18 Things I Learned From Founding A Startup That Failed
The four-year epic battle to take a new product to market has come to an end. Four years and $750,000 after the venture started I sit down to write this piece.
Looking back, If I could do it all over again I’m sure I’d hit home runs in every situation, but for my first real rodeo this was not the case. Now, as I look forward to the job that awaits me I know I must first document my key leanings before I can whole heartedly start the next chapter.
In no order of importance, here are some brief points that I’d like to communicate. In some cases I have expanded these experiences into full blog posts.
The only way I’d do this again is with a co-founder: My background is in independent consulting, by nature I felt like I could do this myself with the help of contractors and employees. I was wrong. Before I signed a single contract or generated any revenue I should have waited until a core founding team was in place. However, I couldn’t say to no to the market as it pulled me in unprepared and this was a major factor in my downfall.
I didn’t have a complete view of the market: The referrals that my professional network introduced to a small section of the market. My bullish and selfish need to validate quickly lead me to introduce my services to the wrong market segment within the industry that I was entering. Looking back, the other market segments offered faster and more efficient ways to receive at scale. In my case the difference was entering through a non-profit channel vs a for profit channel. Revenue and scale would have been accelerated if I waited until I had a complete view and understanding of the market.
Don’t spent time with the small fish: We needed big fish to test our services on, but we spent time and money catching small fish. We were hungry for validation and saw case studies and proof of concept as our number one priority. Our big fish service did not perform well in small fish ponds. We ended up getting caught in a “doom loop” trying to make our way out of the small pond to the big pond. Also, small fish revenue was not enough to supply the resources we didn’t know we needed to go to market.
Take the needed time to seek council from people with opposing views on big decisions. I can’t stress this enough, if you don’t have people around you with different viewpoints who cannot advise on big deals then don’t make big deals. The people who surrounded me during my fundraising period I agreed with almost 90% of the time. It was near impossible to see things from different perspectives when everyone looking in on my situations were looking at it from the same view point.
Structure your first venture capital deal correctly. I was “thinking” about fundraising and just decided to start talking about it in public. Next thing you know, the perfect good ol boy industry investor appeared. With no fundraising plan in place I created the plan on the fly. This was his first time making an angel investment and it was my first time pitching an investment.
The first pitch I made was used a convertible note framework, but we both didn’t understand how it would work. we ended up settling on 5% in preferred shares of my company for $75,000. This was the wrong move.
It boiled down to my ability to show my good ol boy first time investor the proper structure of how deals like this are made. He needed to know how he would get his money back and I needed to present and educate him on a framework that I understood and believed in. But, I ended up folding to the pressures of opportunity and available cash in the bank instead of seeking an investment structure that would yield success for years to come.
It I could do it over again, I would have used his $75,000 and positioned him as a lead investor to raise the needed $300,000
Acting on short term momentum can be a long-term killer: Instead of raising the full $300,000 seed round that I set out for I stopped after our first investor gave us $75,000. One week before I closed the seed round we signed a contract with one of the industry’s largest players. Instead of using my new “lead investor” to seek and close the full round I gambled and assumed I could generate enough revenue from the new contract. I was wrong.
Looking back, I should have set realistic expectations with our new contract and moved forward to close the entire round. We thought the new contact would yield $300k in revenue in 12 months, it ended up generating $15,000 in 12 months. From the time of seed funding we were in catch up mode, not growth mode.
Get away from the “I just need…” mind set. I was young, naive and experienced. Worst yet, my background was from independent contusing with zero formal business education, meaning my real world understanding of cash flow and burn rates were limited experiences that my small world made present. My attitude when negotiating the seed round was, ‘I just need $x to get over the hump” when I needed, 5X to get over the hump. If you take away anything from this post, take this away. If you think you only need $250,000 to push forward and give your idea an honest chance of success, your wrong. Why spend the time raising $250k when you can raise $500k? Take another look at your, “I just need this small amount to move forward” state of mind and identify what going for glory really looks like.
Don’t hire people based on desperation. Over the course of my venture I hired my first full time employee five different times. Each time my forecasts showed enough client cash flow to bring on an employee I was under a time crunch to make the hire. My talent recruiting skills and budget were limited to Craig’s List posts. Each time I made a hire my methodology was, “Well, out of the 7 resumes I have this one looks the best. We need to get moving NOW so I’ll make the hire.” Each time I made a bad hire it cost me $10,000 and three months of time. Looking back, I should have waited and took the added operational burden on myself compare to hiring the wrong person. I would take a punch and suffered for a few months, but, I would have had the needed cash to make an attractive offer when the right person came along.
Don’t kill your cash flow over a small seed round. During my fundraising process I had $7,000 monthly cash flow coming to me personally from consulting contracts. When I closed the $75,000 round and the large industry player I had two people on my team and needed to hire more. Thinking that the seed round was enough I killed my consulting contracts so I could focus on capitalizing on the growth that was in front of me. Looking back, I should not have canceled my consulting contracts. Even with the investment cash I should have kept myself off payroll for as long as possible, canceling my consulting contracts once my venture was on strong finical footing.
Move around, don’t settle in one co-working space. Four years is a long time to be heads down on a venture and the rollercoaster ride brings extreme highs and lows. Sometimes the only thing you can control is the environment your in. If you don’t have strong community ties in the coworking space your in go find another one! New energy from a new community can be extremely refreshing.
Don’t Stop Networking: The core of my professional network came from business networking. Once my venture started to gain traction my time was tested. Networking events was the first thing that I cut so I could focus on capitalizing on the opportunities that were in front of me. Four years later (today) I am getting a job and relies that, for the most part, my network outside of my startup life is shot. Looking back I would have continually attended one or two networking events each month compare to becoming an ostrich with its head in the sand.
Slow, steady, controlled growth is good growth: Everything doesn't need to be about making a million in revenue as fast as you can. Finding the right early adopters, providing amazing service and understanding revenue, cash flow and sales cycles are important. If this means slow, steady, and controlled growth before you hit a tipping point, then so be it! Don’t try to rush things.
Employees are not co-founders and will never see the opportunity the way you do. I was blessed to have several “startup junkies” work with me along the way. Their passion and drive was contagious, but they would never drive towards the vision with the rigor and intensity as I because the personal and finical sacrifice that they are making is not matched to mine. As hard as it may seem, understand that all early employees are just that...early employees.
Understand cash flow and sales cycles. The event industry was tricky, and the non-profit event industry was trickier. Sometimes sales cycles took up to 8 months. Because our service depended on the event dates, getting cash in the door could take another few months. Then, after we received cash we would not be able to realize revenue for another month or two. It took us almost two years to fully understand what we were working with.
Aline yourself with the right CPA and lawyer: I can’t stress this enough. Having the right legal and finical team in place is critical. Startups have the same, if not greater needs as established companies. This can kill an unfunded startup quickly. Make sure you find people you trust and who will go above an beyond to help you think strategically about your growth strategy.
Don’t stop learning: Time’s can get crazy, quickly. Tech and the business landscape is an ever moving. With client deliverable, HR needs, financial reporting, operations…and everything else a solo-founder has to deal with piling up, it’s critical that you never stop learning. Always find time to stay on top of trends, if not, next time you look up you will be miles behind.
Find the fun, and surround yourself with it: Running a pre-seed or early stage startup can be a very lonely place. Dealing with extreme ups and downs that startup life brings can damage your soul without you even knowing it. Find what makes you smile, laugh, and experience joy…and surround yourself with it. If going to live music shows brings you to your happy place, make sure you go to two per month! Even if your cash flow is low and your down and out.
Energy is everything: I ended up hiring my first employee five different times. Not something that I’m proud of. With 100% certainty I can say that the success of your early team is hidden in the energy that you bring to the the office each and every day. Make no mistake, your on stage performing and your early employees are the audience. Once they smell turmoil, trouble, lack of vision, or loss of drive then things may start to fall apart. Hiding your true emotions as you go through the ups and downs of startup life may not feel like the right thing to do, but it’s critical to early stage success.
There you have it. 18 things I learned from my failed startup. I hope you can learn from my experiences and your venture turns into the revenue generating, job creating, industry disrupting and world changing company that your building!