We received the call we’d been waiting for. An angel investor was ready to make us an offer. After some back and forth,

What led us to such an unusual conclusion? Four and a half years ago my team and I had a sobering experience raising and unreasonably spending €200,000 that led to both insights and a reality check.,We got community managers, marketing managers, sales managers, and all kinds of developers. We spent time designing the job description, marketing those, selecting people, onboarding them. It is a very straightforward task to do when you are a stable company. But when you don’t know what you are doing, have any revenue, and changing the direction every week, it is the recipe for disaster. Employees are not founders. They need direction and they can’t adjust every week. Even for founders it’s super hard and takes me as the CEO several discussions with the team.,Why do startups make such basic mistakes? Why do they raise money and hire people when they don’t need to? I believe it is about our psychology. Inherently, to build a business, one needs to be an optimist. I picked this idea from the ex-CEO of Intel and the book “High Output Management”:,I thought money would accelerate our path towards finding our business model, but it only created a distraction, and ultimately led us to waste money on things we didn’t need to even think about.,A startup is a company looking for a business model. Product/market fit is when you found your business model. Having product/market fit means you have a very high chance of surviving the next 10 years as a company, provided you keep your sh*t together. Raising €1M and going bust in 2 years is not a success.,In short, customers are knocking down your door to get the product; the main goal is to actually answer the phone and respond to all the emails from people who want to buy. You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.,4.5 years ago my startup (Panda Training, which back then was a matchmaking platform for trainers offering training and companies that needed training) raised €200.000 from various funding sources. We ended up going from Helsinki to New York that summer after an initial “killer” run at local sales in the spring with a product that “was supposed to be ready by the time we arrived to NYC.”,Many conflate politeness with demand and rush to build their product. We were not an exception. We poured thousands into the salaries of developers in Serbia and only to realize 6 months later that no one needed our product.,“CEOs always act on leading indicators of good news, but only act on lagging indicators of bad news.” This is because “In order to build something great, you have to be an optimist, because by definition you’re trying to do something that most consider impossible. Optimists most certainly would not listen to leading indicators of bad news.”,Looking back on it though, we didn’t need to build an amazing backend to realize that no one wanted to use what we are trying to build. Even a quick mockup would have done the job. And yes, we definitely didn’t need an iOS developer who would be adopting our web solution to mobile before it was even validated.,Why is product/market fit important? Because it is what makes a successful startup. You thought it’s the investment you got? How many people you’ve hired? Revenue? Profit? I would argue it is none of those things.,People can help you scale what you are doing well and what works. But if you don’t know what you are doing, it will take you more time aligning a team. of 14 people than it would have taken to do the job alone. Not to mention that it’s super expensive,One of the best ways to get rid of the fear of the unknown is to get very clear on the specifics of what you are scared of. We tend to generalize our feelings of fear and make the feeling bigger than the source. And that’s where we get into so much trouble.,It was bad timing to raise money because we didn’t know what we were doing. We didn’t have a product and we didn’t have any revenue. Fast forward to today, however, and we have a product with close to €20.000 in monthly revenue. But regardless of this, we still ended up saying no to an investment. The primary reason for this is because it is still too early and we aren’t quite there yet.,The reason I went to conquer New York at the age of 21 is that I conflated politeness and interest with demand. We thought they were going to buy our service. We were wrong. Our potential clients just liked kids and their innovative idea, and in some cases invested in testing it with them.