The startup myth goes something like this: You launch a startup in your dorm room, get into Y Combinator, find product-market fit, experience hockey-stick growth, raise some funding and expand the platform. Somehow your revenue hurtles toward $100 million and the company valuation flies to $1 billion. All’s right with the world.
In reality, though, it’s never that smooth. While some startups may achieve those milestones, there are usually bumps and full-blown challenges along the way. Mistakes will be made, some quite harmful, and how you react could determine the success or failure of your business.
One company that experienced all that and more is Mixpanel, an analytics startup that emerged in 2009 to help product teams understand how customers were using their products. While founder Suhail Doshi was interning at a now defunct Max Levchin startup called Slide, he saw the need for product teams to measure how successful their digital tools were.
Doshi cofounded Mixpanel with Tim Trefren, and between 2009 and 2018 he led a company that eventually reached revenue close to $100 million and a valuation of nearly unicorn stature, but at that point it was experiencing problems. It lacked focus, it was losing customers, and many of the customers it had weren’t terribly pleased with it.
In 2018, after nearly a decade, Doshi decided to take a step back and had his COO take over as he moved into a chairman of the board role. The new CEO began a process of evaluating and eventually charting a course correction, one that would take it back to its core product.
We spoke to current CEO Amir Movafaghi, VP of people and strategy Amy Hsuan and VP of product and design Neil Rahilly to find out how Mixpanel developed, what caused it to lose its way and why it believes it has righted the ship and got the company back to a stable place. (We also asked for comments from founder Doshi to get his perspective, but the company did not respond to that request in a timely manner.) None of it was easy, and it certainly didn’t follow that seemingly smooth mythological startup journey.
The early days
Like any good startup story, this one started on a college campus at the University of Arizona in 2009 where 20-year-old Doshi was a college student. While interning at Slide, he saw a problem around collecting and analyzing product data, one that big companies had the resources to solve but was out of reach for startups like Slide. That’s always a sweet spot for a software service startup.
To that point, if a company was using an analytics product, it would likely have been something like Google Analytics or Omniture, which were geared toward understanding how people got to your website and what they did after they got there. People who were in charge of digital products had different needs, though. They wanted to see what features people were using, their path through the product, where they got stuck and when it didn’t work as designed. While both approaches might have had a usability component, the web analytics tools had a specific purpose that really wasn’t well suited to product teams.
Doshi seemed to recognize this and developed his early version of Mixpanel, which began to find an audience. Perhaps product teams were hungry for data that was specific to their needs, but whatever the reason, Doshi was onto something, and before you knew it, that summer he was in Y Combinator learning how to build his company.
It went pretty much as expected after that with funding totaling $77 million coming between 2010 through 2014, starting with a $500,000 seed round in February 2010 and topping out with a $65 million Series B led by Andreessen Horowitz in 2014. That last round came with an $865 million valuation.
When Rahilly joined Mixpanel in 2012, the product was really beginning to get popular and it was an exciting time to be joining an early-stage startup.
“When I joined, Mixpanel had really just started to take off, and we had this incredible product-market fit with startups and helping them with understanding their product usage and prioritizing and designing to build a successful product,” he said.
By that point the company was experiencing “hypergrowth” and they were doing it mostly organically with traffic to their website. That’s when they decided to put a sales team to work, figuring it would push things along even faster.
“We actually were [growing really fast] without a big sales team. And so there was a sense of ‘Hey, we can really accelerate growth even further by building a big sales team,’ which we did and which worked — at least initially,” he said.
They were so pleased with that growth that they got a bit greedy — and then they did something that would prove to be a huge strategic mistake.
Losing their way
They didn’t know it at the time, but that big round in 2014 would be it for the funding. It would also represent a high point for the startup before ever so slowly it began to drift sideways.
CEO Movafaghi says the company made a couple of mistakes in the period around the time it got its big Series B investment. It looked around as many startups do and decided that if it wanted to grow even faster it needed to expand the platform beyond the core product. But at the time it seemed logical to have more products to sell and generate more revenue.
“We sort of jumped the gun if you will, and prematurely [shifted] horizontally and started serving different markets. We built a messaging app and we built an A/B testing experimentation product,” he said. That had a cascading impact that took the focus off of the core product and began a period of decline for the startup.
Rahilly said unknowingly this product expansion really fragmented the attention of the team. “I think we got spread out across too many different products and were trying to do too many different things for too many different customers. And so that’s what I think led us to slow down and that was largely because we didn’t really follow through on that original product-market fit as well as we needed to,” he said.
The second thing it did was turn from its core startup/small business market to focus on the enterprise where the sales were bigger and you could generate more revenue, which as Movafaghi points out is something that many companies do as they hit Series B and try to accelerate. It seemed a sensible move, but once again it represented a point where they were taking their eye off the ball.
“If you’re a startup in Silicon Valley serving the B2B market, almost every venture firm is going to very aggressively try to push you to sell to the enterprise. And it’s somewhat of an obsession of sorts, and the company made that transition rather abruptly in terms of wanting to go pursue that before we were really ready for it,” he said.
If you’re a startup founder reading this at this point, you have to recognize a few common themes. Every B2B SaaS startup wants to be a platform play. Every startup wants to move up market, but if you do it before you’re ready, you could get into trouble.
And that’s exactly what happened to Mixpanel. The company shifted its focus from smaller customers to a broader customer base comprising marketing and product teams and even larger targets. It was then that the company began to lose its way, at first without even knowing it. Over time, however, it became readily apparent, as several key metrics would begin to decline in a precipitous way and the company knew it was in trouble.
Being honest about the problem
Before a startup can fix what ails it, it needs to make an honest assessment of the problems it’s facing. When Movafaghi was promoted in April 2018, he knew from his time at COO, that it had the makings of something special. It had the requisite revenue, which he told CNBC at the time, “was in the neighborhood of $100 million” and a valuation close to the magical billion-dollar mark, numbers that any startup out there would aspire to. He began the process of looking at how to improve on that.
In October 2019, he hired Hsuan and immediately charged her with evaluating the current state of the company, and more importantly what they should do about it. While some numbers had begun to recover in the time since Movafaghi took over, there was still plenty of room for improvement.
For instance, its customer retention numbers, which had been in the low 50s at the beginning of 2018, had begun to turn around at that point, but other numbers were still alarming. The number of weekly active users (WAUs) was dropping in a dramatic fashion and the company’s Net Promoter Score was languishing at 15. While it didn’t provide specific WAUs or revenue, the metrics it provided told a story and it wasn’t a good one. Clearly something was wrong.
When Movafaghi put Hsuan in charge of taking a hard critical look at the company and coming up with a new approach, the executive team already understood that there were issues they had to address. The first step was to document those issues and come up with a way to deal with them, one that might not be pleasant or easy, but absolutely had to be done.
“At that point there was a broad recognition that we needed to find our way; that there were obviously many different options for us to choose; and that we wanted to really look at it from an objective perspective based on data analysis,” Hsuan explained.
The first thing she noticed was that in spite of having a group of products that touched a number of roles, their customer segmentation was hypersimplistic.
“We only had two customer segments. You were either a customer who had less than a thousand employees or you were a customer with more than a thousand employees. And we were servicing all customers equally as if every customer was an equal value to us and going to be equally loyal to us over time. From a strategy perspective, that usually means you’re casting too wide of a net,” she said.
What’s more, the company didn’t seem to have a good grip on who it was and what it was doing and that was reflected by the fact that the language it was using to describe itself was a bit muddled. “We were not really sure what language resonated with the market we were going after.”
She had learned in her time at Boston Consulting Group where she has spent seven years working on similar issues that once you outlined the problems, backed that up with data and determined a path forward, you could move rather quickly — and that’s what happened in this case. While the issues had been years in the making, once the strategy was set in motion, the team did what they needed to do.
“One of the first key tenets of successful strategy at the end of the day is you have to make a case for change. And once you’ve established that and everyone agrees on it, your execution on a strategy can be very quick because most of the strategy comes down to change management and transformation,” she said.
Back to their roots
What they found was that they had lost their message by drifting too far from their core analytics products and into marketing with the messaging and A/B testing products. They decided that the best way to proceed was to get back to their roots by cutting these tools.
Rahilly said the decision came down to how to best utilize the resources that they had as a company. “In my mind part of the reason why we had to refocus was that it was just evident that we could not get to the level of quality and depth across the entire surface area that we had with the resources that we had. And so we had to cut scope,” he said.
Hsuan’s biggest concern as she explored this option was that the company would be giving up revenue by deprecating two products, and she wanted to be absolutely sure that the product analytics market was big enough to make up for that.
“The first thing we did was to say, ‘Look, let’s just confirm what the market size is and is it or isn’t it big enough?’ Is there a big enough pie for us to be in this market along with a bunch of other competitors, and the answer was that within just product analytics alone, there’s plenty of TAM (total addressable market) and plenty of space for multiple competitors to be successful,” she said.
She said the other thing that needed fixing was finding more granular customer segments beyond the two that they were using, which she believed would help draw in more varied users and drive more revenue and hopefully more satisfied and sticky customers.
Finally, they also took aim up market again, believing the experience they had gained over time and their focus on the product analytics would enable them to understand and service enterprise customers better than when they first attempted it in 2014.
In the end the team decided to shut down the messaging and testing products and concentrate on product analytics, but Rahilly said that the decision did not come without some painful impacts.
“When you decide to make a huge strategic shift like this, it’s really a case of taking a step backward to take two steps forward because in the short term there’s lots of pain. People have been working on stuff for years, and you’re going to change direction. You have to manage customers in transitioning them and making things right with them,” he said.
And Rahilly, who made the final decision to cut the products, believed that focusing on that core product-analytics product was the way to set the company right. “On the other side, you then have the opportunity to really focus and deliver on the core product in a way that you’ve always wanted to, and actually the company becomes much more unified because it’s much simpler and everyone is on the same mission,” he said.
It was still a major gamble for any company to cut two products it had invested years of engineering and other resources into building, maintaining, selling and supporting. It meant throwing away that entire investment and losing the revenue associated with those products, but they believed that it would help fix the company and get it back on track.
But did it?
Finding equilibrium
The good news is that if you are honest and take some big steps, you can begin to fix these kinds of fundamental startup growth issues. Movafaghi believes that the company was able to right itself because it refocused solely on the customers, relying on customer metrics to prove whether it was doing the right thing.
“We really centered ourselves as an organization to look at outside validating factors in front of us, as opposed to coming up with some grandiose or arbitrary point of view and say let’s have this customer focus drive us and we only pat ourselves on the back when we get validation that we’re in fact creating value,” he said.
He believes it has in fact found that customer validation. They went from 50% to 85% gross dollar retention in the second quarter from where they were in 2018. Their Net Promoter Score has gone up threefold in a span of 18 months from a low of 15 to 85. “We have had a 67% jump in signups and had a 52% increase in the number of weekly active users in the product,” he said.
It also showed some success with its enterprise target market, winning customers like Amazon, Discord, Dunkin’ Brands and NBC Universal in 2021.
Rahilly said that in the end, if he had one bit of advice for startup founders, it’s about focusing on your customers because without them, you really don’t have anything as a company. “If I look back through everything and I say one thing that you could really do that just would probably help [you] get on the right foot in almost any situation, I would say that’s to focus on your customers, really understand them and listen to them,” he said.
In the end, that’s what Mixpanel did, and it appears to be on the right track. The company is living proof that being a startup is a long slog and never a smooth ride, but if you keep making honest assessments, you can always find your way.
Editor’s note: The article has been updated to clarify Doshi’s role.
Comment