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What Founders Should Learn from the Fyre Festival

I recently watched the Fyre Festival documentary on Netflix and left with an uneasy feeling in my stomach. The documentary is riveting and has something for everyone - shock, drama, emotion, financial fraud, supermodels, and Ja Rule. Most importantly, it was chock full of learnings for early stage entrepreneurs.

Fyre Festival was a massive trainwreck of a "luxury music festival" started by Billy McFarland and rapper Ja Rule. Propped up by massive influencers like Kendall Jenner, Bella Hadid, and Emily Ratajkowski, the festival failed to deliver even basic amenities such as housing and food on the day of the event. Currently, the organizers are the subject of atleast eight major lawsuits for fraud.

What can founders learn from this failed entertainment startup (other than DO NOT COMMIT FRAUD)?

Image Credits: W Magazine


The power of influencer marketing

Fyre Festival's popularity was built on top of a massive influencer marketing campaign. Top supermodels were paid top dollar to post cryptic photos of the Fyre Festival logo and attractive beach videos to promote the Fyre Festival as a luxury weekend event. They managed to sell 5000 (extremely high priced) tickets in a span of weeks.

This is the perfect example to demonstrate the strength and reach of influencer marketing. Consumers are constantly plugged into social media, following their favorite celebrities' every move. Thus, when Kendall Jenner talks about a hot new luxury music festival she is going to, her fans feel inclined to attend as well. This is partly because consumers aspire to be like the influencers they follow, and partly because they relate to their influencer and like them enough to want to be their friend/meet them.

Now, while Fyre Festivals misused their influencer campaign to defraud consumers and influencers alike, early stage founders can learn from these mistakes.

It is important to build authentic, trust-based long term relationships with industry-relevant influencers. These influencers allow your brand to reach a wide audience of their most ardent fans, quickly and cheaply. In a world where consumers are increasingly skeptical of brands, influencers allow brands to leverage authentic connections to reach niche communities. As the Fyre Festival demonstrated, this can really work at scale and lead to explosive growth and customer acquisition. Founders, please do this right. Do not lie to the influencers or overpromise your customers. Instead, find industry-specific influencers, build relationships with them and if they truly love your brand, their community will follow.


You can't always fake it till you make it

An enduring silicon valley mantra for early stage entrepreneurs is 'fake it till you make it'. In software, it can often work wonders. For example if you create a dating app that uses machine learning to match you with your future partner, it is easy to 'fake it' by hiring a human to manually make connections while you build up your dataset. This is gives you a short runway to quickly prototype a solution, test it with real customers, and get feedback from real customers while building the core technology. However, as the Fyre Festival demonstrated, there some situations where it can be an absolute disaster. For example, imagine if your surgeon shows up to surgery without having been to med school, hoping to 'fake it' till they 'make it'. Similarly, Fyre Festival faked this once-in-lifetime luxury experience, and then, as the stakes were raised by people paying high ticket prices and flying into the island, failed to live up to expectations.

First, it is important to be honest with yourself and your team to understand that when you are 'faking a solution' it should not materially impact the customer experience. Second, do not overpromise and hope to somehow magically be able to fulfill that promise. Third, do not fake it when the number of customers being affected by your product is materially significant. Sure, I might create a rough manual prototype for 2-3 testers. But a product that reaches 5000 paying customers should not be faking it.

Watch your cash burn

When founders raise venture money, most early stage investors want to see companies raise enough money to give them a 12-18 month runway. As a result, keeping monthly cash burn under control is extremely important. In the Fyre Festival documentary, the founders splurged on fancy offices, influencers, parties, and other extravagant items. As a result, they were forced to scramble and raise money multiple times in a very short term. Furthermore, raising money out of desperation might have forced them to overpromise and lie to investors to get the cash they needed. Early-stage founders need to be extremely vigilant about their monthly cash burn. Always keep in mind that you have a fiduciary responsibility to use your investors' money wisely to build and grow your company and in 999 cases out of 1000, that lavish party in LA, that expensive office in downtown NYC, and that Malaysian offsite meeting isn't going to help customer acquisition or ARR, but simply make your wallet thinner and your company's runway singificantly shorter. Startups require extremely smart capital management from the operating team to give themselves enough time to build a winning company.



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