How to go from being a super hot company to lucky to get acquired in less than 24 months
Hitting product market fit in a startup is an amazing feeling. In 2011 and 2012 it felt like Klout was on top of the world. Almost every day was our biggest day and every thing we launched seemed to hit the mark. By the end of 2013 we were barely holding on. The board was conducting a search to replace me as CEO and it felt like the whole company was going to fall apart.
So what went wrong?
Before we jump into the gory details, let's revisit the good stuff. To give you a sense of how hot we were in 2011, when Spotify did their highly anticipated US launch they had two official partners: Klout and Coke (I still owe Shak on this one for making it happen).
It wasn't just flashy partnerships. Our data business was also taking off. At the end of 2011 we raised a $30m Series C funding led by Kleiner Perkins. This article gives a good look back at the growth we saw during that year:
"The company topped 10 billion API calls in December, says Fernandez, which is up from 100 million API calls in January, 2011 and a few hundred thousand in April, 2010."
“The company has more than 4,000 API partners, up from around 100 in early 2010. And it has indexed north of 100 million public profiles."
Below the surface, however, cracks were starting to form. We had always gotten more press than the maturity of our product and organization justified. In that gap between the level of press we received and where our product actually was, backlash formed. The Klout Score, which was our biggest asset, was also our worst enemy. It was too much of a novelty and overshadowed the amazing technology and products we had built. People got bored with the Klout Score and by 2013 we had hit a wall.
So what went wrong?
When I started Klout in 2008 I had never managed anyone. The biggest company I had ever worked for had less than ten people. I basically had to learn everything on the job and unsurprisingly I made a lot of dumb decisions. Luckily, I was good at course correcting.
What changed in 2013 was that I was now sitting on a big valuation with late stage growth investors on the cap table. None of them were bad people. I had just signed up for something the company wasn’t ready for. Mistakes that felt fixable in the past now felt existential and, as growth slowed, the pressure increased exponentially. All product, org, technical and strategic debt was coming due at the same time - with interest.
I found what felt like the perfect lifeboat in the Microsoft relationship and swam as hard as I could towards it. Laugh all you want at Bing, it still gets hundreds of millions of visitors every month and I bet big that we could siphon some of them off to re-ignite growth. There was also a chance that Microsoft would just acquire us. This bought us time with the board and kept our team, which was getting increasingly restless, in place.
It was actually super fun working with the Microsoft team and we were seeing success with the partnership. It started to look like they might actually buy us and the numbers that were being thrown around were big enough that it made sense to focus even more attention on the relationship. Then Steve Balmer was fired as CEO of Microsoft and all deal conversations grinded to a halt.
This is when shit really hit the fan internally. I could feel that the board and my own team had really lost confidence in me. The truth is, they were right. I had put us in a really bad position by over-rotating the company towards Microsoft. It might have worked had Balmer not been fired, but that would have been just a lucky break. All the products that were stagnating heading into 2013 were now in extremely bad shape because they had been ignored.
This was an incredibly difficult stretch. Every time something popped up on my calendar I knew it was someone telling me they were leaving the company. These conversations were crushing. All I could think about was finding a way to fix things. We kicked off some really cool product experimentation but we were a Series C company trying to do seed stage iterations. We had people and a valuation that was set to scale things, not run a bunch of small experiments, so it just wasn't working.
On the 2014 horizon I could see a fundraise that was guaranteed to be difficult. The board had seen enough and told me they were going to start a search for a new CEO. I'll talk about this in detail at some future point, but I went through waves of understanding and being helpful to feeling like it was a mistake and fighting for more time.
Then, amazingly, I got really fucking lucky. After a bad break with the Microsoft opportunity, a new deal fell into my lap out of nowhere. While the board focused on finding a new CEO, I put all my effort into getting a real offer to bring to the table. It all came together and we ended up selling the company. Another crazy story for a future conversation.
My biggest takeaway from this whole experience was that luck plays a big part in the startup journey (both good and bad). Also, shit can change fast in this startup game. Hot one day and barely holding on the next. About to sell the company, to about to be fired, to back to closing an acquisition. More than anything though I learned that if you raise money at a high valuation and you start losing momentum, your life is about to be extremely not fun. Almost any mistake you make as a founder can be fixed, except that one.