#480 The Dangerous Gap: Why Startups Fail After MVP – Insights from Ali Hafizji

Episode 480

[00:00:00] 

Mehmet: Hello and welcome back to a new episode of the CTO Show with Mehmet today. I'm very pleased joining me from India Ali Hafizji. Ali, the way I like to do it is I keep it to my guests to, you know, introduce themselves just as a, you know, kind of a teaser to the [00:01:00] audience. We're gonna talk about something. We touched before, but I think, you know, we, we, we always like to have different opinions, especially Ali is a, uh, like a veteran entrepreneur, I can say.

He, he have, uh, founded two companies. But without further ado Ali, I will pass it to you and then we can start the conversation from there. 

Ali: Thanks so much for having me on the call. Um, I, I'm looking forward to this conversation and also, you know, just through you sort of speaking to your audience, um, just give you a quick background about, like, a little bit about what I've done so far.

So I am actually an engineer by profession and I turned into a marketer and then finally into an entrepreneur. Um, I've just been building digital businesses. Throughout my entire career, um, both as a business owner as well as somebody who's actually hands-on and programming and building the digital product itself.

Um, at the [00:02:00] moment I run an agency called Wednesday. Um. And, um, Wednesday actually started somewhere from the 2020 timeframe. Um, and I was just finishing with another company, which we had to shut down because of COVID. Um, and right after that I decided to start Wednesday. Um, I've always had this sort of obsession with this software development.

Process. Um, and I used to read a lot of books about like agile and waterfall and all of these different processes that people have in place, and I would always see that there's a difference between what is written in the book and what is actually happening in the real world. So I said that, you know, this time we're just gonna solve this one problem, which is we're just gonna build teams of engineers who are actually delivering, not just what's written, but actually more about, more than what's that and, um, and maybe even create our own standards of software development.

Um, so that's what I'm sort of heads down, focused on just [00:03:00] building teams of great software engineers and designers who. Sort of take decisions the same way that I would. Um, and we're just helping startups, so we're just working with early stage founders from their, in their MVP to PMF journeys, and that's what, that's what Wednesday's about.

Mehmet: Great. And thank you again Ali, for being here with me today. I. So let's, let's deep dive a little bit, um, you know, with the MVP, right? So we've, we see, you know, MVP is a milestone. No one can deny this. Um, but let's talk about what happens, you know. After you get your MVP, like what? What should happen actually in the first months or 30 days?

What do you think founders should be actually doing once the MVP is out? 

Ali: You're right to point out that an MVP is a milestone and just the way that [00:04:00] you have a developmental milestone, um, at which point you start doing newer activities or new things. Uh, an MVP is a milestone in a journey of an entrepreneur where they need to start doing different things, um, which is also something that people don't do.

So here's what I think. Um. Founders should actually focus on after the first 30, after they have their MVP. Um, and in fact they, they should probably focus on this even after the first 30 days, but they primary need to focus their efforts on two key metrics, which is, you know, acquisition and retention. Um, and what these metrics measure is the number of users that you're sort of onboarding to your.

And the number of users who are repeatedly coming back to actually use the product. Um, and if you move your focus to just measuring these two things, um, you end up having more time to do different things. So, for [00:05:00] example, I think that what founders need to start doing when they reach MVP is they need to focus their effort on doing four other things, which is they should focus their effort on doing distribution or marketing.

Sales, fundraising, and also just lastly, talking to customers on a one-on-one basis. Um, and when they start doing these four things, they would realize that their life is very different. Pre pre MVP, uh, potentially pre MVP, they were just sort of building something out. They already knew who they were gonna sell that particular product to, which is how they identified the gap.

But after MVP, they need to start doing these four things, uh, and then potentially maybe have a team or hire a team, um, to actually build it out. 

Mehmet: Great Ali, and this is brings, you know, the discussion to the thing that I always, uh, I have prepared for. So what you're describing, right? Mm-hmm. Is what we [00:06:00] call.

You know, product market fit, right? So now the question is, what, what do you think? And you call, you, have you give it yourself a name? You call it the dangerous gap between MVP and PMF or product market fit. Yeah. Why do, why do you think it's a dead zone? Right? So, so yeah, you said they have to go do this, they have to go that.

Now yourself as a founder. And by the way, so people, when, when, when the word founder comes to their mind, they think you are just building, I mean a product yourself. But this applies mm-hmm. I think even if you're building a service for other companies. Right. So tell me about, you know, this dead zone or dangerous zone, you, you call it, or dangerous gap, and how people can they survive it.

Ali: I think Okay. It's, it's a very interesting question I think. [00:07:00] We see this happen a lot just because we work with so many founders in this region, sort of in this zone. So I think what happens right now is most founders who have some MVP and a few customers who are willing to pay for that particular product, they end up being part of some accelerator or incubator, and they usually raise some kind of seed money.

Um, what that hap what, what happens then is that it leads to. I would say a lot of focus on vanity metrics, and this is something that people really need to be aware of as a founder. So metrics such as, you know, the number of visitors to my website, or number of PR mentions or social media mentions, or, um, just the number of app installs.

These do not mean that you have PMF. Um, in fact, it's the complete opposite. Um, what I do see happen is that when people start focusing a lot on these metrics, it [00:08:00] fuels the need to build things that nobody wants. So for example, when you start going after these, these metrics, you start to think that maybe whatever I built is useful to people.

And then you start sort of, um. Reinforcing your own, uh, belief system as to, you know, if I put something out there, it'll work. Um, and people start building features and a lot of products, et cetera, without really validating the need for it. Um, we also see people spend a lot of their initial, uh, time and money doing, uh, marketing activities, uh, using scalable channels, just paid advertisements, et cetera, without really knowing if that works or not.

Using like a one-to-one approach. Um, they don't really know what messaging works, and then they start running all of these campaigns. So I feel like this is where most startups sort of don't reach that [00:09:00] beautiful period of PMF because they sort of, um. Go after a lot of these vanity metrics. In fact, we've seen almost, you know, 50 to 60% of startups fail because of two primary reasons, which is, you know, doing too much too soon and just not having the right team, uh, which is just the founders micromanaging and doing everything.

Um, and that's where the journey ends for the founder, and they don't get to realize the full potential of that dream, 

Mehmet: right? So. If I want to take your words, Ali, and what you're describing is, is you know, very, uh, very true. So it's like building something no one wants. Mm-hmm. And assuming that people will want it.

Ali: Yeah. 

Mehmet: And I know the audience, if they follow, I keep telling them, I refer them to go read the blocks of Steve Blank, professor [00:10:00] Steve Blank. Mm-hmm. Who talks a lot and a lot, a lot, a lot. And his book, the If Epiphany, you should read this book. Like he talks about product market fit. And to your point, Ali, I think, yeah.

People, they. I can't blame by the way, some founders because you know Yeah. Out there there are a lot of noise, you know? Mm-hmm. Especially on LinkedIn and other, uh, platforms where people talk something about the metrics and all this in simple term, and it was from my humble view and opinion, a product market fit happens when you are able to get the product out, put it in the hands of the people.

People love it. People will pay for it, and then you find a way to repeat this again and again and again. So it's, it's, it's finding repeatable business. Model for your product, right. So, correct. But I, I don't know who to blame, [00:11:00] who to blame for this, but anyway, it's a discussion for maybe another day. Now.

Now let's, let's keep, you know, in, in, in this zone between, you know, the MVP and the PMF. Mm-hmm. What do you think? You mentioned few. Okay. But what do you think some of the traps. Um, that founders fall into, uh mm-hmm after the MVP, like, other than, you know, not doing the sales and all this, so. Maybe I should also ask you like the MVP itself, you know, uh, I'm loading the question, but I want you to, to feel free to explore more.

So when MVP is, you know, has more than it should have, because you, you mentioned this in the answer. Yeah. And when it's not complete. So, so, and you work with a lot of other startups, founder, um, founders, yourself, Ali. So what you can tell us about that. 

Ali: Yeah, I think that, um, one of the [00:12:00] biggest killers in this zone is just premature scaling.

Um, you know, a lot of startups find sort of fail because of that. They, they, they, they start doing things without really validating whether this is scalable in the first place. And I'll give you a couple examples. So for example, uh, marketing, I think this is a huge spend that startups have. They have that MVP, they find out that, yeah, I know these 10 people who actually are gonna use it.

Maybe there's gonna be more. And then, then you roll out like a huge, uh, paid campaign and you start doing ads, et cetera. Um, this is, I think, like a pretty big trap for founders. They should not do that. Um, almost early. Users are using it because you know them. Um, you need to find out a way that gets more people to actually use that particular product and then convert it to something that is [00:13:00] scalable.

Um, similarly, I also think that, um, other issues include, um, just hiring too fast. I think a lot of founders just blow up on the ability to build things, uh, which may be just hiring too many engineers or having just like a large team. Um, and then you eventually end up building like a feature factory, um, because you know, they have to build something.

Um, I, I also, I also see a lot of founders obsessed about the tech. In the early days, while I'm not saying that you shouldn't build a product that is, that isn't functioning, but I don't think you need to obsess about, um, you know, scalability right at the very beginning. You can like pretty much work off of, um.

A simple EC2 instance, if that's something that you know of, like how to program or you can even use a Simplifi, this database or anything like a no-code PR platform [00:14:00] during the initial iterations. Even after MVP. There's nothing wrong with that, but I think most founders who have like an engineering background, many a times over obsess about.

How do I build this versus is this useful in the first place? Does it actually move a business metric for me? Um, lastly, I think, uh, and a huge, and I'm just gonna add one more thing, is that, um, founding teams, I think a very big killer is that if every conversation that they have isn't about the core product loop, then something is wrong.

For example, every time if a founding team meets and they're not talking about the core product loop, which is, you know, what are the number of steps that a user takes to actually get the value that you promised that, you know, let's say you have a legal tech product or an HR tech product or whatever it is, I.

What are the steps that the user interacts with to get that value that you promise? If your conversations are not [00:15:00] around that, but they're about other things, then it's probably a pretty big trap. Like that's a good way to identify whether you're moving in the right direction. Something the founders can try as they, you know, have discussions with their team as they meet their team on a regular basis.

Just see how many conversations are about this. 

Mehmet: Right now talking about, again, it's, it's, it's, you know, doing a startup, you're gonna be, as you said, a lot of iterations sometimes. Yeah. And, you know, you, you, you need to, to have the balance, I would say, between the metrics you collect. So you, you need to be mm-hmm.

Watching the right metrics. Right. And I would say it depends. And I like something you mentioned Ali, even at the introduction and the, the first few, uh, minutes of the conversation, like the, because you mentioned about the book and what's in the real life, and this is applies to what we see. I tell people, you know, reading [00:16:00] articles, reading books, I, I still read books, you know, on daily basis.

It's, it gives us kind of a framework or let's say like a bigger, um, as they call it, like a 40,000 feet view of what's there. But it's on up to us to go and decide. And sometimes it's like a mix of this, you know, gut feeling decision. Yeah. And sometimes we're gonna be data driven and it depends on your business and what kind of.

Customer section you have. Right. So, 

Ali: yeah. 

Mehmet: Now you mentioned also something about, you know, iteration. You mentioned something about, uh, you know, finding this balance you mentioned about engineers, and this is, you know, brings the topic, which everyone talks about today. And you mentioned about tech founders and non-tech founders.

Mm-hmm. So let's, and I'm gonna talk about ai, right? So first, you know, what role can AI plays in this? Process. I mean, [00:17:00] post MVP, what do you think AI can help founders with? 

Ali: I think I. AI is a complete game changer, right? So AI is a complete game changer in terms of the way products are built, the way products are distributed, the way they're marketed.

Um, I think it even changes or affects the way that the software development process itself. I think Agile itself needs to change now, but we can talk about that in another one. Um, but I think the way that it helps founders is, um, they need to really start using AI as like a tool. To help them do their, like to help them in their new role post MVP.

So for example, whether it is, um, you know, marketing, sales distribution, or just talking to customers, AI can be an extremely amazing tool to sort of co-pilot you in not only just identifying like what to do, but also how to do it. [00:18:00] So you can, I, I mean, I would highly request, like, I think this is, this is an amazing tool that founders need to start using, but not just, you know, don't just prompt AI and ask them, like give them the entire context and say that, like, in this context, what do I do?

You can also use it as a thinking engine and you can give it broad based questions and I, and ask it like, what would it do if it was in your place? Um, and it, it will be pretty amazing, um, for founders to learn, let's say, how do I conduct a user interview? Or how do I plan, let's say an outreach strategy to get like a couple of people to sign up for my product, or how do I create like a LinkedIn post, something so easy, but.

Many founders aren't just social, right? Like they're probably doing it for the first time or maybe even the second time. But they've played a very different role before. And this can really assist founders, um, just as a co-pilot. So I. Founders need to start using this as a copilot in their new role. But I also think that they should start [00:19:00] looking for people if they are hiring who are sort of AI native.

And I think that's a huge test for the pace at which they will move. So for example, if you're hiring engineers or designers or even product people, um, you know, if they use AI for their craft, it'll help you move at a rapid, rapid pace. So if you have, if you're thinking of hiring an engineer and they are an AI native engineer or a prompt engineer, you will be able to, you'll be amazed at the pace at which they can get these done.

Because in the early days, what matters is your ability to iterate. Um, so yeah, I think that AI is a huge, huge plus. 

Mehmet: Cool. Now we mentioned engineering a lot of times and here. Yeah. Uh. And you are an engineer. I come also from engineering background. Is AI replacing us as software engineers? Mm-hmm. You know, are, are, are we [00:20:00] now able to, let's say, give our.

You know, hats mm-hmm. To the AI and rely on it a hundred percent at least because we are seeing a lot of things regarding this, to give it to the AI to develop the, or we are still early. Yeah. AI can generate code, can help us, you know, create things, but we still need an engineer, you know? Mm-hmm. Um, view and experience pre MVP stage.

What do you say, Ali? 

Ali: Prem VPI don't think so. I genuinely believe that pre MVP, the founder can use a lot of tools to build something out and just show it to a couple of people. But I think post MVP, for sure, you need to do it. 'cause your role changes. Even post PMF, you need, uh, an engineering team. Now the, the composition of that team will be very different from what it was [00:21:00] even like two years ago to now.

So, um, I think that that has definitely impacted, um, not just the composition, but also who you hire. So, for example, there is a very big difference between a programmer and a product engineer. They're very different people. So for example, if a programmer would just do what he.

But somebody has to do the thinking, which is what is the architecture of this system going to be? What are the API interfaces going to be, you know, what is the, um, um, what are the tests that it needs to pass? All of that is done. Uh, but a product engineer does not do that. A product engineer does the thinking as well.

So I'll give you an example. So let's say there is a. Product engineer who's, you know, who's building a login page for, uh, a particular application. Um, and the goal is that, you know, you take a user's phone number, they enter an OTP, [00:22:00] and then they sort of log in. Um, a product engineer will think about things like, how is this error message going to be shown?

You know, um, when the user enters the OTP, how easy is it to do that on the phone? Does it autofill, does it not autofill, like, how do I check if the phone number is the correct length or not? How do I support international numbers? They're not, they're actually thinking about more than just coding that particular.

Interface. They're thinking about the user interface. They're thinking about how the user is going to actually, um, uh, is there gonna be friction In this particular workflow, they are thinking about how what I'm doing is going to affect the business metric, which is acquisition. Now, when you have somebody do that, they can use AI tools to build it out, but the outcome is very different.

You now have a person who's actually changing your business metric, which is acquisition. Versus somebody who you have to actually give an entire spec to. So I think team [00:23:00] structure will change drastically. I also think team sizes will change drastically. Um, so for example, if you had like a normal sprint being run by, you know, a couple of engineers and designers, a product manager, project manager, you know, your typical agile structure, that will change a lot, maybe even reduce substantially.

Mehmet: Ali, let me ask you like, as a follow up question, so do you, are you saying that the days, and it used to happen a lot where mm-hmm. Especially non-tech, non-technical founders, uh mm-hmm. Used to hire teams to build MVP and you know, then they either decide to hire, uh, you know, uh, insiders or they keep, you know, outsourcing that.

Are you saying or do you see. That this trend is now fading because now anyone Similarly to what? In to an extent because it had a lot of limitations. What no-code have [00:24:00] done. So yeah, no-code allowed non founders, non-tech founders to at least bring their ideas to live. But we know that no code, although it's no code still there's a heavy lifting and it's not like very flexible, but the generation of.

AI agents and you know, just for the sake, I'm not AFF affiliated with any, but I think everyone knows about Lovable and Ripple. Yeah. And Versal. And, and, and so now can we say very soon, non-technical founders, they would not need to hire teams to build their MVP. 

Ali: I don't know. So I don't know if that's gonna change the bio motion.

Right. Um, because it's not like people don't hire agencies to do websites, they still do it. Mm-hmm. But on the other hand, uh, there are businesses that are, you know, a million dollars plus just [00:25:00] selling WordPress templates. Um, so I think there's best of both worlds. I think we're gonna see a lot more entrepreneurs in general solving problems.

You know, the, the folks that want convenience will probably hire an agency to build out the MVP, but what I think is gonna matter is that the time to build the MVP will be drastically less. So it should affect your cost. 

Mehmet: That time will, yeah, you, you, you made a point, Ali, honestly. Which, which I didn't, uh, think about it, which Yeah.

Till now people pay hefty amounts, by the way, for website designs. Yeah. Don't get me wrong. Uh, they, they get good results as well. Like, it's not like something and WordPress plugins. Yeah. And I think, you know. Uh, some of these tools gonna stay for a while because mm-hmm. Adoption is gonna take time is in my opinion.

And [00:26:00] then, yeah, we, we, we'll see what will happen. But coming back to generally, you know, about the idea of outsourcing, right? Mm-hmm. So what you, what's your take on this? Like when it's too early, when it's like. Not done properly. Uh, so best practices you, you've seen like for startups to leverage the offshoring of talents, uh, without sacrificing on, on quality or control.

Ali: Yeah, so I think that, um, just outsourcing, whether you do it nearshore or offshore, um, is it typically fails because you don't have an evaluation mechanism. Um, most off during, or are nearshoring happens because people, they don't really have set criteria as to how, if I do this, it'll affect my business.

Um, [00:27:00] they typically do it for, and if you're doing it for reducing costs than that's a completely different ball game because you, you know that that will affect that particular metric and then you should be fine with that. Not expect more. But usually the, it doesn't stop there. Uh, every business who outsources, um, starts looking for advantages beyond just cost measures.

So they are looking for things like, Hey, how does this, um, can this team, you know, create a roadmap by themselves? Can they do the thinking? Can they actually use ai? They do want these things. Um, so I think if you are deciding to off offshore, you should have a very clear evaluation mechanism. Um, you know.

Most founders want to work with teams that will actually go back and forth with them. You know, for example, like let's say for example, if we're working with a founder, we will, when they come to us with a list of features they want to build, we'll actually ask them saying that, why do you want to build this feature?

Do you have data that backs that [00:28:00] somebody needs this feature? We will sort of, it'll become in a consultative fashion so that they realize that you know, hey, at this point I need to start doing this. And they will start talking to their user. And so slowly start moving in the right direction. Um, to build this kind of team yourself will take you some time.

So I think, you know, if, if this is something that you're looking for, which is, you know, a, um, a, a team that has done it a couple of times, if that is a part of your evaluation criteria, sure. Outsource, but then look for that. Know how to look for that, um, see if they have those frameworks, see if they actually have those practices in place.

And there are, you know, in number of ways in which you can find that out. Um, so yeah, my, my advice would be, you know, um, the minute your role changes at each developmental stage, you will need help. Whether it's an in-house team or whether it's an offshore team or whether it's an in nearshore team, [00:29:00] you should know what you need and try and evaluate for that.

So for example, in the MVP to PMM F stage, you need smart iterations. So you need to be able to work with the team that goes back and forth doing that with you. Look for that post PMF, you probably need scalability. You need parallel products, you need other things. Look for teams who have the capability of doing that.

And once you're an enterprise, then there are different kinds of things that you need to do. 

Mehmet: Yeah, absolutely. They would need it. It's a different, uh, it's a different angle. Um, just, you know, a quick one here. Um, yeah. Do you. Especially like, uh, okay. Regardless what tools, what, uh, kind of MVP they are building.

So if they go with the, you know, with the outsourcing approach, do you still advise them to at least have maybe a, what we call fractional CTO or maybe a fractional product [00:30:00] person? So at least, because if they are coming. From a non-technical background, so probably they know, they don't know what the sprint is and they don't know that, you know, to be, even, even the MVP, like there are like some steps that needs to happen.

So MVP, so people think the MVP? Yeah, like just like, let's put the coders, let's give the design to the, to the UI and ux. Guys and let someone come and stitch it all together and here we go. It's not like this, right? So AI makes it looks easy now, but if you're, and even if you are using AI for coding, you still need someone to at least oversee.

The pro, the progress. So do you advise to have such, uh, such role in, in, in a startup? Which, uh, which is the fractional person, whether A-C-T-O-C-P-O, whatever you want to call it? 

Ali: I think it always helps. I think having somebody who's been there, done that [00:31:00] always helps. It just depends on the founder and then sort of their network, right.

So I think apart from just overseeing whether it's done correctly, they could have other benefits of having a fractional CTO as well. So for example, every investor meeting that I've gone to, they've always requested for somebody who's like, got technical chops to be part of the core team. It helps you raise funds, it helps you get credibility in, in, in the in, in.

Let's say, uh, let's say a partnership deal that you're doing with somebody else, you are integrating two different products. It helps you gain authority and trust there as well. Having somebody internal, um, who is having those conversations. So I think it always helps to have somebody, um, sort of playing this role.

Um, it just depends on the founder. I feel like there's no right or wrong here, but I think the more the merrier, you know, the more people that are sort of. Helping you move to that cause And I think fundraising is a super important thing that founders need to pay attention to during this phase. Um, and a fractional CTO is, is a [00:32:00] huge, huge benefit.

Um, if you can do it. 

Mehmet: Absolutely. To your point about fundraising, and I think, you know. Uh, investors look to teams, right? Mm-hmm. Uh, of course they look at what you're building, what you're solving. How big is your market? Uh. If they are kind of investors who invest in traction so they can ask about your MVP and how people are using it and so on.

But yeah, team, because I'm gonna give a hint from my two, you know, from my humble experience, I would say, because they, at some stage, if, if they are convinced with you the idea the market, they're gonna go and do due diligence on you. And guess what? They're gonna go and give it to someone who is probably a.

Previous CTO right? Or someone who, who at least have, you know, the technology background. So yeah, absolutely. Um, [00:33:00] Ali, if, if, you know, as we are almost close to, to the end, if you want to leave the audience with some, like final thoughts and like final advice, especially regarding all what we discussed today.

So what you would tell them. And I want you also to, um, tell us how people can get in touch and find more about you and your company. 

Ali: Sure. Um, well, if you're a sort of early stage founder, you've got an MVP and you are sort of in that journey to find PMF, my advice would be, you know, to understand that your role has changed.

Um, you know, you need to start focusing more on distribution, marketing, sales, fundraising, and talking to your customers, listen to them. Um, um, you know, a hundred percent put your effort in trying to build a team or work with somebody else. Don't just spend all your time doing that by man money. Um, be, can you find me?

You can connect with me on LinkedIn. I'm Ali Hafizji on LinkedIn. You can [00:34:00] also visit our website, which is Wednesday is, and use the contact us form. I'm always happy to have a chat with anybody. Um, if you want to jam ideas, want to know about what we do, happy to chat. 

Mehmet: Absolutely. Thank you so much, Ali, and for the audience, don't worry.

The links will be in the show notes if you are listening on your favorite podcasting app. If you're watching this on YouTube, you'll find it in description. Again, Ali, I think this is a, uh, wake up call for a lot of, uh, founders about, you know, we, we focused on, you know. Post MVP, uh, because it's, it's a, it's a milestone as I started the, the discussion.

But you gave very good insights and very good, uh, you know, uh, tips for, for the founders, which I think they, they will find them very, very useful. I really thank you for your time today, Ali. Um, thank you as I said. And as I said, the links will be in the show notes and this is how I end my episodes. This is for the audience guys.

If you just discovered this podcast by luck, thank you for [00:35:00] passing by. I hope you enjoyed it. If you did, so please give me a favor, subscribe and share it with your friends and colleagues. And if you are one of the people who keep coming again and again, thank you so much for doing so because of you. We are ranking in multiple countries on the top 200 charts in the Apple Podcast.

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Thank you. Bye-bye.