A few weeks ago, I closed Shuni.

I’m sad because a big dream didn’t work out. But it’s the right decision for me.

~ Context on Shuni: we provided CBT-I (cognitive-behavioral therapy for insomnia) coaching. One in 10 Americans have insomnia. We had data showing people transform their sleep in 5 weeks. The market is big, and we have something that works. ~

Since giving up on Shuni, people ask me “what’s next for you?” and also, “why?”

Short answer: This market is too hard to venture-scale. It’s been 3 years and I’m tired. I want to do something else. Challenging doesn’t mean impossible, but my tactical errors made this attempt unsuccessful.

While I’m concluding that my future efforts will be better spent elsewhere, I want to share 10 lessons that could help others.

Lesson 1: Ego management is key.

The founder mindset is a balance between the ability to ignore (many) naysayers and the ability to hear legitimate feedback about limitations.

There are consequences for getting it wrong on both sides. You need enough healthy ego that drives you to pursue something ambitious. Too much ego and you alienate everyone around you and could end up like one of Silicon Valley’s many cautionary tales.

I think this tension takes up most of every founder’s emotional energy.

It can never be done perfectly. I use these questions to do the best I can.

Interpreting feedback:

  1. How much energy has this person spent on this feedback? What sorts of experiences do they have to base it on?
  2. What’s the intention of this person offering feedback? Do they feel negative, neutral, or positive about me?
  3. What does this person hope that I do with this feedback?
  4. What can I do with this feedback? Can I change a mental model? Can I change my behavior? Can I change my strategy?

Deciding when to act:

  1. Is my motivation for action, to do the best work I can or secretly to prove that I am “good enough” or “better than someone else”?
  2. Is my motivation for inaction a strategic decision or a fear of looking silly?
  3. Have I looked at all options currently available to me?
  4. What am I not willing to do?
  5. No matter how things turn out, will I regret acting right now?
  6. No matter how things turn out, will I regret not acting right now?

I’ve learned that ego management is finding harmony in courage and humility.

Lesson 2: Invest early in growth.

At Shuni, we were targeting a major pain point. Sleep is a basic need like food and air, so it feels pretty terrible if you can’t get it. I also knew from our clients that what we had worked really well (check out our testimonials).

It’s almost a first-time founder cliche to think “build it and they will come,” but end up obsessed with distribution.

For the first 2 years of Shuni, I spent my energy on two goals: build a tech-enabled services platform and collect strong outcomes data. I thought that if we proved that our product worked well, client acquisition would come naturally. And that if we had a polished tech-enabled services platform, it would be easy to attract clinical talent and also sell into the healthcare system. These assumptions were naive.

The business of distribution is its own discipline and does not just happen.

There’s a great piece of advice from Justin Mares’ book, Traction:

Having a product or service that your early customers love, but having no clear way to get more traction is a major problem. To solve this problem, spend your time constructing your product or service and testing traction channels in parallel. Traction and product development are of equal importance and should each get about half of your attention. This is what we call the 50 percent rule: spend 50 percent of your time on product and 50 percent on traction.

Becoming fluent in marketing, sales, etc. takes dedicated energy. It’s also something that takes time to accumulate.

I wish I spent more time on growth earlier.

Lesson 3: Operational excellence is necessary, not sufficient for venture scale.

Hustle and diligence are valuable, but if you want outsized returns at a venture scale, it’s not enough to just do similar things better.

Looking back, I could see a mistake in how I positioned our tech-enabled services platform. I’m a fan of authenticity and mindful of Silicon Valley’s reputation for overselling. So I would typically try to prove: the platform is real! The platform works! The gains we claim make sense!

“This isn’t rocket science,” I’d say as I demoed how our system worked. In response, investors looked troubled – “not rocket science” meant another Series C portfolio company would be better positioned to commercialize it. Healthcare providers nodded but said, “great, I should tell my Cerner team to build this.”

The problem with operational excellence is that it’s easily copied by others. Usually, whoever has more financial resources has a better position.

Operational excellence by itself is not a strategy. (For an insightful analysis of what makes up strategy, I recommend 7 Powers, by Hamilton Hemler.)

Winning in the venture model requires rapid growth and protection from competitors. Venture generally has less money than private equity, so you can’t use brute force.

You need a contrarian strategy in the form of:

  • A moat which comes from significant innovation.
  • Good timing from a wedge that fits fortuitously in current market dynamics.

Unfortunately for Shuni, what I had was not enough.

Lesson 4: As an early-stage startup, don’t try to build a big service business.

Service management is mostly operational excellence, which wins through capital and an existing reputation.

In my case, to build an unbeatable clinical team, I would have to hire a very experienced therapist or physician to manage it. I couldn’t afford to pay a physician market-rate salary using an early-stage startup budget.

I would have also had to convince them to leave their job at a major medical center where they have more prestige, job security, and work-life balance.

Incumbents have too much of an advantage.

Lesson 5: As an early-stage startup, don’t try to sell platform technology into healthcare.

Everyone in healthcare agrees better technology is theoretically a good idea, but they’re also always busy, and it’s not highest on their list of priorities.

Technology for tech-enabled services isn’t “set it and forget it.” Integrating into existing software takes work. It involves a lot of customization and organizational commitment to training people to use it effectively.

When you try to sell platform tech, you’ll hear a lot of “we’re busy with a big reorg right now. Why don’t we check back next quarter?”

Health systems worry that they’ll be stuck in a lurch if a startup they work with closes down. Part of what they are waiting for is whether you will still be around.

Incumbents like Epic & Cerner are extremely sticky.

Lesson 6: For startups in behavioral health, don’t spend too much time collecting “Clinical Outcomes.”

This is probably my most controversial lesson.

I think you should have some rough data so you know how you’re doing. But beyond that, spending all your resources pursuing academia-grade data is a distraction. Working on DTC growth is much more important.

Clinical outcomes in behavioral health fall under the umbrella of operational excellence because it’s easy to replicate by anyone with enough diligence.

It also doesn’t solve the problem of difficult healthcare sales cycles. Because behavioral health doesn’t fit neatly within the medical model, it will continue to mostly operate outside the health insurance system. The client decides whether or not to take the plunge. If they decide to pay, you have a business. If they aren’t willing to pay, insurance won’t foot the bill either.

I now believe that most behavioral health companies should ignore employers & insurance. Instead of trying to fit a round peg into a square hole, focus on DTC right off the bat.

Lesson 7: Marketing in behavioral health is driven by authentic personalities.

This is often repeated in VC circles: the cost of acquisition (CAC) is too high in behavioral health.

I don’t like this framing because CAC sounds like the problem lies in the price of Google and Facebook ads. That’s misleading. Yes, there are more and more very similar behavioral health companies, so it will cost more to be ranked above competitors.

I found it relatively cheap to use Google to find credible leads (~$16). The real problem is the effort required to convert those leads. I’ve seen clients begin our program more than a year after their first contact with us. Our sales process required prospective clients to show up for a 30-minute call, where they could talk human-to-human.

The only plausible way to scale client acquisition is to slowly build trust through authentic content.

This is why all the large successes in this space spend lots of time showing their humanity in public. For examples, see Lori Gottlieb with her book and podcasts, Nicole LePera with her very personal social media presence, and Brendon Burchard with all of his conversational videos.

Clients are not convinced because the latest meta-analysis concluded that a particular behavior change program had statistically-significant results. They are convinced because they heard an off-the-cuff comment from a human being, and could feel this person is sentient, they care, and they might know something that can help me.

This form of “marketing” isn’t the way most ad managers, salespeople, and investors think about marketing. It takes a long time to build. It’s expensive and unpredictable, but I also think it’s potentially the most rewarding.

Some tactical advice for growing a behavioral health startup:

  1. Focus marketing strategy on creating longform content that centers on 1-2 authentic personalities. These brand representatives should have personal experiences that allow them to connect to clients.
  2. Make YouTube your primary channel. Video is the best medium for speaking directly to your target client. YouTube also has nice discoverability and is good for SEO.
  3. Have conversations with other creators by guesting on podcasts or other YouTube channels. (e.g. this video was helpful for us.)
  4. Use SEM as a secondary channel to drive traffic to your product offering.
  5. When you are bigger, you can run digital & tv ads where the goal is to remind prospective clients that your brand exists.

Lesson 8: Founder-market fit matters a lot.

As a founder, you need to make sure that this is the problem you can dedicate a major part of your life to.

Also because authenticity is especially important to growth in this space, there has to be strong alignment between you and this topic. Are you ready for your identity to become the “sleep person”?

In my case, I first started thinking about sleep in college when I subscribed to the belief of “work, friends, sleep, pick the first two.” It was part of a broader burnout mentality that took a toll on my physical and mental health. Prioritizing sleep was a simple change that improved my health. Unlike many of our clients, I never struggled with insomnia.

Beyond sleep, I do a lot of other things to stay well. I’m now more interested in holistic wellness, so I don’t see myself becoming an insomnia-only influencer.

Lesson 9: Venture capital isn’t right for every business.

If you’re building a behavioral health company, I don’t think you should raise venture capital.

You don’t need capital (and all the timeline expectations that come with it). What you need is time. Time to make each sale and time to allow trust to develop. VC is rocket fuel for some businesses, but incompatible with most others.

Behavioral health is always going to be a big market. People will always need help navigating through life. Change is hard, and some people will always want support.

I think therapy-on-demand works with venture, and they are here to stay. Their pricing is the sweet spot of what enough people are willing to pay and what you can charge for a generic therapist to talk to you. Still, many people need more than what a Talkspace or Cerebral offer.

There are opportunities for many successful businesses that can fill this gap.

VC-backed unicorns dominate media attention, so it’s easy to forget that they make up a small portion of the world’s total value.

Many valuable programs (including schools, art, and community programs) don’t fit easily within a for-profit system.

That’s okay.

In a well-functioning society, most people don’t spend all their resources on lottery tickets. Instead, they earn enough to live joyfully and sustainably, using their time to help the lives around them.

At the end of my life, I think success is measured by the people I’ve helped.

Lesson 10: Ignore these lessons.

If you were trying to build a business like Shuni, I’d tell you about all these difficulties and caution:

There might be other problems that take much less effort. Are you still sure you want to work on this?

Yes? Okay, then do it! My experience is just my experience. There will always be a million reasons why something is hard.

People do the “impossible” all the time.

The gains are big if you succeed. It’s deeply meaningful work. You’ll see real lives transform dramatically for the better. What you’ll learn about the human experience is astonishing. And it will transform your life forever.

Tags: Startups