I'm a designer who turned into a writer who turned into a startup CEO. My mission is to help creators earn a living. Subscribe for essays on building an audience and earning a living as a creator.
How I know a business will fail
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Hey Reader, Within the first few minutes of hearing about a business, I usually know whether it’s going to succeed or fail. It comes down to two things: The first is the physics of the business. And by physics, I mean the fundamentals of the business. Those things won’t change no matter how well you execute. Over the years, I've built a personal list of what I’d want a business to have before I start or invest in it. These are the five things I look for—and ideally a business has at least three:
To break it down… Sticky customers means your customer’s need for your product grows as they use it. The customers you want are ones whose situation naturally requires more of what you have to offer over time. What you don't want is a business where the customer's dream outcome is to never need you again. If the best-case scenario you’re optimizing for is a one-time purchase, you’ve just built 100% churn into your model. Recurring revenue is the baseline. When customers pay once and leave, the cost of acquiring the next one will always be working against you. Natural expansion revenue means customers naturally need more from you as they grow. So for Kit, a creator with 500 subscribers is on one plan, but if they reach 10,000 subscribers, or want advanced features, they need the next one. Beyond growing from new customers, the business also grows from its existing customer base. High gross margins mean a low cost to deliver whatever it is you're selling. The less it costs to serve each customer, the more the business can absorb mistakes and do more of what's working. A referral mechanism means happy customers tell people—and ideally a lot of them. When Pat Flynn started recommending Kit, it gave us a huge boost in momentum. Because he wasn’t telling one or two friends, he was directing thousands of people. And each of those creators also has an audience. Beyond those five, there's one more thing I look for when I can find it: Does the product make customers money directly? This one isn't a hard requirement, but I'm drawn to it because it gives customers the strongest reason to keep paying. When a business only has one or two of these, I don’t feel so confident. You'll end up reaching a lot of limits sooner than you’d like, and there’s really no amount of execution that can change the underlying physics of a business. The second thing I look for is founder fit. Even if you have a solid business model, you have to stay consistent long enough to make it work. Sahil Bloom has a question I come back to often, which is: “Are you willing to do the losing version of this?” What he means is the version of it before it works—when you’re feeling uncertain, everything is hard, and you have no guarantee of a return. Someone building something they genuinely care about can do it for years. Someone chasing an opportunity they don't believe in will stop before things compound. Skills are the other part of this. Some business models can be especially difficult if you don't have the right background. A lot of people think they’ll start an “Uber for dog walkers” without realizing they’re describing a marketplace. And marketplaces are notoriously complex, because you're trying to solve a supply and demand problem simultaneously. People who haven't built one often don't realize how hard it is to pull off successfully. So make sure the skills you have match the business you're trying to build. Those are the five I check. Before you commit to anything, try running your idea through the same list. PODCASTMillion Dollar Founder Explains How To Avoid Burnout In 2026Steve Kamb built Nerd Fitness into a 40-person company and then fired himself. Twice. Steve and I have known each other for years, so it was good to finally sit down with him. He stepped away from his business after he realized he'd been chasing the wrong goal. Surprisingly, the business actually got better as a result. He covers all of it in his new book, How to Try Again, and shares the PACT framework he developed: pause, accept, change, try. Watch or listen to episode » VIDEOThe Exact AI Skills This Solo Founder Uses to Build 5 Apps at OnceI’ve been friends with Josh Pigford for over a decade (as he was building Baremetrics), and it’s fascinating to see how he builds products now with AI.
Josh: I'm like textbook ADHD, and now I can just sort of feed the beast a little bit more. He’s shipping a new idea practically every week—and they all look really polished and unique. BOOKHow to Try AgainI mentioned Steve Kamb was on the podcast, but I also want to highlight that he has a brand new book out called How to Try Again. I listened to the audiobook, and hearing him narrate his own stories and laugh at his own jokes is exactly what you'd hope it would be. How to Try Again is built for anyone who has felt left behind by the typical self-improvement book. The tagline says it better than I can: "Some people wake up at 4 AM, run 15 miles barefoot, and then meditate in an ice bath. This book is for the rest of us." —Nathan P.S. We had a launch party at Kit Studios NYC last week and it was so exciting to finally open our new location. Check out the new Kit Studios NYC page for more beautiful photos—and to book some recording time if you're in town. |
Nathan Barry
I'm a designer who turned into a writer who turned into a startup CEO. My mission is to help creators earn a living. Subscribe for essays on building an audience and earning a living as a creator.
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