Sunil Nagaraj on Starting, Pivoting & Exiting

How do you know when to pivot or when to shut down? When should you develop an exit strategy? Sunil Nagaraj, Founder and Managing Partner at Ubiquity Ventures reflects on leadership lessons he learned while starting his first venture, Triangulate. In this informal and unabridged conversation with Shikhar Ghosh, Nagaraj reviews his founder’s journey, including the decision to start a venture, choose a co-founder, formalize a founders’ agreement. He shares how he learned to recognize mistakes, change directions, and eventually made the difficult decision to shut down his first venture. His experience provides helpful tips on knowing when to exit and how to shut down with dignity. An unedited transcript follows the video. Nagaraj talks about the Mindsets of Entrepreneurs & Investors in part 2 of the interview.

Sunil Nagaraj interviewed by Shikhar Ghosh on starting a venture, pivoting, and exiting, October 2018, at Harvard Business School.


Sunil Nagaraj on Starting, Pivoting & Exiting

Shikhar Ghosh: You started Triangulate when you were still in business school and you started with a really good friend of yours who had a very similar background, two of you work together every day. Then when it actually came time to starting the company, the whole thing sort of fell apart. Can you tell us what happened there?

Sunil Nagaraj: Yeah, it’s a great question. The context is at the time I’d always wanted to start something. Prior to that, for years and years, I thought about starting something. I had worked in a big corporate job at Bain & Company. I had a good friend and we used to talk a lot about startups on a regular basis. We were buddies. We got along, we went on trips together, we were social friends. Very, very good friends. In that process we started to flirt with the idea of starting something together.

Sunil Nagaraj: We started exploring ideas somewhat methodically. He had a job. I was in school full time. I think at some point we were spending maybe an hour every night during business school. I would spend some time doing my own work on the potential startup we were working on and we’d speak for an hour a night bouncing ideas back and forth or finding ideas and it was working well. I think going into it, we were both business people, right? Fundamentally. I could code, he could not and I was in business school.

Shikhar Ghosh: Often when people think about co-founders, they say, “Okay, a co-founder should have this character or that quality or should be the same as you or different from you or you should know them, or not know them.” But here it feels like it was just a set of circumstances that brought you together and then common interests that got you there. You aren’t saying, is this the best co-founder or any of that?

Sunil Nagaraj: I see what you mean. Maybe there’s a broader view on like when to start a company. For me, I was really adamant about starting something and then we figured out the topic of the startup, the focus of the startup. Other people work at an industry, realize there’s an inefficiency, start a company and then methodically find a co-founder, which is a different way of doing things. I think there is a view that you should be really methodical, make a spreadsheet of all the different ideas and all the different people and optimize the right thing. But that almost never happens.

Sunil Nagaraj: My view is starting a company is always an irrational decision. There’s never enough information for it to make sense to do a company. In that regard, it’s always some combination of circumstances. For me, it was a drive to want to start something. My friend wanting to start something and it took away some of the edge. Jumping off the cliff is a very scary thing and doing it, holding someone else’s hand helps a ton. As you’re about to jump off the cliff, it’s rare to sort of methodically think through what are the check boxes, what are the right skill sets? What’s the Venn diagram?

Sunil Nagaraj: Rather it’s somebody who’s willing to do it with you. At the very beginning of a company, I mean, day zero or day negative one, any kind of hold… there’s an expression… any kind of handholds that you can grab on to, to help climb this mountain is really, really helpful.

The Role of Co-Founders

Shikhar Ghosh: You’ve been through this now a couple of times. What’s your sense of what do they provide you?

Sunil Nagaraj: This means starting a company?

Shikhar Ghosh: No, sorry, the co-founder.

Sunil Nagaraj: Oh, it’s a good question.

Shikhar Ghosh: What is it that a co-founder does that an employee couldn’t?

Sunil Nagaraj: I think the genesis, I mean, I’ve been alluding to it a little bit, but the genesis of a startup is primarily an emotional experience. After day one, then it becomes a methodical experience in research and modeling and etc. But the act of jumping off a co-founder is that crutch. A co-founder is the notion that, “Hey, at least one other person thinks this is a good idea. At least I won’t look stupid if it fails because there’s someone else did it with me.”

Sunil Nagaraj: Maybe slightly more methodically. It’s going to be a roller coaster. He’ll be on his roller coaster. I’ll be on my roller coaster and hopefully we won’t be at the bottom at the same time, is another way to look at it. You sort of average each other out. Slightly more methodically, you could hope that you’ll compliment each other’s skills. That I know how to do this, you know how to do this. That wasn’t the case in my experience. It was probably a mistake to not have a complimentary co-founder off the bat.

Sunil Nagaraj: But I don’t imagine I could have done it any other way. The circumstances with which I started were ones where I was really hunting for an idea and hunting for proof that there was a good idea and to have someone join me who was comfortable, who I knew was a huge relief.

Shikhar Ghosh: So you were talking about meeting him every day. Just tell us about that experience all the way until you actually started?

Sunil Nagaraj: Sure. We were good friends. We would talk regularly, we would see each other. We didn’t live in the same city, but we were very good friends. At some point we started to sort of it came up on a trip, “Hey, I was thinking of starting a company.” “Oh, I’m thinking about starting a company too. Why don’t we start exploring it together?” It was sort of like, I think it started innocuously in the sense that we thought we would in parallel explore our different ideas, but sort of just use each other’s tools to explore and then go off our ways.

Co-Founder Compatibility

Sunil Nagaraj: At some point we started to realize we enjoyed our discussions, enjoyed our business discussions because we had previously just been social friends. We had never worked on an entrepreneur project together. In that eventually daily phone calls, maybe most of my second year of business school doing these daily phone calls I should say nightly phone calls for about an hour, we really came to appreciate each other. Came to enjoy bouncing ideas off of each other. It felt good to have another person for him as an industry person, it was great validation to have a Harvard MBA in the picture.

Sunil Nagaraj: For me it was great validation of an industry person in the picture. It was complimentary in the superficial sense of projecting an image of stability to something that is underneath it all very chaotic. We did these nightly phone calls. Christmas came around, I think over Christmas we spent a bunch of time in the same city together working on the idea trying to push it forward. Then as we made this march towards May, right graduation, there was a few seminal moments. I guess if I were to pick dates, the school year runs like September through May, maybe October, we decided to really get serious and work together on something.

Sunil Nagaraj: I wouldn’t call it a commitment, but we said, “Hey, we think there’s something here.” I remember it was December 10th, I turned down my summer internship offer. I had a summer internship and I said, no to that firm. For me, that was cutting the safety net. I said, I was all in. Around that same time, each of us put $5,000 into a Silicon Valley bank checking account. The idea was that we had this thing and in retrospect it was more of a symbolic thing. But each of us had put our money physically and conceptually our money where our mouth was.

Sunil Nagaraj: We worked together over Christmas, the Christmas break. Then February, March started to come around and the pressure started. It felt more real. Against that backdrop I think our conversations changed from conceptual brainstorming to tactical, “Hey, what are you going to work on? Where are you going to build?” Less about, “Is this a good idea?” “That’s a good idea.” That’s actually fun to do with people. But when it comes time to divvy up concrete work and work for eight hours on a task, eight hours on a task, it forced a bit more of the question.

Sunil Nagaraj: There was a clear signal when we were applying to the business plan competition here on campus. We were supposed to put together a business plan. We divvied up the sections and when it came time to kind of review our final work, there were major holes in the business plan. I think it wasn’t that anyone was lazy. It’s that this was the symptom of the underlying issue that we were starting to get this tension that we started to see how much we overlapped. At some level we both were general-purpose business people. Neither of us wanted to spend a lot of time building engineering product.

Sunil Nagaraj: Both of us wanted to be CEO or head of BD and that wasn’t a compatible thing. It’s because we had very similar backgrounds. We had both come from a large consulting company and in that backdrop, it became crystal clear by May maybe a month after the business plan competition became crystal clear that there was too much overlap, there was too much tension. In the end, he pulled the trigger on saying, “I don’t think we should work together. I think I should stay at my current role.”

Sunil Nagaraj: For me, it was devastating. It was clear that it should happen. But I’d cut my safety net, I’d already found an apartment in Palo Alto. So I fly out July 1st, right when my lease here on campus ends with an air mattress and half of the $5,000 in the bank account and without a co-founder and just start working. But for me it was a dramatically different place than what I thought it would be three months prior.

Founders’ Agreements

Shikhar Ghosh: Actually the two of you had spent some time working through what you expected from each other in a pretty detailed founders’ agreement, eight or nine pages long. How come this didn’t come up then? If you think about the founders’ agreement and what you spend your time thinking about having been disciplined about going through that process, it still didn’t come up.

Sunil Nagaraj: It’s a great question. The honest overarching truth here is that I think we were more excited about the process than the result. In that regard, when we heard at Harvard business school there’s something called the founders’ agreement. We were excited to sort of take the plunge. Just like the act of putting 5,000 into a sub-savings account. Felt like clear measurable progress towards something that is otherwise nebulous and scary. So the act of doing a founders’ agreement, what resonated with us was that we got to describe ourselves.

Sunil Nagaraj: I think page one of the founders’ agreement, we talk about each of our skillsets. Doesn’t actually line them up like this. It just sort of list them one by one, our resumes. Then there was this whole piece about commitment level and for us that felt therapeutic to talk about what happens if you lose interest? What happens if a family member gets sick? What happens if you get hit by a car? To work through all those issues upfront, made us feel like we were more organized and more prepared for entrepreneurship.

Sunil Nagaraj: In reality, we were going through the motions. They were somewhat helpful but not the critical motions. Now with almost 10 years of hindsight, the critical motions are figuring out what makes customers happy and figuring out how you’re going to build that. That’s what we should have been doing. But at the time maybe through kind of emotional uncertainty about the future, bad coaching, a few other elements, we were fixated on process steps. So that founders’ agreement in retrospect was worthless.

Sunil Nagaraj: I mean, the founders’ agreement was helpful only in so far as that had introduced the notion of vesting. In this case the idea is that if one of us departs in the first year, they get nothing. So it actually ties us together and increases some sense of stability on a legal basis, which was very helpful. But besides that, the rest of it was an unnecessary exercise.

Shikhar Ghosh: Because the second time when you went to Palo Alto and started again, you didn’t go through the formality of a Founder’s agreement and it was a different kind of co-founding relationship.

Rebuilding a Founding Team with Long-Term Compatibility

Sunil Nagaraj: Yeah, that’s exactly right. That was much more organic as well. On West Trek which is a January trip during my second year of business school, maybe 50 of us had gone to California, Palo Alto, San Francisco. While I was there, I met a bunch of new people from HBS. Some were MBA, some were PhD. I forgot about that. Co-founder in May, we stopped working together. In July, I think it was July 2nd or July 3rd, it was the second or third day I was there, I had set up a lunch to catch up with somebody who I had met on West Trek.

Sunil Nagaraj: We were catching up and this time there was no explicit discussion of skills. It was obvious. We were catching up. We were talking about what each of us was working on. He said he was looking, I said I was working on something. Right at the end of lunch we had lunch in Mountain View, he came back to my apartment in Palo Alto and we started coding together. So from the get go, we dove into the real work. We had a light framework around the engagement process. What I had hoped to do was probably after realizing I spent too much time on process, do the lightest process possible.

Sunil Nagaraj: Another CEO had recommended this idea of creating a temporary consulting agreement. This way someone can come work with me, do some good work for a few hours. Maybe it’s five hours, maybe it’s a 100 hours. I don’t have cash to pay them, but if they become a co-founder, I rip up the agreement. That would be the goal was a trial period to have someone come and work. Now like everything context is really important. This was the bottom of the crisis. There weren’t a lot of job options. I was able to eventually have four people through different versions of this arrangement in my living room working for free before they became co-founders.

Sunil Nagaraj: This time I didn’t fixate so much on what happens when and what the different skill sets are. It was more obvious. Once I got the ball rolling, each additional hire, it was extremely obvious what I should be doing.

Shikhar Ghosh: A lot of the words you use bring to mind the metaphor of dating and establishing a relationship and commitment points and we knew things were together. Do you think that’s a useful analogy?

Sunil Nagaraj: Yeah. I mean it’s not just because I ran a dating company that I fall back to dating as a great analogy for a co-founder and a founding relationships. It’s this notion that it requires both the initial attraction as well as the longterm compatibility. The initial attraction might be, “Oh my gosh, you went to this great school or you worked at this company, we should co-find a company together.” That would be the same as someone spotting someone across the bar and walking up to them because there’s this spark.

Sunil Nagaraj: That spark, just like in romantic relationships, fades away very quickly and it has to be replaced by the underlying foundation. In a romantic context, the underlying foundation is how do you feel about money? How do you feel about kids? Kind of what are your key values in your life? Those actually apply almost identical to a co-founder. Even if I found out someone worked at Google on machine learning for this online dating company that I started, that would be the spark. But underneath that is again, how do they feel about money? Do they like to sit on $5 steel folding chairs or do they want a beautiful office with the view?

Sunil Nagaraj: That manifest in many ways. How do they feel about their core values? Is this about solving online dating or is it about making a lot of money? Or is it about making a big impact in the world? None of those are bad, but finding that alignment on core values is much more important than the initial spark. So that’s actually I think by accident in a way, the way that I did the second founding experience, if I want to call it the second friend experience. When I moved out to Palo Alto without a co-founder, this time when I assembled the founding team, I was looking more for a alignment on core values and it was defacto.

Sunil Nagaraj: I had already started working on the product, so I needed people who could code with me. I also needed people who were okay working for free in a small apartment, sitting on a $5 steel folding chair, above a subway. That automatically filtered people as opposed to trying to do that in a document or some other artificial process.


Shikhar Ghosh: If we fast forward from here to you start the company, and it started with this notion of having an algorithm that gathered data automatically. So you could have real data about how somebody was and use that matching. It could be jobs, it could be dating, but you decided to apply it to dating. Since then you went through a series of pivots, like three or four pivots in that process. You described both what caused that, but also what did that feel like? Was it a process of exploration or was it a process of failure, “This didn’t work, this didn’t work, this didn’t work,” or did it just feel more organic?

Sunil Nagaraj: It’s a great question. Let’s see. By the time I had arrived in Palo Alto, I had a few anchors. One, I wanted to start a company in Palo Alto. Number two, I wanted to leverage this insight that people are what they do. In 2009 at the time, it was newly possible to gather information about what people do with their consent. That was very hard to do prior to that. Because of technologies and kind of technologies like OAuth and the heavy usage of Facebook and Twitter and Foursquare and Netflix, it was not possible to build a picture of who someone was.

Sunil Nagaraj: That was the core insight. For a while the first two or three months I thought that we would be an underlying technology that would power other people’s websites. This was in one way a less scary way of going about something. It felt like a company where we would get to focus on the technology itself. Then other people would handle marketing and these other things, I didn’t know a lot about. For awhile we were technology nerds working on a broad technology that had sort of statistical elegance to it.

Sunil Nagaraj: As I started to meet more investors and see that nobody was biting on a broad platform that didn’t have a huge upside, and I saw my employees would get more excited when they got to build more of the user interface. Backend platform doesn’t have a user interface. I saw team excitement. I saw a path through raising money by shifting. So that was sort of the trigger for the first pivot, if you want to call it that. It was sort of half of a pivot. The idea was that we would do both. We would have the backend engine and we’d actually make the dating site just as a showcase for the engine.

Sunil Nagaraj: It was very tricky for me to pivot and I think there’s this always this ongoing tension. I actually think one of the hardest things of being a founder is knowing when to listen to people and knowing when not to. I would almost say that’s the single hardest thing about being a founder is that the act of jumping off, I said this and I believe it is always an irrational thing. So you can never listen to anybody about whether to jump off. Then immediately you need to start listening to experts and then you need to discount that by the fact that experts may be stuck in the old paradigm. So it’s always this tension.

Sunil Nagaraj: In this regard where I did the first pivot, we went from a platform, we didn’t switch to a dating site. We were a platform and dating site. As I watched the team for the next month, how quickly we built, how much more fun it was, how we were able to get concrete results, usage metrics, we started to finish the pivot. In that same vein almost concurrently, we got our first term sheet. We were able to secure a term sheet for an online dating site powered by online behaviors and the underlying algorithm matching. It wasn’t for a broad platform to plug into others engines. Overtime that faded to the background. So it was in February of 2010 that we signed a term sheet with Trinity Ventures to lead our seed round.

Shikhar Ghosh: One of the other decisions a founder has to make is you stop this with all enthusiasm, then you start to get some market feedback and at some point you decide, “Is it because I haven’t quite implemented everything I wanted to or is it because this particular idea is not that distinctive that users are not coming in and I need to change what I’m doing?” How do you make that choice?

Sunil Nagaraj: Yeah, that’s a great question. There’s two flavors of this product concern. Every founder in my new life, all I do is meet seed stage founders and every seed stage founder usually pre-launch, myself included. I was worried should we launch with an incomplete product or should we wait a few more weeks and finish it before? Because what happens if we get a million users in the door? Don’t we need scalable servers? Don’t we want to finish a few extra features?

Sunil Nagaraj: It turns out that it’s always the better idea launch earlier always. That’s at the inception. Now there’s another decision point when it’s time to pivot. Is it, should we pivot because we didn’t finish these last three features or should we finish them and then run test or should we keep going? That’s a really tricky one. That is a candidate the decision to shut down. I think the notion of launch and launch early I think is very good advice. Everyone should launch early.

Sunil Nagaraj: In 2018 you can prototype anything in a few weeks to some degree. That input, having one or two users takes you dramatically farther on your customer insight. But on the other end, when you have a product running, for us, it was when we had the platform and the dating site it’s much trickier to decide whether a few more features will change the game. I think it’s actually very sector-specific. It’s very industry-specific. It’s the same decision when to shut down because it’s never clear that you should. It’s very tempting to say one more, two more things.

Shikhar Ghosh: You moved from something that felt like you were basically matching on gender and location and dating site, with a few features that were different and then you came up with Date Buzz. So if you could describe Date Buzz and what was truly unique about it?

Sunil Nagaraj: Sure. That arc of going from platform to a dating site using algorithms, that was a logical progression of the core idea that we can triangulate on who people are. Over time, I’d say one of the strengths, I think we got very lucky here by having a team that was extremely analytical and extremely disciplined about instrumentation. We used to say, “If it’s worth building, everyone agrees it’s worth testing.” But we would say if it’s worth building, it’s worth instrumenting. So we had very good metrics and that means that we put sensors around the application, but also we had a culture where every morning we looked at our metrics.

Sunil Nagaraj: I know a lot of startups put together the Google analytics pixels everywhere, but never look at it. We had a very tight closed feedback loop within the company. What happened was that every morning when we came in for about an hour, we were the team of engineers who should be doing more important things. We’re sitting here and reviewing photos to make sure no one had posted an inappropriate profile photo or a blank profile photo. We were going through and ranking them to make sure that there was some semblance of distribution of profile photos. That was a very manual process.

Sunil Nagaraj: We had this idea over lunch, what if we made it so that our users could rate each other’s photos? In doing so, we would not use the ratings for anything except that when someone said it was inappropriate, we’d throw away the photo. We thought we had outsourced photo moderation to our community. In that regard, we finished the feature within a day. We pushed it out that night and this part’s really important. The next morning we log in, we look at the metrics and it looks like something is wrong. It looks like we had a bug. I was very nervous. We had a short runway. We didn’t have time for bugs, especially if we were throwing away users.

Sunil Nagaraj: We look into the database further and we had made a new table to track how people were using this feature. When we looked at it, it looks like there was a bug specifically that somebody was in a repetitive bug every five seconds. It looked like their computer was doing something on its own every five seconds. We looked at it where basically one user would have 500 actions every five seconds. That was clearly a bug. We looked at it further, we saw several other users and there were different amounts of times, different intervals. It turned out that buried in the data by mistake, we had created a truly addictive feature.

Sunil Nagaraj: We realized that the old site was focused on a certain paradigm of trust us with the algorithm. This new feature was let you have free rate and look as many people as you want to in a bite-sized rapid-fire fashion. So that input kind of stuck in the back of our mind. We didn’t do anything with it immediately. Later for a few reasons we decided to pivot. As we did that we thought, “Hey, well what if we focus completely around this core behavioral mechanics?” It was an idea grounded in our own analytical insights as opposed to a belief about how the world might be.

Shikhar Ghosh: But it was based entirely on user behavior that you had observed?

Sunil Nagaraj: Exactly.

Shikhar Ghosh: Could you talk a little bit about what you mean by bite-sized?

Sunil Nagaraj: Sure. The core insight we saw of our Facebook-based dating app Wings was that when you added this feature called rate matches, we saw incredible engagement. We saw people spend 30 minutes clicking and clicking and clicking rating matches. When it came time to pivot, we initially thought, “How could we build this core mechanic of voting in a rapid-fire fashion?” But we still wanted to have a dating site that was more meaningful than the typical superficial dating site. So somewhere along the way we took this core notion of vote on photos and added it to vote on pieces of a profile.

Sunil Nagaraj: Initially we had a profile where a person would answer several questions and there’d be little voting buttons next to them. So you look at Jim and there would be a question and you’d see his answer and you say, “Yes, I like it, I don’t like it.”

Shikhar Ghosh: So the question might be, do you like photography or do you like to travel?

Sunil Nagaraj: Exactly. A profile for Jim might actually say, “If you had a day off, what would you spend your day doing?” Someone would write an answer. Then in theory, when someone came and looked at Jimmy’s profile, they could look at his photo and say, “Yes, I like it. I don’t like it.” They could look at the answer, say, “I like it, I don’t like it.” But that was still a relatively normal website. The big insight was that we had this rapid-fire element to it. Because we had atomized the pieces of the profile, we could actually have an orthogonal view of a profile.

Sunil Nagaraj: You could look at 500 photos and vote on a one by one. We knew that was addictive from our Wings experience. The new piece, which was truly game-changing, was to take the answers in a profile and look at 500 in a row. So what that did, we didn’t even know this would happen, but we knew that voting bite-size was a really powerful thing. When we gave someone a buzzing session, we call it a buzz when you buzzed up or buzz down somebody’s profile. When we gave them a buzzing session on photos, it was very addictive. It didn’t result in a different type of interaction on a dating site. People tended to prioritize attractive people.

When we had a buzzing session on written answers, it changed everything. Now, if I’m a heterosexual male looking at women, I look at 10 answers to that question, “What would you do on a day off?” I don’t see who the person is. I just read 10 answers. And I said, “Oh, that’s kind of cool. Oh, I don’t like that. That’s kind of cool,” based on the content and the substance of someone’s profile. At the end of that voting experience, let’s say there were 10 people I buzzed, I might’ve buzzed up four people, then I would get to see the four people. I had to get to see their full profile.

Sunil Nagaraj: What we realized, we did not expect this, but what we realized in the data was that users were selecting a dramatically different set of people they found attractive. So by virtue of forcing people to focus on the content before they see a photo, we ensured that people have a wide variety of physical attractiveness as we’re getting a lot of attention. This wasn’t just profile views, it was also messages. It was also trading phone numbers. So we fundamentally re-oriented the interaction a dating site. For me, the journey was start with a technical insight about behaviors and it ended with a practical implementation of how to rearrange community interaction based on something I’d seen in my analytics.

Sunil Nagaraj: As a dramatic journey that final product to say it a different way, prior to introducing this feature where you would buzz answers, all of the users of one gender would focus completely on the top sliver of the other gender, the most attractive. When we changed the feature around so that you would look at someone’s answers before seeing their photo through this buzzing dynamic, we had not just the tens, but the nines, the eights and sevens and sixes, the fives and fours all got interaction. I believe that’s good for the world, but it’s also fantastic for monetization.

Sunil Nagaraj: Online dating monetization is often driven by having good interaction, sending a message to somebody that responds to you. As simple as that loop is, it doesn’t happen for most people in online dating. So in a roundabout way we had stumbled upon a very interesting dynamic to encourage more interaction on dating site.

Shikhar Ghosh: At this point you reached something that sounds like a sort of a fundamental behavioral insight that can drive a different paradigm in dating. But you’re running out of money, or at least you’re starting to reach that point where you have four or five months of money left. You’ve been through two or three different business models in the journey to get here. How do you make the decision at that point about whether it’s worth pouring everything into it and taking a shot at it or saying, “I’ve tried as hard as I could?”

Sunil Nagaraj: Let’s see here. No. Over the 18 month journey of Triangulate, I learned a lot about a few things. I learned a lot about myself. I learned a lot about my team. I learned a lot about the industry that I was operating within. It was really those three things, learning more about each of those that just made me decide to shut down the company. Starting with the last one, learning more about the industry. I finally had a deep appreciation for how a network effect can impede agility with a startup.

Sunil Nagaraj: Specifically if I start a product that doesn’t have a network effect, let’s see a note-taking application. I can put it out there, look at the analytics, make a feature change, continue to revise the app and hone in on product-market fit. That is to say the product that anyone uses is just a set of code. With a dating site, when I launched version one of the dating site, I have to attract a lot of users, guys and girls. Then when I make a feature change, let’s say I add a new question to the profile or I change the way the site looks, it often results in a different experience for users and many users age out.

Sunil Nagaraj: Now I have to attract users again. Whereas a product without network effects can sort of iterate its to success, a network effects business often in definitely online dating, you have to reacquire a critical mass with each feature change, especially the major ones. I started to see the online dating sector for what it is, which is largely a user acquisition-driven business and that product innovation plays kind of second seat to user acquisition.

Contemplating Shutting Down

Sunil Nagaraj: As I thought about whether to shut down the company, I knew I had the ability to raise a series A. I knew I had another three or four months of runway, but I also had a deep appreciation for this dynamic, which I might describe as, to try a new feature, I need to spend five million on ads. Every time I do a new feature, I need to buy, $5 million might get me a million users, might get me 500,000 users, and that might be critical mass to try out a new feature. That notion of experimenting with that level of friction to try each new feature was fatal. That was what I learned about the industry.

Sunil Nagaraj: What I learned about the team was that they were resilient. They were loyal. They followed me to the ends of the earth. But they were also losing mental enthusiasm. It was very notable that we used to have five new ideas a day. We’d build three and see them work the next morning. At some point we had one idea a week. We were sort of slowing down in ideas. The ideas that we did put out there, we didn’t see a metrics jump in the one that we wanted, in the metrics that we wanted.

Sunil Nagaraj: Then finally myself, I started to appreciate that by talking to a lot of founders who had failed, I started to realize that there is life after startup. That my own reality distortion field can break down and that I can see kind of what’s outside of it. That was through the help of one of my investors as well as some other colleagues who are founders, CEOs. Just to understand that in a game where you’re always trying to project confidence that it is okay sometimes to show the reality and sometimes weakness.

Shikhar Ghosh: The advisor, what did he or she do with you that caused you to have a clearer view of this?

Sunil Nagaraj: That’s a good question. For most founders, CEOs, a large part of the journey is projecting outward confidence and hiding and peanut buttering over all the complexity underneath. That becomes second nature. When anyone asks how your startup is doing, you say it’s going incredibly well. I’m crushing it. You say it so often, you believe it. It’s a gut reaction. You never tell anyone outside of your company how anything is really going. You rarely tell people inside your company how things are going.

Sunil Nagaraj: This is why CEO groups are very popular, where CEOs of different startups can talk to each other about their real problems. As I thought about shutting down, I was in the mindset of always saying that everything is going well, things are humming along. We’re growing users. At some level we were adding users, but it was on a linear basis. I had the mantra going through my head that everything’s going great. We’re pushing ahead, we’re fighting the good fight.

Sunil Nagaraj: One of my investors was able to communicate me in a way that acknowledged that mantra didn’t disparage it, but sort of joined my side of the table in a way. When founders are usually talking to people, they’re often selling the person. This investor that I spoke to was conceptually able to come to my side of the table and say, “Sunil, I know exactly what you’re going through. I think things are going at a certain pace. If you want us to do something here, we will. But we also want to understand why you are spending so much of your own time on this. We think you’re fantastic.”

Sunil Nagaraj: So it was helpful to sort of calm my ego, let down the guard that everything’s going well and to see this other investor not as someone to impress. But someone that’s working with me for the first time. It was in that conversation that they said something very specific. They said, “We love you. We don’t understand why you’re spending so much of your time on this. Help us understand why you’re getting so excited because we don’t see it anymore.” That was a really helpful way to think about things where I was able to drop my guard, actually pursue this pragmatically.

Sunil Nagaraj: I believe this investor even said, “Come be an entrepreneur and residence with this.” It shaved off a lot of the ego part of failing and then allowed me to process it as a thoughtful decision, almost arms length. If I were to see this, what would I do even if my ego isn’t going to get broken or my reputation will get broken by this? That was helpful to see and I think that’s probably something most founders go through.

Shikhar Ghosh: Once you made the decision, how did you actually manage that process? Because you had enough cash and so for a lot of teams they’d say, “We have this new idea, we have this one more shot at it and we’ve struggled for 18 months and we have some money and some runway. So why don’t we just run it and see what happens?”

Sunil Nagaraj: Reminds me one last thing on the decision to shut down. There’s this lore within founders that a company is about to shut down, they think of one idea and then it takes off. Whether that’s Twitter or another successful tech company. So the pressure is even stronger at the very end. Like, “We should keep fighting to the very end because this other company did it.” It turns out that is extremely rare. For me, it took talking to a lot of founders to get over that as well.

Sunil Nagaraj: Now the process of shutting down was one that took a while to get comfortable with. I had this conversation with an investor that was a very thoughtful, delicate conversation positioned in just the right way to get me to finally drop my own guard to myself. I might even say that I had a guard to myself that things are going so well that I just got to fight the good fight. Once I did that, it took a few weeks of talking to friends, of talking to other investors, of talking to other founders in a increasingly open way. “Hey, what should I do?”

Developing an Exit Strategy

Sunil Nagaraj: As opposed to, “Things are going incredibly well. What should I do?” As I came to that decision a few weeks later, I started to realize that it was time to shut down and that I needed to loop my team in. It’s delicate as a majority founder to decide when to bring in others in the team into a delicate decision like this. It can mess up morale if the rest of the team knew I was thinking about shutting down and decided not to. I didn’t want to make it public until I knew that I was going to shut down. As soon as I finalized the decision to shut down, the most important thing to me was the people.

Sunil Nagaraj: The people who had sat in my living room on steel folding chairs for a year without salary. People who had followed me to the ends of the earth and I had led them astray. What I decided to do was to figure out every question they might ask and come up with good answers for each of them. Figure out the severance plans, figure out a way to give them confidence. Despite the floor falling out from under them and falling out from all of us, I wanted to be able to give them a nice sendoff and give them a clear path forward.

Sunil Nagaraj: I prepared my own little script about how to discuss this with each of them. I ensured that I was able to have one-on-one conversations with each of them. I made sure that as they arrived in the morning, they were going to arrive at different times. I actually thought through exactly which train different people were on. I invited them into a room, I talked to them one-on-one. I let them share whatever they wanted to share. This was brand new information for them. None of them pushed back because they all felt it. It was a decision that felt organic.

Sunil Nagaraj: I had answers on what severance would look like. I had answers on I was trying to do a talent acquisition. It started at 8:30 in the morning, by noon we were finished with the different people. At that point we could all talk and everyone breathed a sigh of relief. It was very surprising. I thought there was going to be tension. I thought there was going to be more pushback. But in yet another fashion, my team loyally followed me into the wind down of Triangulate. We then spent time working on trying to have our technology acquired or our team acquired.

Sunil Nagaraj: We explored that avenue. We decided to wind down the company. At that point, my primary concerns were the people and my investors. One way to tie it off in a nice bow was to have a talent acquisition. I mean, even if the business wasn’t going to be acquired for the revenue and the profit, we thought at that time in 2011, talent acquisitions were on the rise. They were sometimes called acqui-hires where you hire through an acquisition. One of the thoughts I had very quickly was that if my employees started to go home and have lots of free time, that inevitably someone would start getting job offers or getting phone calls or start looking around on job sites.

Sunil Nagaraj: So we did was to come back into the office every day. We had a few meetings sparsely throughout the week and in between we actually just spent time playing board games. It’s kind of silly to say but it’s now a defining characteristic of our culture. Now when the Triangulate team meets up, we always play Settlers of Catan and that’s because we played that a lot while we were carefully trying to wind down our site and carefully trying to prosecute the opportunity around a talent acquisition.

Sunil Nagaraj: But it was actually an important piece of the puzzle because I knew with five people, if one person gets a job offer, the talent acquisition price drops dramatically. It’s not linear. That worked pretty well. For a few weeks, we did that. We went through the motions of the talent acquisition. We were playing board games and spending time together in the office, although not working on new features. In the end we didn’t find a talent acquisition. I reached out to all of my VC friends who have investments in different startups.

Sunil Nagaraj: I asked them could they hire my four employees into their portfolio companies? Almost everyone got a job that way by getting hired into a portfolio company of a startup. It was a nice sendoff. I’m happy that everyone landed safely and securely. I’d also like to think that the roles that these people landed in were not roles they could have secured prior to Triangulate. So even though Triangulate in a way was a waste of two years of their lives, one of which was unpaid, it was also a concrete building experience where they benefited from it afterwards.

Sunil Nagaraj: I take a tiny bit of solace in that. I myself had the mental comfort of the entrepreneur in residence offer with my VC firm, which I took seriously. That allowed me not to think about recruiting or not to think at all about myself. It was a very classic move by my investor. In the process of finding jobs for my people, one of the VCs that I reached out to said that there was an opening at his firm. I had a discussion with a few partners and just a few layers later had the offer to join that venture capital firm. That’s where I ended up going for six years.

Dive Deeper

In Part 2 of this interview, Nagaraj shares his understanding of the ways in which an entrepreneur’s and investor’s mindsets differ. Why does that matter? Founders who understand their investors’ mindsets may be better positioned to succeed. Hear more from Nagaraj on assessing co-founder compatibility or find questions to ask potential co-founders before formalizing your partnership in Choosing a Co-Founder? How to Find the Right Person and 3 Topics to Discuss before Writing a Founders’ Agreement. Our Founding Team section provides frameworks for creating a founders’ agreement and allocating co-founder equity. It describes the pros and cons of adding a co-founder vs. becoming a solo-founder.

Shikhar Ghosh

Posted by Shikhar Ghosh

Shikhar Ghosh is a serial entrepreneur, angel investor, and Professor of Management Practice at HBS. Named one of the "Best Entrepreneurs in the US," by Businessweek, Ghosh has led some most innovative tech-based companies in the US and advised hundreds of entrepreneurs.