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From failed startup to finding product-market fit: Thoropass Founder Sam Li shares his journey

The entrepreneur explains how he bounced back and went on to raise $98 million, highlighting lessons he learned along the way and strategies for success.

By Adam O'Donnell, Host of the Sit Down Startup podcast

Last updated June 4, 2024

Sam Li, co-founder and CEO of Thoropass, has a rich background. His perspective on achieving product-market fit as a startup founder is rooted in resourcefulness, curiosity, and adaptability. Here are some highlights from the episode—tune in to learn more.

Navigating rookie mistakes as a founder

Thoropass is Li’s second company. Before Thoropass, he founded an insurtech company called Zinc Platform. The insurance API platform sold insurance for everything from musical instruments to cars and houses. Li was so committed to the startup, that he dropped out of Harvard Business School to focus on it full-time. But he confesses, “This was my first company, and I made a lot of rookie mistakes: scaling before hitting product-market fit, being too naive in the capital market, and making a lot of tactical mistakes.”

Unfortunately, those errors cost him. In 2018, after looking at the balance sheet and facing stark financial realities, Li made the difficult decision to close down the company. He recalls, “We had just come back from a failed fundraising trip, and we said, ‘You know what, the right thing to do is to make sure we take care of all the employees and give the rest of the money back to investors. So, that’s what we did.’”

As a founder, Li bore the weight of the failed venture and was determined not to repeat his mistakes. “I feel real-world responsibility as an entrepreneur,” he says. “I want to make sure this doesn’t happen again—that people don’t lose their jobs or investors don’t lose their money due to bad decisions that I made.”

In hindsight, Li can see that his decision to shut down the company was right, even if it didn’t correspond with society’s belief in dogged persistence “I think we are in a culture that promotes resilience … which I agree with in the broad scheme of things. You should not stop trying to live a successful life and be successful in business, but that doesn’t mean you should necessarily keep going on your current trajectory.”

The importance of intellectual honesty in pivoting

Li says, “If I learned one thing as a startup founder, it is that sometimes the market, the vertical that you picked trumps the execution or the drive.” While he worked very hard to make Zinc Platform a successful company, certain variables were beyond his control. The founder also insists that if he had been more intellectually honest, he would have recognized the company’s shortcomings and made changes: “There were different signals, like preliminary results, that showed we should have pivoted sooner. We should have been more intellectually honest about bad results. We didn’t hit product-market fit but pretended we did.”

If Li had a chance to give his past self some advice, he would advise himself to adapt. “I would tell myself to be more intellectually honest about the things that you’ve learned. Don’t be afraid to change course or pivot. … There are certain ideas that are just not as good, there are certain markets that don’t have the dynamics that others have. So, knowing when to stop, when to give up a particular idea, and when to take care of yourself is very important.’

After winding down Zinc Platform, Li participated in an entrepreneur-in-residence program at Bain Capital. He used his time there to brainstorm startup ideas. Reflecting on his experience at his previous company, Li recalled a particularly painful Service Organization Controls (SOC) 2 audit: “That was an awful experience.” The audit is necessary for every B2B startup in tech, but there weren’t tools or services to help make the tedious, time- and labor-intensive process easier. That’s when the idea for Thoropass was born.

Li says, “In some ways, my failed entrepreneurial experience and startup operator experience gave me visibility into this pain point, which became Thoropass.”

Discovering customer pain points for product-market fit and framework thinking

Every founder can testify to the level of excitement that comes with showcasing a product. It can be a great way to gain feedback on product-market fit, but in Li’s experience, it’s not always useful: “People don’t want to embarrass you directly, they want to be nice.” He suggests that a better approach to finding product-market fit is to observe your target audience’s workflow, understand their pain points, and then present your solution.

Li advocates for prioritizing product-market fit above all. He asserts, “Don’t worry about anything else. You don’t have to have the best slides, you don’t need to have the best website in the early stage because these will all come after you hit product-market fit, which is a magical moment.”

As a founder, Li believes that his aptitude for framework thinking and his natural curiosity are his strengths—other entrepreneurs should take note. He says, ‘I enjoy framework thinking. It’s a way of explaining complex concepts in a way that is tailored toward the audience. I love teaching. I love communication. That’s what I enjoy doing, and it’s an important founder trait.”

Meanwhile, his curiosity led him to view everyday headaches as potential solutions. “It’s like, ‘Oh, I saw a pharmacy, maybe we can do something there. Or, I’m having this pain point at home as a consumer, maybe there is something there.’ That level of curiosity is important when you are looking for startup ideas. It’s also very important when you are building a startup.”

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