
Mistakes You Should Never Make - sethbannon
http://sethbannon.com/mistakes-you-should-never-make
======
jlevy
As internal counsel for YC, it was very upsetting to learn about the ongoing
troubles at Amicus. It was particularly distressing to hear about the payroll
tax issues, given that YC has funded excellent companies that specialize in
accounting and payroll for small businesses, such as Indinero and Zenpayroll.
The tone of Seth's post suggest that YC has supported Seth in all of his
recent actions. That is not true -- YC supports its companies through good
times and bad, but we do not support illegality. For example, in paragraph 3
Seth writes that PG looks for founders that are "naughty" and writes about
levels of rule-breaking. YC's principal tenets are to "make something people
want" and "talk and listen to users/customers" \-- YC may promote a culture of
disruption, but that does not mean neglecting payroll taxes and breaking
rules.

~~~
nyc_str8tsh00t
Good to see YC step forward on this. I'm not a HN regular, but I've been
following this thread all day because I have a friend who worked at Amicus,
and several others who have worked with their software. I know there are
always many sides to any story. I wasn't there, just like most of you weren't
there, but all I can say is Seth's version of this story does NOT fit with
what I've heard, and everything I've heard has been from honest, cool people
who - unlike Seth - don't have a history of lying about really important shit.

Seth absolutely deserves to have a forum to tell his version of the story, but
I find it more than a little annoying that after everything he's done, he's
still able to leverage his position as a YC Founder to ensure that his version
of the story gets more attention than anyone else's.

Based on everything I've heard, I'd say this post is essentially about
admitting to lesser crimes so the world forgives him before we even know what
he really did or did not do.

I'd urge the media powers that be to try and get some former employees,
investors,customers, etc., on the record. And if they don't, then all of us
should probably just move along and forget about this guy. Sounds like he
already duped a lot of people into believing in him - I for one don't intend
to be his next victim.

~~~
lambda
I'm curious; what have you heard that makes these sound like lesser crimes? I
feel like from my reading of this, it sounds like he's admitting to being
pretty dishonest in a lot of ways (though obviously weasel-worded), so I'm
curious what more we're not hearing about; if this is supposed to make him
look better, then whatever's left must be pretty bad!

~~~
nyc_str8tsh00t
I don't want to spread rumors, and everything I've heard has been second hand
at best. I just know that there were a lot of good people at Amicus, and a lot
of good organizations relying on the software, and now they are all screwed.

------
ChuckMcM
That had to be a tough article to write, thanks Seth.

The thing that really stuck with me is the 'technically true' aspects. Growing
up in various places around the world I encountered a number of people for
whom their motto was 'its only illegal if you get caught!' The advantages of
this motto were very apparent as a teen, you could run a stop light at
11:30pm, there was hardly anyone around, and you could be home by curfew. You
could use your parents car if it was back where they expected it to be when
they next needed it. Sort of the ultimate Ferris Bueller.

And then I had as an influence my Grandfather, who was a US Attorney, and who
valued his integrity over his own life. I think of him as sort of the other
end of this spectrum.

I asked him about his unwillingness to do what others have done (at the time
it was drive faster than the speed limit on an empty road) and he said,
"Charles, the world is full of pain and anguish, when a man lives by a code he
can walk among that pain and anguish and help right its wrongs without being
burdened by having contributed to it." (well that is how I remembered it,
there was probably a story about hunting in there too) and I didn't really
understand it until much later.

~~~
matwood
Interesting about your grandfather. Mine taught me a similar integrity lesson
when I was a kid. Back when there were payphones I would always check them for
spare quarters. One time when I was with my grandfather I checked a phone that
has broken and dumped ~ $6 in change out. I pulled all the money out super
excited about my find. He explained it wasn't mine and when we got home he
mailed the local phone a check for the exact amount.

~~~
larrys
"I asked him about his unwillingness to do what others have done (at the time
it was drive faster than the speed limit on an empty road) "

The above (parent comment) as well as your comment "I pulled all the money out
super excited about my find. He explained it wasn't mine" ... well, I can't
agree that it teaches the proper lesson, even to a child.

Forgetting whether he is even right "it isn't yours" (I could argue against
this) I think that's exactly the type of rigidity that teaches someone not to
appreciate the nuance that you need to actually make real decisions in life.
It just teaches black and white and unfortunately things aren't typically
black and white.

I'm reminded of a time on "The Apprentice" where a candidate who was favored
by Trump told him something claiming to be honest and thinking it was going to
get him ahead and instead Trump "fired him". Forgetting we are talking about a
TV show here (and obvious drama) life is full of nuances which you have to
navigate. Being "too" honest can also send a message that you are not flexible
and willing to consider the circumstances.

As far as "drive faster than the speed limit on an empty road" (the parent
comment) the devil is in the details. Driving 56 in a 55 mile per hour zone is
not a problem. In fact driving 60 isn't and at least where I live 65 isn't
either. Cops typically never give tickets without some slack. And there is a
reason for that.

If I interviewed someone and they claimed to not drive over the speed limit I
wouldn't give any bonus points for that I'd actually take points away.

To me (and with all due respect to the parent commenters grandfather) when I
hear things like this I think something is trying to prove honesty a bit to
much and (once again not to imply the parent commenters grandfather is such a
person) that is the type of person I actually watch out for sometimes.

~~~
rdwallis
I've chosen to never speed because it reduces my cognitive load.

Nobody speeds all the time. Even people who speed a lot will try to slow down
for speed traps.

So everyone who speeds even those who speed only every now and then have to be
constantly making a choice for when to speed.

They must constantly assess whether the benefits of speeding in this specific
moment outweigh the disadvantages. There are dozens of variables: how much
quicker will speeding be? will I be caught? is it safe to speed on this road
at this time?

Much easier to ignore all that and just to drive below the speed limit.

~~~
larrys
"I've chosen to never speed because it reduces my cognitive load."

Never? Never speeding also means not always keeping up with traffic which
might be flowing at a higher rate of speed. Consequently you are chancing a
greater risk of an accident by not keeping up with traffic and not speeding.

~~~
pyoung
Not exactly. Those that are speeding have accepted the higher risk of accident
in exchange for getting to their destination slightly faster (if at all). The
choices of the speeders have externalities in the form of a higher risk of
accident for all other drivers around them, regardless of others speed. The
drivers who obey the law bear none of the of the responsibility for that
increase in risk. If you want to argue that speed limits should be raised
because everyone is breaking them anyways, I think that is a fairer point of
view. But to blame people who are following the law for the externalities
caused by those breaking the law is absurd.

~~~
fredophile
Driving at a rate faster or slower than the flow of traffic increases the risk
of an accident more than an equivalent increase in speed. Here's a detailed
article about it: [http://priceonomics.com/is-every-speed-limit-too-
low/](http://priceonomics.com/is-every-speed-limit-too-low/)

~~~
wavegeek
The link is pretty weak evidence.

> “We all speed, yet months and months usually pass between us seeing a
> crash,”

This is a stupid argument. Do you really want to be in a crash every few
months? Roughly the average person has a 1% lifetime chance of dying and a 10%
chance of serious injury in a car crash. To me these are pretty high numbers.

> that sign won’t make people drive any slower

Where I live, speed limits are zealously enforced - loss of licence for a
third offence in two years - and people do comply with them. So yes a sign
won't do it but you can get people to comply.

As usual the US seems to find the worst solution: overly restrictive speed
limits (55mph) combined with lack of enforcement. This causes large
divergences in speeds, which is apparently dangerous.

The article seems to confuse the merits of driving slower than most traffic,
with the merits of slowing traffic as a whole down. They are very different
things. If most people on the autobahn are doing 110mph then one driver doing
55mph would be dangerous. However slowing everyone down to say 60 mph may be a
much safer overall situation.

------
tptacek
Of all the financial mistakes you can possibly make running a company,
withholding payroll taxes and then failing to remit them is probably the
worst. Be thankful you caught this before the liability exceeded your
available funds, because company operators are apparently routinely held
personally liable when there's a shortfall, and I'm not sure that debt is even
dischargeable in bankruptcy.

What's worse, minor versions of this mistake turn out to be easy to make; I've
seen (much smaller, much more easily fixed) incidents in multiple companies
with things like state taxes and unemployment insurance. So: you can't assume
this is a mistake that won't happen to you.

Without making any value judgements about the operations of this particular
company, one valuable lesson from the post is: do not ever use the Bank of
America Payroll feature.

Unremitted payroll taxes can come with a _one hundred percent_ penalty, and
you can be liable for that penalty even if you had no knowledge of the failure
to remit. Payroll tax screwups are the scary story big startups tell to baby
startups at bedtime. _Shudder_.

~~~
will_brown
As a former transactional/commercial litigation attorney I too would see this
issue regularly.

One interesting "hack" I would see clients do regularly as owner/employees,
they would minimize their own salary to avoid payroll taxes, maximizing their
distributions (distributions are not subject to payroll taxes). Unfortunately
for them the IRS accounts for this _hack_ , and if an IRS audit finds the
salary isn't _reasonable_ then those amounts will be subject to payroll,
social security, medicare, potentially higher income tax, and moving forward
affordable care act taxes plus penalties and interest. I personally hate this
because there is no bright line rule as to what a _reasonable_ salary is
subjecting all business owners to the mercy of the IRS.

I am surprised this would happen to a YC company, not that YC is in anyway
responsible, but I figured YC would be in a position to offer various business
services (payroll, legal, tax, insurance, ect...) at extremely low cost. For
example, I personally solicited YC and offered to provide Delaware
incorporation/registered agent/annual compliance services to any YC companies
at a discount which without the discount is already cheaper than legalzoom.

~~~
tptacek
It's a hack, and it's also unfair. S-corp company owners get to inhabit a very
small part of the economy that, due to a loophole, gets a dial that turns some
of their liquid compensation from "salary" to "investment income". That's
baloney. I'm glad it's an audit flag.

~~~
swombat
It's not much of a problem in the UK. A great many of our clients (and
ourselves) use the standard dividends + minimum wage method of paying
themselves - that is, the ones who own their businesses, i.e. have not taken
funding. HMRC accepts this method as a way for business owners to minimise
their taxes. As I recall, the argument is something along the lines of "I am
paying myself a salary for the basic director duties but effectively working
for free on the company day to day, and collecting parts of the earnings as an
owner."

It works fine and is very common for small businesses in the UK. I guess this
goes to show how contextual accounting advice can be.

On that note, I'll add that I'm ever so glad that in all my interactions with
them HMRC have been polite, friendly, supportive, helpful and nothing like the
abusive business murderers that the IRS appear to aim to be - even when I
fucked something up that was obviously my fault. I don't understand why the
IRS feels that they need to be such assholes about everything. They should see
their job as what it is: an essential part of the infrastructure that supports
the economy and, indirectly, supports businesses. Their role should be to make
business easier, not harder.

~~~
tptacek
I've never had an unpleasant interaction with the IRS. Unlike virtually any
other creditor I've ever dealt with, the people I've talked to who actually
work for the IRS have been courteous and helpful. I'm not the only person
who's said this. The IRS has acquired a personalized reputation for being
jerks, not unlike that of Customs, but which totally doesn't square with how
the agency actually acts.

I say this as someone who once had a pretty decent unexpected 5-figure
liability that I had to work out with them.

I also don't feel like zealous enforcement of unremitted payroll tax is
particularly abusive, since that's essentially describing companies stealing
from their employees.

~~~
swombat
Well, that's good to hear! This reputation the IRS has makes me worried about
the idea of some day operating in the US. It's good to know that they actually
employ human beings rather than attack dogs.

From what you describe, they sound much like HMRC.

And yes, withholding payroll tax (or VAT) and not passing it on to the
government is pretty crappy. HMRC is typically understanding if this is a few
months or even a year down the line and they think the business will be able
to pay up - they frequently agree payment plans for such things - but three
years without noticing kinda takes the piss.

~~~
mikeash
I get the impression (and I could be woefully wrong) that the IRS, kind of
like the USPS, has an awful reputation that was justified some decades ago,
has turned it around because of that awful reputation, but inertia means the
reputation persists long after the underlying reasons have been remedied.

------
xcubed
This is just awful. There's owning up to mistakes, which is very "trendy"
right now, and then there's being a straight up terrible, unethical,
incompetent person. It's a bit gross to reference Ben Horowitz, to try to make
this seem like a "classic" startup moment that every startup goes through.
E.g., "most companies go through at least two, and sometimes over a dozen
WFIOs in their lifetime."

1\. "And so I learned that we hadn’t been paying payroll taxes for almost 3
years – a particularly painful thing given I believe in taxes as a means of
giving back to society." It's weird and manipulative to throw in how much you
believe in giving back to society here. You majorly screwed up oversight of
how investment money was being spent to not notice the difference in
financials given no taxes were being paid!

"This hurt even more because I’d been paying myself one of the lowest salaries
on the team to maximize our runway and support our mission." Again, you're the
founder. If you're going to make that statement, at least include that you
have a much larger equity stake in the company - you're not sacrificing
yourself completely!

2\. "Mistake 3: Not being explicit about hacks" should be re-written, "Being
Dishonest." Cloaking the language as "hacks" and again referencing PG to make
your behavior acceptable - (he says it's ok, it's just really a grey area!)

3\. "Mistake 7: Telling a half-truth" should be called "lying." If you still
think it's a half-truth, you have NOT learned your lesson. It's not "rule
bending." Everyone knows that when you say you dropped out of Harvard, the
assumption is that you were some form of degree earning student. Seriously, it
wasn't a half-truth if the people you're talking to were assuming something
else - it was a lie.

Lastly, NOWHERE do I see remorse for the lives of your employees who you laid
off. These people trusted and believed in you, and you let them down. Did
these people find new jobs? Did you help them find new jobs? How did you
structure their layoff packages? Are any still struggling? Were you able to
support their next career moves in some way if not monetarily? Not really
mentioned, which suggests you don't really care. You're much more focused on
you.

~~~
sethbannon
I see that you made this HN account only to comment on this post. I've learned
that getting into a back-and-forth with anonymous posters on HN is never a
good idea, but I'll respond just this once.

1\. You're absolutely right. I majorly screwed up here. I say so as much in
the post.

2\. I think people can reasonably disagree here. An example: a potential
customer asks a sales guy during a demo "...and will we be able to export a
list of our users?" Answer: "yes, absolutely". The customer signs. The sales
person then runs to dev team and says "we need to build this export
functionality before they launch". Did the potential customer think that
feature already existed? Probably. Is anyone being hurt? I don't think so, so
long as the export functionality can actually be built before the customer
launches.

3\. I was a degree earning student, as I mention in the post, but that doesn't
matter. The way I talked about it was wrong, whether you call it a "half-
truth" or a "lie".

Regarding the employees who are no longer with Amicus, anyone that wanted help
finding their next job got it. Everyone that wanted their resumes sent over
the YC list got that. And I spent a good part of the two weeks after this
happened making intros trying to help people land somewhere they could be
happy. The team breaking up was one of the toughest parts of this whole
ordeal. Having to part ways with an employee when they're underperforming is
hard, but having to part ways when they're doing their job well -- because of
mistakes you've made -- is almost unbearable.

~~~
afro88
> 2\. I think people can reasonably disagree here. An example: a potential
> customer asks a sales guy during a demo "...and will we be able to export a
> list of our users?" Answer: "yes, absolutely". The customer signs. The sales
> person then runs to dev team and says "we need to build this export
> functionality before they launch". Did the potential customer think that
> feature already existed? Probably. Is anyone being hurt? I don't think so,
> so long as the export functionality can actually be built before the
> customer launches.

I'm not OP, but you still don't get what's wrong here. You're still lying. Why
not say "Not yet, but we have a great dev team and we would gladly add this
feature in for you before launch." It's honest, and frankly sounds more
impressive to the client.

~~~
girvo
Look, ethically, I totally agree with you.

Practically though, if you've worked in sales, you'll know that what the OP is
talking about isn't just something that happens often, but is basically the
life-blood of some rather large companies.

Now, I dislike it because it puts the impetus on the developers to deal with
it if it goes wrong, and that sort of crunch-time stress is just crazy, but
it's also not something that the OP has come up with on his own...

~~~
Natsu
Smarter clients (and I agree that there are plenty of not-so-smart clients),
will actually double-check on these things before buying in various ways. They
can, for example, request an evaluation version to use, check with the support
department exactly what's actually supported, or simply have them demonstrate
exactly _how_ the product can meet that requirement.

I'm sure there are more ways of doing that too, though, so these are just my
observations. And yeah, don't trust the sales guys :)

------
slg
I know this is a minor point of the article, but as someone with a degree from
Harvard Extension I need to weigh in on that part of the story. I hate people
who make this lie of ommission. Harvard Extension isn't Harvard College or
Harvard Business School, but it still provides a very good education with
great flexibility at an even better price. However, there is a small minority
of people that continuely try to pass off their degree (or in this case a lack
of degree, which is an even bigger crime considering that both the admission
and graduate rates of the College and Extension School are roughly inverses of
each other) as something more than it is. This isn't a fabricated credential
on a resume; it is a lie that makes other people guilty by association.
Everytime someone confesses or is caught doing this my degree becomes
devalued. It establishes a repuation for HES students and alumni as unethical
Harvard wannabees that are looking for any way to cut corners. The lesson to
learn is not about managing your own reputation for ethics and honesty, but to
also remember that you are a member of community. You don't only represent
yourself. You represent yourself, your company, your friends, your family,
your school, your industry, your hometown, your gender, your race, your sexual
preference...

Obligatory [semi-]relevant xkcd: [http://xkcd.com/385/](http://xkcd.com/385/)

~~~
pjungwir
I also took a few Harvard Extension School classes (mostly Greek and Latin,
but also Distributed Computing). I didn't earn a degree, just took a few
things that interested me. It's on my resume as Harvard Extension School, and
I have to actively correct people who think it's more than it is. My jokey way
of putting it is that HES "takes anyone with a credit card." What's really
embarrassing is when someone introduces me as someone who "went to Harvard."
They were great classes, especially the ancient Greek, and I'm very grateful
for the opportunity to learn what I did, but it's not like I did my undergrad
there. I fact I applied and didn't get in. :-)

~~~
ColinCera
> My jokey way of putting it is that HES "takes anyone with a credit card."

That's nice & humble of you, but it's not precisely true. There are very few
requirements for taking a random course or two (or 20) at HES, but to be
admitted to a degree program at HES is not so easy. You have to take a certain
number of HES courses and earn a high GPA in them to be admitted to a degree
program. Then, of course, you have to pass the full slate of courses to earn
your Bachelor's degree.

Some people also seem to be under the impression that HES courses aren't as
difficult as regular Harvard College courses. If anything, I'd say there's far
more grade inflation in Harvard College than in HES, i.e., it's probably
_easier_ to make an A in a lot of (though obviously not all) regular Harvard
courses than it is in Extension courses.

~~~
slg
This is part of what I referred to in my first post and is usually what I
mention when someone is truly interested in the school. Harvard College does
its credentialing when you apply. A very low percentage of people who apply to
the College get in, but almost everyone who does will walk away with a degree.
The Extension School moves that credentialing until after the student enrolls
in classes. There are virtually no barriers to take classes and the
application process isn't hard to get through, but the amount of students who
leave the school with a degree is very low. Therefore the school is more of a
meritocracy. Almost anyone who is capable and determined enough to earn a
degree is able to regardless of their prior educational history. The last time
I saw stats on it, the actual percentage of people who apply to Harvard
College that earn a degree was very close to the number of people who take a
class at Harvard Extension school that earn a degree.

~~~
starkness
Sure, but a lot of the people taking classes at the Extension School don't
want a degree. For example, I had students whose employers were paying for
them to take a single course to give them some background knowledge or insight
into their jobs. They're not looking to graduate; just to take a class or two
that will help them with their careers.

~~~
slg
That is a good point and the numbers aren't measuring the exact same thing (on
the flip side of your example is the number of applicants to Harvard College
who might not attend even if accepted). I didn't intend to reference them as
some justification that the two schools are in any way equal. The only reason
to really compare the two rates is because they have similar values and
highlight the differences between the two schools. The toughest part of the
College is getting in, the toughest part of the Extension School is getting
out.

------
MortenK
It's absolutely astonishing to me that SV investors and incubators pass along
~4 million USD to a team of people with so little business experience, as to
neglect hiring an accountant. End result being unpaid payroll tax for almost 3
full years!

No one ever asked what accounting firm Amicus used? No one ever just glanced
at the finances and thought hey, where's the frigging payroll tax? Is valley
capital so readily available as to warrant this kind of extremely low investor
engagement in funded companies?

No written founders agreement either. I mean this is basics, and it should
have been caught or taught by the accelerators and the investors.

This is not a shot at the OP, who I think is exceedingly brave to write such a
public, honest and informative account of their screw-ups. Competence comes
from experience and everybody in business has been incompetent at some point.

Rather, this is a massive failure on the investors' and accelerators part.
With all the talk of "funding the team, not the idea", you'd think there was a
bit deeper understanding of team experience and competence, than just some
degrees from an ivy.

It's mind blowing that investors can be so careless with their cash. I wonder
if it's a common occurrence or if this is an outlier situation.

~~~
7Figures2Commas
> It's mind blowing that investors can be so careless with their cash. I
> wonder if it's a common occurrence or if this is an outlier situation.

There is way too much capital chasing too few opportunities today. The bar for
who and what gets funded at seed stage is extremely low. Social proof and
accelerator cred clearly often substitute for due diligence.

Exacerbating this is the prevalence of party rounds in which lots of investors
put in relatively small chunks of capital. For obvious reasons, if you're
raising a $6 million Series A from two or three name firms on Sand Hill Road,
you're probably going to be subjected to a lot more scrutiny than if you're
raising a $3 million round from a group that consists of upwards of 10 angels
and/or super angel funds. In the latter scenario, the amount invested per
investor tends to be so small that none of the participants have a real
incentive to perform rigorous due diligence, which costs money and takes time.

According to CB, 15 investors participated in Amicus' $3.2 million round in
2012.

------
smalter
Amazing article.

As advertised, it's not a self-aggrandizing "mistakes" post that points you at
the end to the author's next venture. It's full of the kinds of things that
keep me up at night.

It reminds me of something similar that happened to me: I was running Adwords
for the first time. The dashboard wasn't showing that any of my ads had run,
and it kept telling me to up my bid amount. I kept upping it and upping it,
and I wasn't seeing any ads running. I said screw it and forgot about it.

When I happened to look at the dashboard 3 weeks later, I had blown $6k on
Google ads. I had to get my team together and tell them what happened and
apologize. ($6k was a lot of money to us.) Like Seth, this hurt a lot because
I paid myself less than anyone in the company to save money.

Seth, if you're around the iDoneThis office at Great Jones and Bowery, hit me
up. I'd love to buy you a drink.

~~~
sethbannon
Thanks for the kind comment, Walter. I'm based in NYC but I'll drop you a line
next time I'm back in SF.

~~~
mattangriffel
Great Jones and Bowery is in NYC ;)

------
methodover
> In the early days I would often let potential customers think we already had
> a feature they wanted

What. How is this even remotely acceptable? If discovered it destroys your
credibility. Among your employees it destroys your credibility. If I was an
employee and found out that this was happening, I'd be extremely upset. I
wouldn't trust a thing you say. If you'll lie to customers, you'll lie to me.

~~~
matthewmacleod
_What. How is this even remotely acceptable? If discovered it destroys your
credibility. Among your employees it destroys your credibility. If I was an
employee and found out that this was happening, I 'd be extremely upset. I
wouldn't trust a thing you say. If you'll lie to customers, you'll lie to me._

Your optimism is endearing, but the vast majority of companies I've done
business with do this. Often companies I've worked for have, too – sales
people are very happy to overstate the available features and capabilities of
any product. From their perspective, a shoddy, rushed implementation to an
unhappy client is still better than having them walk away from the purchase
entirely.

~~~
danielweber
Since you are competing against people who will tell you that the feature they
want already exists, people who are too honest in this area will quickly get
filtered out of the marketplace.

It sucks, but there are lots of markets where the customer says "please lie to
me" and gives their business to the person with the most reassuring lie.

~~~
tspike
This philosophy seems to imply that trust and relationships are worthless in
business. If you perpetually promise features that don't exist, you'll
eventually promise something that either can't be implemented at all or has to
be implemented sloppily to deliver.

How can you possibly sustain a long-term business when you're so willing to
damage business relationships?

~~~
chaqke
Many startups don't become long-term businesses.

However, the startup that (wins a big contract with a big promise && delivers
on its promise) certainly has a larger chance to become a long-term business
than the ones that short circuit themselves out by not winning contracts.

------
mhartl
First I'd like to thank sethbannon for writing this valuable article. As
someone with two failed startups under his belt (including one through Y
Combinator), I think entrepreneurs being more open about the challenges of
startups is a good trend.

 _FedEx, Evernote, Intuit, Zappos, Airbnb – I’m endlessly inspired by those
founders who faced near collapse but simply refused to give up._

These stories can be inspiring, but remember that they suffer from survivor
bias. The companies that _do_ go under don't get as much attention in the
financial press.

Sometimes the reality is that it's time to shut down. Give up on one thing,
move on to the next thing.

------
todayiamme
Given, that the dominant comments over here are in some shape or form pointing
out deficiencies of some sort in Seth, I would like to point out something.
You're forgetting how hard it is to start something new. I'm sure that some of
us might have avoided some of the items on the list, some might have even
managed to avoid all of them. However, I'm also pretty sure that all of us
would have made a lot of other gigantic mistakes along the way.

I'm in the process of starting a non-profit in the field of medicine and I've
been taking a lot of pain to do my homework. I've spent my evenings quizzing
people, reading books, talking to the friends I'm working with, and just
trying to get something out of the door, but I wasn't even remotely aware that
things could go wrong in half the permutations Seth mentions. In fact, in his
list alone, I spotted at least 3 things that I would have inevitably messed up
if it hadn't been for an hour of inspired reading based upon his post. It's
hard to make something new, sometimes it feels that you're trying to push
through the improbable, shift the odds to your favour, and achieve what seems
to be so impossible. In that world, in that arena, it's easy to mess up. It's
easy to make mistakes and it's very hard to fix them.

At the end of the day, the truth is that everyone messes up. Everyone has that
one time where they should have done X, but did Y / nothing and that then
resulted in bad thing Z, which could have dragged / or did drag them under.
This is why - in my mind - the right question to ask over here is, what does
it take to handle a crisis with Seth's grace? After all, not dying is the
difference between crossing the finish line and pausing along the way.

------
lambda
So, revealing one of these mistakes would come off as a brave revelation of a
personal mistake; a lesson learned and moved on from

All of them together seem to come across as being simply dishonest. Being
years behind on taxes because you never bothered to have a proper accountant
look at your finances, calling people co-founders one day and then treating
them like employees, selling non-existent features to your customers and
collecting credit card information with no product to back it up, saying you
"dropped out of Harvard" when you "took a few courses at Harvard Extension",
not telling your investors about what's going on, all adds up to pretty much
being entirely dishonest with everyone you interacted with.

One of these mistakes could be forgivable; I've known some very good people
who were terrible at accounting and so wound up with lots of back taxes to
pay. A good salesman may sell a feature that's not quite ready yet; it's
sometimes frustrating for the developers, but as long as it's more the
exception than the rule it's OK. Focusing on your product more than your
investors may be OK if you just have so much to do and you really are bringing
them a lot of value.

But all of them at once? That doesn't leave you with very many excuses; you
weren't so busy building features that you didn't have time for investors, you
were using your customers, and the IRS, and your "cofounders" as extra
investors and even with all of that you weren't able to make it work out.

------
dreamweapon
_Mistake 1: Taxes_

This thing about not noticing that you weren't paying payroll taxes wasn't a
"mistake." It was pure head-in-assery.

How can you "miss" the fact that you weren't being subtracted for payroll
taxes? One quarterly / annual review after another, for 3 years? It's like
running a personal budget, and "missing" the fact that you aren't paying rent.

~~~
SilasX
Except that if you miss paying rent, they let you know, and quickly.

~~~
jgreen10
Making sure your bills are paid is the responsibility of any adult. If you're
running a business, messing up your taxes should be one of your deepest fears.

The general sense I got from the story was: We were young and stupid, but
instead of doing drugs, we convinced VCs to give us $3.8 million, which made
us believe that we knew what we were doing.

~~~
SilasX
I agree completely! I was only speaking to the point of "how long until it's
impossible to miss this", and how the comparison to rent doesn't work because
it's much shorter.

------
DanielBMarkham
Seth,

Thank you so much for posting this. We all make mistakes, and for each of
those, there could be ten thousand HN'ers who would come along behind us and
say something like "But how could you do X? That's stupid!"

Everybody wants to read business porn. Nobody wants to sit down and hear the
ways they will likely screw up. Guess which one is more effective. We need
this.

This took guts to do. It is one of the more useful posts I've read, and it
will have a positive impact. Congrats.

~~~
sethbannon
Thanks, Daniel.

------
mrgriscom
This guy sounds like a complete sleaze. I appreciate that he wrote the
article, as it did contribute a few moments of my day's HN entertainment, but
I don't understand the praise being heaped on him. Simply "coming clean" is
not commendable, in the absence of any discernible remorse. In the end you
just feel like someone is still being played.

Yes, people can make mistakes. But for a pattern of mistakes, and for a person
who seems to have such a casual relationship with the truth, you start to
wonder if some of the mistakes were... not necessarily willful, but just
plausibly-deniable enough.

------
jacquesm
This is why you pay an accountant the big bucks and pray they don't mess up in
turn, very frequently if they do the responsibility is _still_ yours. Running
a company comes with a lot of responsibilities that tend to keep you awake
until the small hours of morning. Details like these can get you, especially
because they are retro-active and hardly anybody is in a position to absorb an
instant loss of say 7 years remittances for the 100 employees they have. Be
very grateful that it wasn't a huge amount of money, bigger companies have
failed over things like this.

Also, if you are conservative you'll have a spreadsheet that models your worst
and best cashflow prognosis for the next 6 months to a year out. If you find
yourself consistently outperforming the 'best' case in spite of an unchanged
business outlook then it's high time to start checking things.

~~~
Qantourisc
This practise is in my opinion SO wrong. There is a saying: "... as humanly
possible" in other words people make mistakes !

~~~
jacquesm
In the eyes of the tax man there are no mistakes. There are only audits and
fraud. Better have your stuff in order when that audit rolls around anything
more than a few pennies out of line and you'll be looking at _months_ of extra
work even if you're a small company. Looking back at a decade or so of your
paperwork will turn up a ton more that you'll have serious issues documenting
if you didn't take care of it at the time.

That gets expensive in a hurry (tax lawyer, fines, interest, surcharges).

------
nwenzel
Poor bank UI crushes startup's bank account.

Thanks for posting Seth. Must have been a tough one to write.

I can't say this enough, use Zenpayroll.

In a prior company I had one of the other payroll giants (Zenpayroll didn't
exist 10 years ago). It was awful. We switched from one giant to another to
make 401k easier. But in the switch, both companies reported earnings to the
IRS. All my employees received notices from the IRS saying they each owed
$10k+ in back taxes and penalties. No one ended up having to pay, but when the
IRS comes calling, it's stressful even when you're not wrong.

Zenpayroll is fantastic. New game, new level.

[https://zenpayroll.com/](https://zenpayroll.com/)

------
carlesfe
Despite the amount of similarly titled articles that appear on HN weekly, this
one is really, really good.

Don't miss out on it.

------
matthewmacleod
Wow - "Oops, we forgot to pay payroll taxes for three years" isn't good. How
does nobody notice that?

But lessons learned and all that. I can't stress enough (at least from having
run a small business) that accounting is the number one thing to get correct
from the get-go. It saves such an immense amount of time, money and stress
later on.

~~~
personZ
It's rather surprising that the IRS wasn't dramatically more aggressive about
this. Every year they had people submitting tax returns claiming taxes paid
that weren't paid, for years. I would have expected the IRS to have searched
the Earth for this company.

~~~
jacquesm
The address was wrong. Probably a mistake, but that trick has been used on
purpose as well.

~~~
personZ
I understand that they sent some mailings, but at some point...months in, or
even years in...you would expect an investigator to be tasked with hunting
this company down. That ultimately is not a difficult task (aside from obvious
and trivial web searches, contacting one of the employees who claimed to have
paid tax, the government getting none of it). This seems like the sort of
oversight that in most cases would leave the government holding the bag.

~~~
jacquesm
The way the tax office works is simple: the biggest holes get plugged first,
the smaller ones can wait until they've become either big holes or until
they've been resolved.

Usually they are resolved. By the time a small company has developed a big
enough hole for the tax company to start tasking people with plugging the hole
you're in very very hot water.

It's a resource allocation problem like any other.

------
UVB-76
Although a valuable cautionary tale, is it really wise to make a post like
this, associated to the company name, for the whole world to see?

As a post-mortem, I would understand, but surely not a good idea when your
company is still trading.

Existing/prospective customers are going to read this, and it's not going to
fill them with confidence.

------
fredsters_s
"I’ve come to realize that “technically true” is a terrible ethical measure
for a (non-technical) statement. I should have held myself to a higher
standard. I’ve also learned the importance of overwhelming honest"

So true. There is an immense amount of pressure within startups to 'bend the
rules', and I think this hits the nail on the head.

------
jakejake
We had a deal with our landlord for paying a reduced rent amount for one year,
after which it would go up by $1,500 per month. Well, we had quite honestly
forgotten about the deal and the same automated rent payments just kept going
through without a word from anybody. About TWO YEARS later our landlord came
to us and said "oh yea, remember that rent deal we had? You guys owe us about
$36,000 in back rent!"

That sucked but we don't blame anybody but ourselves. It goes to show that you
do need to keep track of your own finances and not expect somebody to tell you
when you are not paying things properly.

------
plehoux
Taxes! It is never too early to setup something like xero.com and bring
outside expertise.

Knowing how much money you really have is the most important thing to know
when you run a business.

At ConferenceBadge.com I spent a few days automating our accounting process
with Xero API and brought some help from Xenaccounting.com (Montreal firm) to
manage our books. It really helped us bootstrap the company and manage or
tight budget month to month.

Accounting dept (not knowing where you are) is really dangerous and stressful.

------
ajaymehta
Kudos, Seth. Really refreshing to see this kind of bare honesty, and takes a
lot of courage to know that this post will probably be seen by all
friends/family/coworkers. Thank you for writing this.

~~~
sethbannon
Thanks Ajay.

------
rdl
83b elections and payroll taxes are the only two things which are really
really critical from an administrative perspective, in my experience, and
can't be fixed later with fairly minimal cost.

------
lowglow
I'd like to hear the co-founder's stories as well. I think this would give us
a complete story of the situation.

~~~
lowglow
I love that "hearing the full story" got downvoted. hah

------
jakejake
I actually enjoyed this article and it's definitely reassuring in a way to
read about other people's struggles. I have to take minor issue with the
"entrepreneurs don’t talk about their most difficult moments publicly" part
because it seems like there's an abundance of articles lately from founders
who write about their stress, depression, failing startup, etc. I feel like I
see more of these articles than success stories. Even the success stories I've
seen lately are more of the tone "we had to really go through some shit to get
here."

I do respect that it's difficult to write about, though. In addition to just
wanting to not feel like a failure, you don't generally want your employees
and investors to feel like everything is about to go down the toilet. I'm glad
to see more people writing about their real, honest experiences.

------
thom
You shouldn't really be able to go through a startup accelerator without
someone hooking you up with an accountant... much less raise millions of
dollars of investment.

------
subdane
It would be really interesting to hear Seth's former co-founders response to
this well written piece.

~~~
simonebrunozzi
Yes, but at the same time, this is not a trial or an execution. Let's not bee
too harsh (some of the comments above clearly are).

------
jeffcrigler
Seth shows a lot of courage to do this. I have done three start ups. My first
one was successful and got bought by Lexis/Nexis... but it wasn't very
lucrative. The second one was a complete disaster and I spend $40 million on a
pipe dream and my VC's had to take me out. The third one was a success still
waiting to materialize as it was sold and I have yet to see the dividend. But
at ever step i made lots of mistakes (including falling behind on payroll
taxes) and each of these were learning opportunities. I give kudos to Seth for
sharing this and am more hopeful now than before that he can make Amicus
successful in the long term.

------
dayjah
I often find myself saying the following: "We are the sum of our mistakes,
though to re-offend is to not have learned".

So much is made of out and out success these days, it sets up society to be an
incredibly unforgiving place and feeds a loop of setting unattainably high
standards for ones self or for those around you, and from that comes a fear of
mistakes, if you cannot make a mistake you are denying yourself an opportunity
to learn.

Context: I was a manager of a software dev team dealing with high scale, and
am now a technical non-management leader. Prior to that the founder of a few
companies. Throughout all of that I've tried to fail a little less each day.

------
krebby
I interviewed at Amicus last year and they were clearly some of the nicest
guys in tech. It's always hard to read stories like this but it's especially
tough to see a good idea go under. Best of luck to everyone involved.

------
chetanahuja
The whole kerfuffle about Harvard Extension vs Harvard College just lays bare
the awful reality of the value of college education today. It's basically
about acquiring a brand-name on your resume. Especially in the US system, the
university branding says very little about the merits of the graduates (since
admissions process is a colossal clusterfuck where a very large number or
rejected candidates are objectively academically superior to a very large
number of accepted candidates) and everything about our obsessions with
exclusive clubs.

------
tomp
Can someone clarify why dropping out of Harvard Extension School is a subset
of dropping out of Harvard University? I checked out Wikipedia, but it's not
very clear about Harvard's system and the different colleges (Harvard College,
Radcliff College, Extension School, ...) I've always assumed there was just
one "University of Harvard", but apparently it's more complicated...

~~~
pjungwir
Harvard Extension School is an adult education program, like night classes.
Your teachers may be Harvard faculty (but never were in the 7 classes I took
there), and the other students are not Harvard undergrads. Also there is no
application: they take anyone with a credit card. (There may be an application
if you want to earn a degree rather than just take desultory classes; I don't
know.) That's all not to say the classes aren't very good, but it's not the
same as "getting into Harvard."

~~~
tomp
So what does "getting into Harvard" mean - getting into Harvard College? What
about the rest of colleges besides Harvard College and Extension School?

~~~
jacquesm
It means being accepted on your merits, rather than on your ability to pay a
few hundred dollars.

It also makes you part of a relatively small crowd that tends to use that
particular fact as a credential. At least they earned that, the OP did not.

------
bellerocky
On the co-founder thing, being a "co-founder" doesn't mean you're also endowed
with as much authority as all the othe co-founders. In most circumstances one
of the co-founders should be designated as the one in charge, given the
responsibility of making the hard decisions.

Being in charge doesn't mean you get to win every argument, as you don't want
your co-founders to quit, but it definitely shouldn't be a thing where all the
co-founders have equal decision making capabilities because that may lead to
never-ending strife. Most decisions shouldn't be arbitrary anyway, a decision
should come with a convincing argument. It's those hard decisions when none of
the answers seem perfect where you need someone to win out even though it may
not feel right.

The leadership structure should be determined when the founding team forms, so
there's no ambiguity later and each person needs to decide then and there if
they can live with the setup and thereafter stick to it.

------
jozefff
Dang, that's rough Seth. Thanks a ton for sharing though. It's hard enough to
go through those kind of struggles, but to be honest and let others know the
difficulties you faced and own up to mistakes you made is really valiant.
Kudos to the max.

------
danielweber
No matter how smart you are, the only way it makes sense to do your own taxes
is if your business is taxes. Otherwise, hire the woman who spent years
learning this stuff and devotes her entire cognitive load to the task to do it
for you.

~~~
jacquesm
Absolutely. And then you _still_ check on them to make sure it is all done
100% right. You are responsible.

------
dheer01
Seth - Thanks for sharing your perspective - its extremely courageous to talk
about these things in the open.

I am a startup founder and have been there done that - allow me to seed you
with a radically different perspective.

You made NO mistakes. None. Every lesson that you learned - you will unlearn
it in the next year or so. There are lessons to learn over here, but not the
ones you mentioned - they will come - just wait for it.

Everyone pointing out in this thread about your mistakes is dead wrong. They
don't know what it takes - most have never been close to what you are doing -
they just don't know. This is also one of the reasons it might NOT help to
talk about these things in public - though I am not saying that you shouldn't.

Most successful founders make most of these mistakes - and then some. The only
mistake that you really made is to not figure out the business - everything
else is not important. Sales fixes everything - and it would have fixed all
these mistakes. Specifically:

1\. Skipping on taxes till its too late - this is a trait of a successful
founder. It means you are focussed on the business too much to bother about
paying taxes.

2\. Poorly defined co founder relationships - the story about 'every' startup.
Let me tell you the secret about founder relationships - ignore them. Figure
out the 'business' \- founder relationships will figure themselves out.

3\. Hacks - This world is unfortunately run by people who don't see things
like we do. To hack is to have tread that middle ground which keeps the peace
and also lets us run things they way they should.

4\. Going it alone - There is no other way. At the centre of the biggest
changes the world has ever seen, there is a lonely founder. You have to do it
alone - dont seek to change it - just understand it.

5\. Investor relations - Investors like a good business more than you and me -
you fix the business and let the investor will fix the relations.

------
krytork
This guy is totally irresponsible. The thought that he had the financial well
being of other people in his hands makes me sick. There should be a law that
prevents people like this from starting another company.

------
_RPM
Seth,

I really enjoyed reading your article. It was extremely insightful, and I hope
to read more articles posted on your blog in the future.

------
jlas
Wait, so are you telling me that in 3 years no one noticed that taxes weren't
being deducted from their pay?

~~~
sethbannon
The Bank of America payroll system we used was automatically withholding the
payroll taxes from all of our paychecks every two weeks. It then just left
that money in our company's bank account instead of sending it to the
government because I never discovered the "submit tax" button.

~~~
paulhauggis
even so, didn't you notice extra money in your business bank accounts?

------
MattBnB
Such an awesome article. Minimal, simple and well said. Taxes would suck to f
up

------
andrewstuart
Let he who is without guilt cast the first stone.

------
jasonlaramburu
Wow, sorry to hear about all this. Are you going to return the remaining
investor money?

~~~
budu3
I don't think he's out of business yet.

------
michaelvkpdx
Poor founders and your VC-funded pain.

How about some empathy for each of those employees you are firing, who have to
go home and face families and lives that they've shared with you and you have
essentially shat upon?

They are not "resources". They are people, humans, and their lives and loves
are just as important as yours. They shared a piece of their humanity with you
to help you in your dream. A dream which, make no mistake, isn't making the
world a better place. It's you yourself getting rich. You used these people
and now they have to deal with their lessons learned.

Which aren't "lying is a bad thing" and "not paying taxes is bad" and "I need
to network more with rich people." They are- "I need to find a new job and/or
draw unemployment, I need to cope with this shock to my system, and I need to
figure out how I'm going to pay the bills".

All the "libertarians" in this business lose sight of social agreements and
safety nets, until they get screwed by someone who shares that approach.

~~~
JabavuAdams
> They shared a piece of their humanity with you to help you in your dream.

... and got paid for it. Your company is _not_ your family.

------
rmcfeeley
Thanks for the brave post, Seth. Glad to see all of the support here,
deserved, and appreciate your honesty. Best wishes for the days ahead

------
SomeCoolName
This was a very useful read, thank you!

~~~
ugh123
That was a very useful comment, thank you.

------
ajb
Really uninformative headline. Hmm, what would be better? Maybe "Management
Mistakes Founders should never make" (not all of use are reading this for the
startup stuff, believe it or not)

