
A cautionary tale about subscription services and how not to shut down a startup - mikeleeorg
https://medium.com/@ireneau/whimseybox-and-a-cautionary-tale-about-subscription-services-and-how-not-to-shut-down-a-startup-be1bd2c69ecd
======
patio11
It isn't necessary to dream up scenarios of unethical action on the part of
anyone for this to happen.

Startups fail. Fact of life. We talk about "burn rate" and "runway" because it
is easier to say than "The number of days you have to find a working business
model or secure additional investment, after which you have to fire all of
your employees because you cannot make payroll."

When startups know they're going to fail to make payroll, they fire _all
employees_. Fact of life. Fired employees are the worst affected people when a
startup collapses, by a factor of lots. They don't get to call up their credit
card company and chargeback forgone wages for the last three years.

When you're the non-technical CEO of a subscription commerce company, and you
find yourself in an empty office without employees, if you're hypothetically
aware that subscriptions are still active -- which you very well might not be
aware of -- you have very limited options for actually fixing it. You might as
well ask my dad to do an orderly shutdown of Appointment Reminder given I get
hit with a bus tomorrow.

Could this have been handled better? Yeah. There's a reason that when startups
ask for advice on what to do in their remaining hours of life we always say
the words "Prepare and execute on a plan to effect an orderly wind-down of the
business." It's not exactly something people are born knowing and might not be
at top-of-mind while they're going through an enormously stressful event.

~~~
chasing
Taking money with no intention of delivering a product is unethical. I think I
was born knowing that. Or, at least, I learned it pretty early on.

Being too lazy to shut off the site is not an excuse.

~~~
tcarey83
It's not only unethical, it is fraud.

------
Animats
Well, they seem to be in violation of the FTC's Mail Order Rule.

First, who are they? Their street address is

2409 20TH ST BOULDER CO 80304 US

which is a house.

A Colorado corporation search gives a second address:

1738 Pearl St., Suite 2A, Boulder, CO 80302, United States

which looks like office space above a restaurant in Google Street View. Their
landlord is Pearl Street Properties
([http://www.pearlstreetmallproperties.com](http://www.pearlstreetmallproperties.com))
and calling them during working hours might be helpful.

They're incorporated in Delaware, but are delinquent in filing with Colorado.
Delaware corporation search only works on weekdays, so not much is available
from there tonight.

The founder is Alicia DiRago. Not only is the company not communicating, her
rather busy personal online life has stopped.

Here's her Twitter feed, which stopped on September 3, 2014:
[https://twitter.com/aliciadirago](https://twitter.com/aliciadirago)

Here's her other startup, Dismount Creative, which was last updated on August
3, 2014: [http://www.dismountcreative.com/](http://www.dismountcreative.com/)

Her personal Facebook account, last updated in January 2014:
[https://www.facebook.com/alicia.dirago](https://www.facebook.com/alicia.dirago)
Definitely the right person; she's wearing a Whimseybox T-shirt in her profile
picture.

She's married and lives in Boulder, CO. The address is a matter of public
record, but I won't list it here. Her husband, Joseph DiRago, is an attorney
in Boulder. No news items or obituaries for either of them.

This is a very tiny operation and there's probably a personal problem. This
isn't a big enough business to be a scam.

~~~
spacefight
Shutting down the website of a bancrupt company is not hard.

------
billychasen
I literally just tried to sign up for this as a gift for someone this past
weekend.

I tried to buy a year gift subscription and got an error message. It showed me
a silly error message which included Ryan Gosling promising a foot massage for
me to keep my calm. I mistakingly tried 2 more times and now see 3 charges on
my credit card.

For what it’s worth, they use Stripe. I saw the $1 pending transaction they
tried. Hopefully Stripe can shut them down.

~~~
mintplant
Did you file chargebacks?

~~~
billychasen
I did this on Saturday and will give WhimseyBox the benefit of the doubt to
fix this by Mon/Tues before disputing with Amex. It's always a slow road when
Amex investigates.

------
function_seven
How is their site still up and running, accepting new members and payments, if
they can't afford to continue on as a going concern? Is this out-and-out
fraud?

EDIT: Looks like they're no longer accepting payment, but if this article is
right, they still were for a very long time after ceasing shipments.

------
astrocat
Saying things like "Now Techstars has lost complete credibility in my mind" is
taking things too far and just being petty. Techstars doesn't market itself as
some bastion of credibility to consumers.

Yes, this a great example of what not to do when you know your company is
doomed, and the founders are killing their long-term prospects of future
ventures with all this bad karma, but there's no need to drag Techstars into
it.

~~~
tptacek
Not to mention: there's not a whole lot Techstars can even do about this.
They're a minority investor and their involvement is limited to the first few
months of company operation. This comes up every once in awhile with YC, too.

~~~
hawkice
I initially completely agreed, but now I'm less sure. I used to mentor
someone, and if he was found using skills I taught him to act fraudulently, I
would accept partial responsibility.

Obviously Techstars can't force people to stop shenanigans, but I hope for a
society where we expect more of each other, where behaving ethically is not
more or less important that profits but simply completely necessary.

I'm not sure I can, in good conscience, condemn someone for expecting more of
a renowned institution, however minor that renown is. I also think that the
author of this post is in a place to understand what is possible and expected
of investors, given she is an Operating Partner at Khosla Ventures.

------
annnnd
I think Hanlon's razor applies here ("Never attribute to malice that which is
adequately explained by stupidity.") - when startups fail it is difficult to
fail gracefully. It leaves you with lots of stuff to do, all the time knowing
that you will get nothing in return. Frustrating and tiring as hell. (I don't
condone the founder's actions, I just say I can understand what has lead to
this situation) That said, I hope they make it right as soon as possible.

------
Sami_Lehtinen
Unfortunately what you experienced is really common.

One company deliver "led lights" does everything, except deliver the goods.
Web site is up, customer support answers to messages (as long as you're going
to order something) and they'll accept payments. But that's where it ends.

My dad got a new cellphone and it got the number which is still being shown on
that web page. It's nice to receive more and less angry calls all day long
from people getting scammed all the time.

Unfortunately this seems to be quite common problem. Isn't it the business
focus? Do the things which make money, don't mind about the rest. Web site,
credit card handling, and customer support, all generate revenue. Delivering
goods is bad business, it generates substantial expences.

One famous entrepreneur in finland said that invoicing is the thing that runs
the business, rest is irrelevant.

------
logn
Maybe this post got their attention? (edit: doubtful as it was posted 4
minutes ago)

 _We 're Sorry

Whimseybox is no longer taking new subscriptions, gifts, or shop orders at
this time._

[https://whimseybox.com/subscription/new](https://whimseybox.com/subscription/new)

~~~
bobbles
The home and signup pages have no mention of this at all

------
iopq
This is why I want to just pay for everything with Bitcoin. I gave my credit
card to a site (not a subscription site) and they charged me and never
delivered. I contacted them and they said they refunded the charge and put in
a new order (???). So now I had TWO charges. Why didn't they just ship me the
stuff without charging me again? I disputed one charge with the credit card
company and the company refunded me after they saw the chargeback. Then a
month later they ordered again for me. I had to charge back a second time (and
I got a refund back again).

Are you kidding me? The model of "I have your credit card number and the code
on the back and I can charge you as many times as I want" is clearly broken.

~~~
PinguTS
But bitcoin will not help you at all, when there is no delivery. Bitcoin has
no charge back. Bitcoin is in this sense mor like Western Union.

The credit card system gives much better consumer protection most of the time.

~~~
iopq
No, the point is they DID deliver, but they tried to keep charging me for new
deliveries.

------
FunCaptcha_Jim
Great article, shame it happened. I'm really curious as to how this idea
didn't really succeed - seemed like a slam dunk service. Anyone know more?

~~~
sgarman
If anything these X box a month services pop up so frequently I'm surprised
there is not a startup to help people make their own x box a month companies.

~~~
jeremymcanally
There is actually, and it's nice! [http://cratejoy.com](http://cratejoy.com)

~~~
username223
Hook that into [http://bride.ru](http://bride.ru) and you've got a winner!

More seriously, automating the process of harvesting credit card numbers and
signing them up for monthly billing, then taking a cut, is evil genius.

Even more seriously, the sex-trade people were way ahead on this, by happily
offering canceling customers refund checks with mind-blowingly dirty names on
them to discourage deposit.

------
grandconj
A great warning for founders considering a subscription-based freemium model.

------
lmg643
Interesting. Is there a market for shut-down services? Clearly they had
"something" if people are still signing up. Might not be a $100mm exit but I'm
sure someone would enjoy running this for a few million in cash each year?

~~~
infinitone
If i understand you correctly, you just valuated this business at 'a few
million'? What makes you think its worth more than 5k?

------
johnvschmitt
For those with integrity, it's not worth the read. Yes, stop taking money from
new customers when you've shut down the company.

For those without integrity, it's a recommendation: There are trusting people
who will signup & pay even if you don't deliver.

The world is still wild, and I like that. Nothing to recommend than to be
skeptical and ethical please.

------
vijucat
A friend of mine has recommended
[https://www.entropay.com/](https://www.entropay.com/) for these kinds of
online purchases : since it's a pre-paid virtual credit card, you cannot get
charged beyond the pre-paid amount, if I understood it correctly. The initial
loading fees of 4.95% seems quite high, but my immediate next thought was : I
would personally still pay it for the security! Warning : I have yet to try it
out myself; this is just word-of-mouth, not a personal recommendation. I
intend to try it out soon with taobao.com, to which I have taken an immense
liking recently, despite getting the wrong colour for my mechanical keyboard
which I ordered from there :-)

~~~
UnoriginalGuy
You cannot be charged but you can be sent to collections and have your credit
ruined. So be careful, people think closing a payment account is akin to a
cancellation, it is not.

~~~
username223
So what's the least-bad way for plebes who care about credit ratings to deal
with Comcast-levels of "customer retention," or just plain dishonesty and
stonewalling like in this case? Never set up a recurring payment? That's been
my approach for awhile, but it demands a bit of vigilance.

EDIT: After dealing with customer "service" utterly failed, I had to
disconnect from Verizon after my 2-year contract by refusing to pay them. It
worked, but probably only because I had unchecked the "auto-pay" box every
month for two years.

~~~
Silhouette
_So what 's the least-bad way for plebes who care about credit ratings to deal
with Comcast-levels of "customer retention," or just plain dishonesty and
stonewalling like in this case?_

I no longer have much patience for big companies that mess me around, but it's
important to always be reasonable if you want a good result, and particularly
if you might wind up taking real legal action. So, this is my general plan:

First, assuming I'm properly entitled to cancel whatever agreement we have,
they always get one attempt to play nice and give reasonable notice to cancel
by their preferred mechanism. I make a clear record of what happens at this
stage, e.g., if I called them then I note the time of the call, who I spoke
to, and what was said. Recording the call can be a useful alternative here,
but be careful to check what is legal in your jurisdiction before you do this.

Second, if cancelling their way fails or proves to be unreasonably difficult,
I skip right to sending a recorded letter to their registered address or the
equivalent. I explain briefly what happened before, and I state clearly that I
am terminating the agreement and that I do not agree to further charges.
Always be polite and fair.

Third, depending on the amounts of money and timescales involved, I also
contact whatever payment services are involved preemptively to make clear that
I have not authorised any further payments. Again, keep good records.
Alternatively, if I get charged again then at this point I would formally
dispute the charge, if necessary providing the payment service with the
records to show that I have given proper notice to cancel.

If we get this far and working with the payment service(s) doesn't get things
fixed reasonably quickly, it's a case of whether the time and money involved
justify proper legal action, and following whatever process is required.

Opinions differ on whether to include a threat that further trouble will lead
to legal action at the letter stage. Any allusion to a legal action might get
bounced directly to their legal department, which is probably better or worse
depending on whether you know what you're doing and whether they know you
know. If they call your bluff and you don't know what you're doing, you could
wind up spending far more time and money chasing even a simple small claims
action than it's worth, or more likely giving up and then they know they've
won. On the other hand, if you know a friendly lawyer who can spend a few
minutes explaining the process and the really important things you need to do
without charging you the earth for it, go right ahead. That might include
adding certain required information to the letter itself along with a
statement that it's the first formal step in your legal action, for example.

A less dramatic alternative that I've seen work several times is just to add a
statement to the letter that you will charge them a reasonable "administration
fee" to cover your time and trouble if you have to contact them again due to
their failure to comply within a reasonable period. It's surprising how many
places automatically change their behaviour as soon as something might
actually cost them real money, even if it's only a nominal amount, and there's
a good chance that whatever front line grunt first opens your letter won't be
authorised to deal with that situation so you'll get escalated to someone more
effective. As always it's worth knowing what the law says in your area before
trying this one, because you don't want to do something dumb that will let
them settle for peanuts later if you do wind up spending a significant amount
on real legal action that you might otherwise have been entitled to recover.

So I guess it comes down to the usual things: Always keep records, always be
transparently fair and reasonable, try your payment service's dispute process
if it's a sensible option, and then if things still aren't working out, make
sure you've taken at least some basic legal advice about your particular
situation before you go charging in with something heavier and act
accordingly.

