Paul Buchheit explains why too much funding before product/market fit can kill a startup

Paul is the creator of gmail and managing partner at Y Combinator. In the clip below, he shares:

“One of the most surprising thing I’ve learned just working with so many startups is how often the cause of death is too much money… I think there are companies that—had they not been so well funded—could’ve been successful.”

The company he uses as an example is Juicero, a startup that raised $120 million to build a juicing machine that was sold for $400 plus the cost of individual juice packs delivered weekly.

“It’s so easy to become detached in a bubble of delusion, and the problem with having lots of funding before you’re really ready for it is that you’re never forced to talk to customers. You can sell yourself on this idea that: once we build the perfect juicebag squeezer, we’re going to take over the world. Everyone’s going to want to spend $700… And they’re able to live in that delusion for years because they never had to go out and talk to customers.”

He emphasizes the importance of staying close to your customers:

“You have to be out there selling because you can become delusional otherwise…. I’ve seen it again and again with startups: if they get a huge round of funding before they have product/market fit, it kills the company. It’s just too hard for the founders to resist not talking to customers.”

He continues:

“Actually going out and dealing with the fact that you don’t have product/market fit is really painful. It’s easy to tell yourself stories about how you’re killing it, how you just hired a whole new team, your cool new office, and how you’re doing all of this amazing stuff. ‘I’m in the press all the time, I go to conferences. I’m up on stage.’ It’s easy to be completely detached from reality because you’re not out there selling the thing and creating a thing that people actually want to use.”

Full video: Y Combinator “The Path to $100B by Paul Buchheit” (Oct 2018)