to remember that our customers do not care about our TAM. All they care about is their specific set of problems.

Building a horizontal tool is especially hard, because each supported use case often competes with a tailor-made, vertical solution

Horizontal products win if a specific audience encounters enough use cases that they want one tool to address them all.

Notion won because it addressed the vast array of documentation tasks faced by product managers in San Francisco. In both cases, a specific buyer encountered a large array of problems, so a horizontal toolkit was the best solution.

As we took Cascade to market, we were dismayed to find that the business analyst role had changed, making us less relevant. A lot of big-data wrangling and analysis was being shifted to more technical data teams, for whom Cascade had little value.

A competitive product being old and clunky doesn’t mean it’s vulnerable

We thought we had landed on a startup gold mine. Alteryx, an early-2000s-era software company, was about to clear a billion dollars in annual revenue. Their only product was a Windows-only, clunky desktop application

The problem was that Alteryx users actually liked the product

Besides, we knew that Alteryx was horrendously expensive

If we could overcome switching costs, we saw a path to real growth.

Generally, teams think about switching costs as the amount of time and money needed to install one solution and remove another. But true switching costs are much more than that: they include the politics, emotions, career ambitions, esoteric business processes, competing priorities, and sheer laziness that all favor the existing solution

In our case, we underestimated how deeply Alteryx was integrated into company processes. Only a couple of people inside those companies actually knew how Alteryx worked, and hell would freeze over before we convinced them to abandon a career-defining tool

If only the user is frustrated, you’ll have a hard time winning. If only the buyer is frustrated, you have a path to victory as long as you can overcome switching costs.

Don’t confuse people rooting for you with market signal

Your supporters will be rooting for you and want you to succeed, and at times they’ll be in a position to accelerate your progress. Unbeknown to them, sometimes they can accelerate you in the wrong direction.

That’s especially true if you have a product like Cascade, which has multiple use cases and a broad value proposition.