Justin Kan is the co-founder of Justin.tv, which later became Twitch. Twitch is a video game streaming platform built for streamers and is now valued at $15 billion. Justin Kan was also in the first batch of Y Combinator as a founder and later became a partner at Y Combinator.
After exitingfrom Twitch, Justin founded a startup called 'Atrium' in 2017 and raised a total of $75 million. In 2020, Atrium shut down, and Justin shared his story about the downfall of his startup. Here are some key facts:
- Justin founded Atrium to solve the hassle of doing legal work and availing legal services. In Bangladesh, we also see most early-stage founders finding difficulties in doing the legal work for their startups.
- Given the reputation and background he has, it was not that difficult for him to execute the idea. He raised $10.5 million while being just in the idea stage with a 10-slide deck.
- At Atrium, Justin and his team focused solely on growth. To achieve this growth, they started hiring a lot of people, and the company became overstaffed.
- As the focus was on growth, they did not pay as much attention to their product. This resulted in higher churn rates as they couldn't retain customers with their product.
- Later, they found out that it was not clear who Atrium's primary customers actually were.
- With a large customer base and high churn rate, it became very difficult for them to compensate. They reached a point where they could not even pivot.
Thus, in 2020, Justin decided to shut down the entire company and had to lay off hundreds of employees. However, he tried to take steps to help his employees find new positions elsewhere. Some key takeaways from Justin Kan's story and Atrium's downfall:
- It is not certain that even if a successful serial founder starts a startup, it will work out. Justin was able to raise $10.5 million in the idea stage because he had a great reputation and a strong personal network.
- Identifying a large and solid problem is not enough when you are in the ideation stage. Founders also need to think about how their solution can be highly scalable down the line. For Twitch, they determined that streamers had issues with streaming games and monetization. Viewers would follow where the streamers went, which made customer retention easier. On the contrary, Atrium did not identify the specific problem they were solving and who they were solving it for.
- This shows us why growth is not the only factor that scales a startup. Atrium also raised $65 million from Andreessen Horowitz. They used the money to increase their customer base and employees but couldn't find ways to retain them. If users don't return within a certain time period, it means they didn't find the value they were looking for.
- It is extremely important for founders to clearly understand how much funding they really need and why they need it. If you raise $100 million and cannot figure out the proper allocation for these funds, it really doesn't matter.
Watch Justin Kan's video on Atrium: