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The Pothole

October 5, 2012

Geoffrey Moore work on the “chasm” was one of the first, and still most insightful peeks into the mechanics of startups. Moore’s key point was that startups face a lull in activity when they’ve saturated the early adopter market, but can’t get traction in the mainstream market because that’s dominated by pragmatists, and pragmatists resist buying until a disruptive product is vetted and vouched for by other pragmatists.

More recent work by Steve Blank and Eric Ries focuses on startups in an earlier stage of development – before and during the process of figuring out how to sell something to those early adopters.  Through two cohorts at Flashpoint, and through watching accelerators, we’ve seen that this earlier stage has its own version of a chasm – what I’m calling The Pothole.  Potholes are smaller than chasms, but companies at this stage are smaller too, and more fragile, so even a pothole can be fatal.

The pothole appears at the end of a 3-4 month accelerator stint.  Companies that go through these programs work hard at something through the first months of their accelerator journey.  If it’s a Steve Blank-inspired accelerator  they work on customer discovery or validating other parts of their business model.  If it’s another accelerator, they work hard building their product.  For the last few weeks or month, they lose focus on either of those issues and turn to crafting an impressive presentation or demo for investors.  Then demo day comes and they get their two or three or seven minutes in the limelight.  Then comes the pot hole.

1) The support structure or mentorships they were  leveraging diminish or go away

2) They have to focus on raising money, usually for at least three months

3) During the fundraising period customer discovery moves backward – with all their time and effort concentrated on polishing and telling their story, and trying to convince investor’s it’s true, the idea that they are startups searching for answers is replaced by a myth of certainty.

4) Team members get distracted, need to work at other jobs, and their commitment as a team starts to weaken – raising all kinds of flags for potential investors.

The Chasm is a real threat – it can easily swallow up millions of dollars of A and B-round professional money.  The pothole isn’t such a big deal – neither the founders nor the funds associated with the accelerators have nearly as much at stake.  But it’s plenty big enough to knock the wheels of a startup.

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