
Ask HN: Clients are gone, lots of debt, what would you do? - patryn20
Last October I left a comfy job at a marketing startup that had become very profitable (Inc 500, NY Times articles, and all that jazz). I had stopped taking classes full time to work with this company, so I never completed my CS degree. After leaving my job, I started my own company to develop some consumer site ideas. My partner bailed early to go to law school, so there was a bit of a gray cloud overhead from the start.<p>In order to get money coming in I began running lead generation and online marketing for a few clients. Over time, that grew to consume my entire working hours. It peaked at about $70k in revenue in July and has been steadily declining from there to a low of $15k in November, thanks to the economy and increased online ad competition.<p>On Monday of this week, without warning, my last two clients pulled the plug due to economic conditions. The deals were profitable, but they had too many account defaults. One client has seen his annual bad debts total double in November. So, to free up cash flow, they cut me loose.<p>I poured my entire savings into the company and had up to $50k in credit card debt at one point. Running online campaigns and lead generation, you pay for ads up front and invoice in arrears.<p>As the company made profits, I paid myself as little as possible to cover my bills. The rest was used to pay down debt. Early on, I tried doing contract work on the side to pay my personal bills. This worked until I was stiffed on a large project. Since the business was making money by this point, I focused on it full time.<p>As it stands, the company has about $13k in credit card debts. I have an additional $17k in personal credit card debt from living off of credit before the company was profitable.<p>The corporation is getting one last $6k check. There are no finished products to show for the last year, no remaining savings, an incomplete CS degree, and $30k in debt between the company and myself. The corporation also has contracts to keep its rack space until the end of January at a cost of $600/month.<p>I just sold my old (expensive) car and got a Toyota. I am vacating my apartment and bumming with parents and friends.<p>The corporation has an internal advertising and lead management system that I am tempted to lease to customers. There was talk with some local Austin marketing guys of launching that as a product a few months back, but it never worked out. There are currently four servers sitting idle that could be put to use. There are also three consumer sites in various stages of completion.<p>If you were in this situation, what would you do? Dissolve the company, get a job, and move on? Go back to school? Launch the advertising product? Launch the consumer products while bumming around to avoid rent? A combination of the above?<p>Has anyone been in a similar situation? I am seriously stressed out and likely not thinking clearly, so I would love an outside perspective.
======
hopeless
Ok, so this isn't the situation that you wanted to be in but, equally well, it
hasn't all been for nothing. You have had a huge life experience that most
people will never have. The trick here is to capitalise on that experience and
to learn from it. You're also young enough that isn't the end of the road for
you. Indeed, I'd say most successful entrepreneurs have at least one failed
startup behind them so you're in good company.

My advice? Don't waste this time. Work out a plan to repay the personal debt
(I would consider this the top priority) probably by finding at least a part-
time job. Tackle the personal debt first, in an upfront and mature manner, as
it has the biggest long-term consequences.

Business debt? I'm not so sure what to advise but those servers shouldn't be
sitting idle. Try renegotiating the server contracts for just one server over
6 months instead of the 4 servers over 2 months. Then get the consumer
products out there, visible and some (really cheap) promotion. If the consumer
products are up and running, even without a large volume of users, you can
show that the company has assets and potential, which may allow the business
to raise money or be bought out. I'm not sure about the advertising product as
it doesn't seem like the best market right now.

And thanks for telling your story. There's far too many happy, smiling, this-
will-make-me-rich, everything-is-fine, what-could-possibly-go-wrong startup
founders telling their stories and it's good to hear the other side of the
coin.

------
mixmax
Been there, and it's tough.

Based on my own experience I would recommend the following:

\- Make sure you're ok, it's hard emotionally taking a hit like that, but it
happens to all of us. As ksvs said in one of the other comments even Joel
Spolsky hit the wall during the last bust. Realise that it's not your fault,
talk to friends, enjoy life.

\- get out of debt, it's a killer. I've been in worse debt and it's not as
hard as you might think to get out of it. Talk to your creditors, tell them
the situation and be straight about it. There's a good chance that you might
be able to negotiate a deal where you don't have to pay it all back, or get
lenient terms. Creditors like straight talk and hate excuses.

\- when you're past the first two points start a company - the education that
you have just finished by going broke with a company is worth much more than a
cs degree. You have just improved your chances of success considerably. Almost
nobody succeeds the first time, but the ones that start their second company
have a much higher rate of success.

Good luck.

------
skmurphy
I would go forward from where you are. Look for additional contract work and
look for additional business that can leverage your assets as they are. Tell
everyone you know that you are looking for work and are available to start
immediately. Go back to all of your old clients and see if there is any basis
to consult/contract or support them--that doesn't involve incurring additional
expense in advance.

Simplify your life to the point of austerity and pay as you go. Don't "bum"
anything from anyone, e.g. find a mutually acceptable quid pro quo for
room/board from parents and/or friends. Sell any other assets you don't need
for work (e.g. television, videogames, other non-essential and time-wasting
items), use the money for food and debt service.

On 30K of credit card debt my calculation is that you owe about $500-600 in
minimum payment, use the 6K to continue to make minimum payments. Put your
credit cards in your sock drawer and only carry one for bona fide emergencies
(e.g. car breakdown). Carry cash and pay cash for everything, it will give you
a sense of where you are spending money immediately.

Don't take any contracts that require you to advance any money or risk more
than a week's labor until you get your debt paid off. Don't "pay up front and
invoice in arrears," get your clients to cover the up front expenses and take
a fee for your services and the use of your software platform.

~~~
PieSquared
I haven't been in such a situation... but you said, _"Sell any other assets
you don't need for work (e.g. television, videogames, other non-essential and
time-wasting items), use the money for food and debt service."_

Is the $500 you're going to get for selling a TV and a video game system going
to help that much? It seems that you should keep anything you actually use, to
me - you're in enough stress as it is, you don't need to make yourself feel
desperately poor.

Or am I missing something?

~~~
run4yourlives
I think you'd get a bigger payoff from not having the TV and games around to
distract you than simply the $500.

Every hour not spent watching TV can be better spent somewhere else, even if
all he's doing is reading.

~~~
skmurphy
TV is a "two bird stone" in that regard. Videogames as well.

------
jamess
There are things you should do right now to deal with the debt. First off, the
rack space contract. You can almost certainly get out of it by phoning the
company and explaining that the choice isn't between cancelling the contract
now or getting paid for another two months, but rather cancelling the contract
now or fighting other creditors over the non-existent assets of the company at
liquidation. As long as you can talk to a real human being who is authorised
to make a decision, then that one is a no brainer for them.

Secondly, I think you'll probably find that declaring the company bankrupt
won't free you from liability for most of the debt it owes. You should try
your hardest to deal with both the corporate and personal debt through some
route other than bankruptcy. It isn't a totally unmanageable sum, but it could
quickly get that way since we're talking about credit cards here.

I guess your best bet is to look for a full time job as soon as possible. In
the mean time, phone your creditors and explain the situation. If they're nice
you'll probably be able to organise some form of payment holiday until you're
earning again, with a more reasonable rate of interest. With the current
economic climate, my guess is lenders are just happy if their customers intend
to pay back what they owe, and they'll bend over backwards to help you.

Anyway, sorry to hear about your situation. Its a tough break becoming victim
to the economy through no fault of your own. Hope some of this helps.

~~~
pxlpshr
Lots of great advice here. I was involved with a company that ran out of money
which had a very high burn due to infrastructure. The server company was more
than happy to work with us... that's an easy first start to minimize any
additional expenses.

I don't have a lot of personal advice to give you to help you out of this
situation. However, on the surface I do feel you made some mistakes that you
should never make again.

1\. Driving expense car while in debt. Wasteful. 2\. Living off credit cards
when you could have easily shacked up with the 'rents from the start.

I'd probably talk with a REPUTABLE debt advisor to figure out how to get out
of this mess. Until then, get a job and/or look to liquidate what you've
built.

Keep your head up... I'd probably look to liquidate as a last resort... if it
wasn't for the economy, it sounds like you'd be in a lot better shape... so if
you can withstand the squeeze for the next 6-12 months with an interim-job,
then you may be in a great position to catch the rebound.

ps. I'm in Austin and go up to Conjunctured from time to time. My contact info
is in my profile if you'd like to grab coffee sometime soon.

------
cschneid
Evaluate what you're good at and start a new company? You have run a
successful company, only got screwed by the economy. You basically have 13 +
17 - 6 == 24k in debt. If you go bankrupt with the company, that drops to just
13k (assuming that it's not secured with your private finances).

You say there are no finished products, then go on to say there's a good
advertising/leads platform. Can you spend a few weeks pounding pavement and
looking to sell or lease that platform? Start a new company, and go for it.
Remember to sell both the platform and your knowledge as a consultant. You
only really need to find one or two decent clients for that to work out well
(rather than a dozen for just selling blackbox software).

You'll be in for a rough time, but a part time job would help smooth out the
financial bumps while you get a new company up and running. It sounds like you
have the experience in a valuable field to make something work.

~~~
patryn20
Thanks for the reply.

The corporate debt had to be secured on my finances since this was a new
company and had no credit history. That makes it hard to get away from.

The advertising platform is currently pretty specifically for internal use. No
support for client data segregation and so on. Wouldn't take too much to fix
that, though.

My main stumbling block is that I have no savings and no credit to fall back
on while getting something ready for launch. I have mentally really been
leaning towards starting a new company, but not sure how to pull it off right
now.

------
randomwalker
Austin, huh. Nothing concrete to offer by way of advice, but a couple of
friends who recently graduated from UT launched an advertising startup. Maybe
I could put you in touch?

Are you at conjunctured? I've been meaning to check out that space. I can
swing by in a couple of hours if you're going to be there.

~~~
patryn20
Actually, I am sitting at Conjunctured right now. Probably my last visit,
can't really afford to renew the membership. Come on by, I have visitor
passes.

~~~
sharksandwich
I sent you an email to the n2neuron.com address a moment ago. Are you going to
be at Conjunctured much longer?

------
CatDancer
Yes, I once had a failed startup, and ended up with $40K in credit card debt.

I assume you are personally liable for the business credit card debt. (As you
generally can't get a business credit card without personally guaranteeing
it). So, just to be clear on your situation, you are 30K in debt. (Regardless
of what happens to the "business", you, personally, have 30K of debt).

Step one is to get yourself stabilized emotionally and financially. Good job
on selling your car and moving out of your apartment.

These four servers that are sitting idle? Are these the ones that cost a total
of $600/month, and you are contracted to keep paying $600/month through the
end of January? (Am I clear on the situation?) Go and talk to the hosting
company (the company you owe the $600/month to). In person. Not email, not
phone, go sit down with a manager in person. Ask for mercy. Lay out the facts
of your situation, just as you've done here. Say, "I know I owe you
$600/month, and legally you have a right to that out of my last $6k check.
Since I'm in this bad situation that I didn't expect, I'm asking if you would
have mercy on me and let me out of my contract. Is there anything you can do
to help?"

Next, write down a minimum monthly budget that contains the bare necessities:
food, gas for the car, small gifts for your parents and friends to thank them
for letting you bum off of them, the minimum payments on your credit cards. I
mean this literally, write it down. On a piece of paper, or in a spreadsheet.
You need to be able to look at the number, "$X/month", and say, "I can survive
on that". Temporarily. While you catch your breath, and decide what next to
do.

Next, I recommend you stop using debt as a tool to build your business. If you
have a great money making idea that needs some capital, go get investors. Yes,
you will pay the investors more in their share of the business than you would
on interest payments, but you're making lots of money anyway, so what? And if
the business fails, you walk away free and clear.

From a business point of view, the problem with debt is that is deadens the
signal that you'd otherwise be hearing that you're on the wrong track
financially. It's like some who suffers from leprosy, who loses the ability to
feel pain in their extremities. The greatest damage comes not from the leprosy
itself, but that people accidentally wound themselves (leave their feet in the
campfire or something), and don't notice because they don't feel pain. Run
your business on a cash basis, and you'll feel the pain of not being
profitable _right away_ , and make course corrections immediately. Run your
business of debt, you rationalize things like you "have to" pay for ads
upfront and invoice in arrears. Then you don't notice you've gone off course
until you've gone over the edge.

You have a lot of ideas for things you can do now, and that's great! Find one
that is going to be _cash flow positive_ from the _beginning_. For example,
those customer sites you could finish, or that product you could launch? Talk
to people and bang on doors until you find someone who will pay you _in
advance_ , at least that portion which will be enough to pay for your minimal
monthly budget for however long it will take you to get the project done. If
your idea is good enough, if someone really wants it, they will pay upfront.
If not, that's a signal that you need _a better idea_ , something that your
customers _actually want_. Don't go further into debt so that you can ignore
the signal, instead pay attention to the signal.

OK, the 30K in debt that you're in now? Don't worry about it. Pay the minimum
payments, and forget about it. Don't go _further_ into debt, but for now don't
worry about paying off the debt (aside from the monthly minimums) either.
Sooner or later you'll get yourself back on your feet, make some money, and
write a check to pay off the 30K. Until then, ignore it.

The CS degree? Don't worry about it. Employers and clients only care about
what you can _do_ for them. Now, if you haven't done anything yet, and you
have a CS degree, then the CS degree is evidence that you're able to do
things. (You at least made it through graduate school, and you're at least
fairly smart). But you can show what you've done, and only a tiny, tiny
percentage of employers or clients are going to care if you have a CS degree
or not, as long as you can show them, as you can, what you can _do_.

But again, the very first thing to do is to put together you minimum monthly
survival budget, and say, "OK. All I need to do, for now, is make this much to
survive. I can do that". Once you do that, once you have your survival needs
taken care of, then your stress lifts, your creativity comes back, and you
will find it easy to start making money again.

~~~
timr
Boy...I was ready to vote up this comment, but then I hit the part about not
worrying about the $30k in credit-card debt. Instant down arrow. Absolutely
TERRIBLE advice.

Whatever you do, you really must _pay down the debt_. Minimum payments aren't
going to cut it -- this is _revolving_ debt that you're talking about, and if
you don't make more than the minimum payments, it's only going to get worse.
People routinely go bankrupt by ignoring their credit cards.

Moreover, so long as you're paying tens of percent interest on your debt (as
with most credit-card interest rates), every other investment that you make
has to return _more than your interest payments_ for the investment to be
worthwhile. If you view a business as an investment -- just like a stock or
bond -- then it makes no sense to start one while indebted unless you're sure
that the return will exceed he cost of the debt. Otherwise, you're just taking
careless risks with your finances, in the name of a more adventurous
lifestyle.

Living frugally, you can easily pay down $30k in a few years at any decent
job. Negotiate with your lenders, get the interest rate as low as you can,
liquidate the corporate assets, and _get rid of the debt_. Starting a company
is hard enough -- don't saddle yourself with the additional burden of serious
personal debt before you begin.

~~~
CatDancer
I did that. I got a contracting job making $50/hour, worked for a year,
grossed $100K ($50 an hour times 40 hours a week times 50 weeks in a year),
paid off my $40K debt, paid $40K in taxes, and lived off of the remaining
$20K.

So I want to be clear what my advice is... if you still think it's terrible
advice, that's fine, as long as I'm not being confusing as to what I'm trying
to say.

If I found myself in patryn20's shoes, or in my own shoes again, I personally
would pay off the credit card debt before doing anything to upgrade my
lifestyle. I'd stay bumming with my parents and friends, or, if that was
starting to impact my productivity, get a really cheap apartment. No luxuries
until the debt was paid off.

However, I wouldn't now make paying off the debt the very first priority. If I
found myself in the same shoes again, I would not now stay in a contracting
job just to get rid of the debt.

Absolutely I would want to see the debt going down. However I understand now
the _reason_ that is important is because it means that I'm now paying
attention to the financial signals in my life.

The debt itself is only 30K, and if I paid even 30% interest on that, that's
only 9K a year. That's not going to kill me.

What's important is the _mindset_ , the understanding, that I'm now going to
steer my business and my personal finances in the correct direction, and that
I'm going to listen to the financial signals in my life instead of papering
over them with debt. Get that right, and it won't matter if I end up paying
off the debt in three months or two years.

For decision making purposes (such as, suppose patryn20 wants to start another
business, should he do it or not?), I claim what's important is the time
derivative of his net worth. Does the proposed business put him further into
debt, making the derivative of his net worth negative? Then I would say, no,
don't do it. If it is going to _make money_ , leading to raising his net
worth, and he _wants_ to start a business, he's _fired up_ about starting a
business, he's _excited_ by starting a business, go for it. I wouldn't base
the decision on the net worth itself, I wouldn't say "don't go into business
while your net worth is negative".

I wouldn't necessarily give the same advice to anyone. If someone had 30K of
consumer debt from overspending, I'd be concerned at their successful ability
to manage their business finances when they can't manage their personal
finances. For such a person I probably _would_ recommend getting a job and
getting their personal finances under control (paying off the debt), before
getting into a business. However patryn20 has a track record of a successful
business, just in my opinion over leveraged, and right at the moment he
reeling from a pretty hard blow. So my advice for him is different than it
would be for a hypothetical person who was in 30K of credit card debt for a
different reason.

~~~
timr
I think it's great to have that kind of mindset. As I said, I thought the rest
of your advice was great -- I just happen to vehemently disagree with the
notion that you can let revolving debt ride while you pursue high-risk
investments (i.e. starting a business).

Even if you're "only" paying $9k a year in credit-card interest, that's still
$9k that could be invested directly into your future. And if you truly believe
in your business, then why wouldn't you want to invest _everything_ into it?
Is it worth starting a business two years earlier, only to have $9k less per
year to funnel into your dream?

More practically, you _need_ every last dollar that you've saved to start a
business. Few entrepreneurs can afford that extra $9k a year, and I doubt that
you'll meet many successful business owners who will tell you that they
couldn't have used additional capital. It really doesn't make much sense to
invest in a business when you're saddled with consumer debt.

~~~
CatDancer
_I just happen to vehemently disagree with the notion that you can let
revolving debt ride while you pursue high-risk investments_

Starting a business is not a high-risk investment (unless you put your own
money into it)

 _And if you truly believe in your business, then why wouldn't you want to
invest everything into it?_

Because, excuse me for saying so, that would be silly. Think about my business
separately from me for a moment. If the business needs money, the best place
to get it is from people who have money, not from me who has little.

~~~
timr
This reminds me of a JWZ quote: _"Linux is only free if your time is
worthless."_ The same principle applies here.

A business is exceptionally high-risk, if you value your time at more than
zero. It's not like a savings account, where you put your money in, ignore it,
and you're _guaranteed_ to get it back someday. It's not even like a stock or
a bond, where you have a framework to evaluate your investment, and can make
prudent choices with a little bit of effort. When you start a business, you're
investing your time -- your _future earning potential_ \-- into a vehicle that
has a poor history of return, and no framework for evaluating the odds. That's
as risky as it gets.

This point plays into your second comment: sure, it makes sense to get as much
of your funding from outside investors as you can get on favorable terms, but
it's naive to think that outside investors are going to save you from
investing in your own company. Investors don't want to take the risk unless
you have some skin in the game, and founders don't want to relinquish control
before they need to do so. Thus, in reality, founders end up investing in
their companies heavily. They're already committing their most valuable
possession (time); it makes sense to double-down with money, too.

~~~
CatDancer
Have you read Founders at Work?

~~~
timr
Yes.

~~~
CatDancer
Well, I think there's different kinds of risk, and mathematically from a
financial point of view they may look the same, but it's not the whole story.

For example, suppose I want to take a year off and go hiking. I _could_ have
worked that year instead, made 100K, invested that in the stock market, and be
a multimillionaire by the time I retire. So from a financial point of view,
going hiking is a really terrible idea.

Or, suppose, I feel like taking that year and doing a startup. And suppose I
have a 90% chance of failure. OK, you can run the numbers, and probably show
that, on average, I'll do worse than if I took a job for a year. So, yes,
looking at it that way, you can say that my starting a business is an
"exceptionally high risk".

Except... what if I'm working on a project that I feel like working on?

A part of the interview with Steve Wozniak that I found quite fascinating was
that he said he didn't feel like he was taking a risk with Apple. Sure, he
could have worked all those extra nights and weekends and had it come out to
nothing. Yikes! Invest all those hours, that he could have been working to
make money, and end up with zero. But so what? He was doing something he
wanted to do, that he found really exciting, building one of the first
computers that people could own themselves.

Is there a danger that one will become overly caught up in a startup, and do
foolish things? Sure. I been there. I've done that. If I had found the right
mentor they could have advised me to bail on my startup a year and half before
I did, and saved me a lot of grief. Does that mean that you "have to" or that
it is "realistic" that you're going to wildly over commit? No. Just because
most Americans are overweight and unhealthy doesn't mean that it is
"realistic" for me not to have a moderate exercise program and eat healthy
food.

 _it makes sense to double-down with money_

hmm, I've already responded to this point, as far as I can tell. I'd be happy
to expound more if someone wants a more detailed explanation, but otherwise I
think I'd just be repeating myself.

------
webwright
With no cash, you should do what will get you cash ASAP. That decidedly does
not mean launching a product-- products take much longer to get off the ground
and have some front-loaded cost. That leaves services-- i.e. consulting or
lead-gen/marketing stuff like you were doing before. Hard to tell, but it
looks like a low margin business (or you managed it poorly-- no offense!). If
you were pulling in 70k per month at one point and ended up in debt... Doing
more of that doesn't seem like a good idea. The best way to get out of debt is
to get a job (don't let a lack of CS degree stop you) or (if you've got a good
network and/or sales chops) do high-end consulting ($100+/hr).

~~~
patryn20
Thanks for the advice, I really do appreciate the constructive criticism. I
just want to explain the issue of margin and debt in regards to the business I
was running.

The margins were ok. Ranged from 15% to 40% due to client acceptance rate on
the leads. Clients in the industries I was targeting always reserve the right
to reject leads and never want to pay in advance.

The problem came in with anticipatory purchasing. Let's say I need 45 graphics
templates, 24 domain names, and capacity to host 1,000,000 daily impressions.
I also need to buy premium CPM media for the next month on specific websites.
You pay for that stuff up front. So, that runs you $12,000 (just a
guesstimate). You have to do this stuff before you launch the campaign or
issue a full invoice.

You launch. You generate leads, and at the end of the month you invoice for
$35,000. But before you even invoice at the end of the month, you have to
start purchasing for the next month. Targeted media buys, additional server
capacity if necessary, creatives, and so on. If you are growing, you might
spend out $24,000 in the second month.

You are generally two months out on spend if you are growing. If they are
stable you are spending a month ahead. This means you will pay for one to two
months of expenses before you receive the payment for an invoice in the first
month.

If the business starts to shrink, you have to take a hit on pre-purchased
creatives, equipment, etc. This is where I got caught. When things started
shrinking, I had already acquired capacity and services I could not refund. As
revenue each month declined, the ability to pay off previous purchases in full
declined.

Once it seemingly stabilized, I was able to start predicting purchases again
and continued acquiring placements and media for November and December. Then
the clients pulled the plug.

Now, having already purchased and placed creatives for the last week of
November and all of December, I am now stuck with paid for graphics with no
clients and media buys that I can only get partially refunded.

Just thought I would explain how it is possible to be profitable while
operating, but get stuck with debt when things get shut down.

I do have to say, if I do this again I will definitely insist on minimum
notice clauses in the placement orders and service contracts. No more of this
"turn it off" same-day, phone call BS.

~~~
webwright
Really interesting stuff!

I dunno if the (fully) loaded margins are really 15-40%... The client is
essentially heaping all of the risk on you. A good sales guy deserves a base
salary, expenses paid for, and a "draw" (essentially, a non-refundable advance
on future commissions). Your business was essentially a salesguy who was ONLY
getting paid commission.

It's no surprise that you were able to sell a service like this. If you keep
on it, I'd make darn sure that any client you take shares some minimal risk
(i.e. your costs are covered if they bail, you get profit if they stay).

Seems like plenty of lead gen efforts (from yellow pages, to adwords, to
salesguys) share the risk with both sides.

------
robertdempsey
There is quite a bit of good advice here. I too was in a similar situation a
number of years ago when my (as in I owned it) company was taken out by the
post 911 meltdown. I closed out with more debt than you.

My suggestions (as someone who is not an attorney or a CPA) are:

1\. Talk with the hosting company to get out of the contract. 2\. Call all of
your creditors, and tell them your situation. Ask them to help you and see if
you can work out a payment plan. My creditors were surprisingly willing to
help. 3\. Get a full time job, work hard, and pay off your debt. 4\. Keep your
products on simmer until the time is again right. If you built a company once,
you can do it again.

Being in debt sucks, and it took a number of years for me to get out of it;
however, declaring bankruptcy will ruin your credit and be on your record for
years to come. If you have that on your credit record, then creditors will
stay away from you for years to come.

The economy is taking out companies left and right. Small and large alike.
Just remember that nothing is insurmountable. Keep up your spirits, and keep
moving forward. There is only one direction to move, ahead.

------
ksvs
Joel Spolsky was in a similar situation when the last bubble burst. Maybe his
example would be useful to you.

You must have had something that worked, if clients were paying you. Could you
turn that into a product instead of a consulting operation? I.e. something
larger numbers of lower-paying customers could use, without much involvement
by you?

------
mynameishere
Plenty of advice here already. Insolvency can only be dealt with by
liquidation and retrenchment on one hand, and bankruptcy on the other. It's an
uncomplicated choice, and there's not much to say.

But, for the love of god, don't finance a business on credit cards. Bad idea.
Really, if you can't find friends family or fools, there's always Uncle Sugar:

[http://www.sba.gov/services/financialassistance/sbaloantopic...](http://www.sba.gov/services/financialassistance/sbaloantopics/index.html)

------
quellhorst
In hindsight I would have used EC2 instead of buying servers. For servers I
already have it pays to have clients using them and paying you more than your
expenses on them.

Get out of the Credit Card debt ASAP. Instead of trying to sell the lead
management system, go radical and open source it on an account on GitHub. You
can then charge a high hourly rate for people who need help with it.

Focus on launching one site at a time, work on it until you are done. Consider
using PivotalTracker for planning each project.

------
lsc
talk to your tax person

You _really_ want to pay off that debit out of pre-tax monies. (well, unless
you are declaring bankruptcy, but your debit seems small for that.) Either
way, a $100/hr tax dude seems expensive, but it's not as expensive as paying
off that debit out of post-tax money.

------
dotBen
Like others have said, I would contact the server company and do what you can
to cease the contract. I personally think the advice given of 'turning up in
person and begging for mercy' is a little odd and I wouldn't do that. I'd call
up, ask to speak to someone about renegotiating the contract (ie someone who
can make the decision, not the sales rep) and explain the business has gone
under and that you would rather conclude the relationship now rather than be
in a position not to be able to pay and have to have them join your list of
creditors. That should pretty much do the trick.

Now, the one problem with that is that it means the product you've built will
no longer be running, which means you can't sell it. However, I think it's a
funny time right now for lead generation anyway and IMHO better to be out of
the game for a little bit to see how things settle.

In the meantime, I would weigh up your best opportunities between consulting
and getting a job - what will make you the most money (to pay off the debt).
I'd also factor in what will keep you involved in the industry - ie might be
better to go contract or a slightly lower paying job in lead generation/online
advertising than to get a higher paying job selling insurance (just an example
- point is it's something that doesn't move your career forward).

I would look to pay off at least the minimum payments, just to stop the debt
from increasing - but really you should try to pay what you can off per month.
The budgeting ideas are good.

Finally, I would tinker on your project in your spare time - as long as you
feel you are moving forward with it and creating value. If it makes you feel
miserable, which it might, I would leave it dormant.

We really don't know where we are with the economy right now and so playing a
safe game for the next 6 months is vital IMHO until we know what things really
look like -- then we'll be able to see the opportunities and begin to
capitalize on them.

On a personal note, I just want to say I feel for you. I've never been in
debt, but I've also never really embarked on a risk taking entrepreneurial
venture like you did. I moved to Silicon Valley (from another country) to do
it, and 2.5 years later I'm still scared to try it. Scared of the failure,
especially economic.

My point is you have tried it, you have learned a lot and you have the life
experience which many don't. I hope that simply empowers you to get back on
your feet and try the next one. I wish I wasn't as paralyzed as I am as my
window of opportunity, age wise, is closing.

Best of luck to you.

------
Tichy
I don't know if this is the best advice, as I have no experience with being in
debt. But I think I would just take on consulting jobs until I have a safety
net again. That is assuming it is not too much of a problem to find contracts.

------
iuguy
Hi,

Sorry to hear it's not working out. I hope things start to get better for you.
You've done the absolute right thing by cutting your cost base down as much as
possible. CatDancer and co have offered some really good things to think about
so I won't repeat what they've already said.

The 600$/month till the end of January, check your contract. If there's no way
out I would talk to the hosters (talk to an organ grinder, not a monkey) if
you can't make the payments. Depending on how/where you incorporated you might
be able to get out of it easier. I imagine you're looking at a worst case of
$1800 till end of contract? If you can't get out try to negotiate an upfront
early termination at a reduced cost.

The stuff with the Austin marketing guys - how long would it take and how much
of your time would it take before you see a return? Is this going to be full
time?

If your immediate stress is caused by a lack of funds and that your clients
have evaporated then I suggest you find a way to make short term cash. If you
can do this with a short term contracting gig then it's worth considering.
You're not necessarily looking at paying off that 30k, you're looking at
bringing up your own personal cash levels to a level where you can think
clearly and work out what to do next.

Don't liquidate all of your assets if you think that you'll reuse them in your
next venture unless the value of those assets will make a material difference
to the way you live. You should be able to sell them to your next venture at a
cost lower than buying new or reused assets elsewhere. Once you know what
you're going to do you'll have a better idea of what to sell and what to keep.

------
shawndrost
Get a job and pay off your credit cards. Debt is miserable.

~~~
debt
Hey!

I will concede that the ratio (debt/monthly income) = level of
depression(scale 0 to 9, 0 being your situation 9 months ago, 9 being
suicidal)

Firstly, get the emotional support of your friends and family. Seriously, get
the emotional support of your friends and family. Initially, you needed their
support, because dropping out of college and starting a company definitely is
a ballsy and "stupid" move in the eyes of many parents. However, you need
their support now more than ever, because you risk slipping into a massive
depression.

If you can, live off your parents. Cut as many expenses as possible. Get a few
jobs. I would say pay off your debt AS QUICKLY AS POSSIBLE. It will be the
most emotionally taxing and anxiety-inducing factors in your life for a while.
This could also manifest into severe depression which has all sorts of
massively negative side effects which could delay paying off your debt due to
mental exhaustion. A year of solid hard work would pay off most of your credit
card debt.

------
level2
I'm currently an entrepreneur in waiting. By that I mean my last credit card
funded gig tanked (don't ever depend on people not doing what is exactly NOT
in their own best interest) and I'm waiting until this 30% APR debt is off my
back. I'm doing this by working a full time job and freelancing on the side. I
cannot stress enough on how important it is to have that full time job. No
matter what happens with my freelance gigs (I've noticed a lot of clients
asking about 'payment plans' lately), my full time job has those minimum
payments covered. Of course these minimum payments would disappear much faster
if it wasn't for those student loans (just applied for 'Economic Hardship
Deferment') so whatever you do, don't do something stupid like go back to
school where you pay someone so you can do more work.

Get a job, pay off debt, and learn from your mistakes. Semper Discens.

~~~
petervandijck
Does "learn from your mistakes" include not funding a business with credit
card debt? To me, that just sounds crazy...

------
teuobk
Is there a chance that you could sell the company? Perhaps the lead management
system that you built would make the company attractive. Even if you could
engineer a sale that covered only the debt, that would remove the burden of a
bankruptcy.

------
mikeyur
My best advice would (if you have okay credit) get a line of credit from your
bank or a loan and pay off as much of your credit cards as you can. The
interest rates from a line of credit are MUCH lower than the 10,20,30%
interest your credit card company is charging.

You'll still need to come up with a minimum payment each month, but you'll pay
less in the long run. If you're in good standings with your bank and your
credit isn't terrible, you should be able to get one. Now, I'm not sure about
how banks are lending with the financial crisis, but it's worth a try.

------
tsally
Not sure if it is an option, but see if you can go back to school. You get try
to get some no interest student loans, and work to pay those off while you
complete your degree. Given your experience, you should be able to make a fair
bit of cash during slow semesters or over the summer. School is a great place
to ride out tough economic times.

------
utnick
How did you find your clients and what kind of leads are these?

Any chance you could find some more clients that would be interested in the
same kind of leads?

------
gscott
I have had an idea of a "Lending Tree" type website for leads. Leads would be
generated, evaluated, given a score of how good the lead is, then people would
bid on the lead. I work for a company that has customers who buy leads
internally through partnerships with lead vendors like Cutting Edge Media.

Anyway, I have had this idea for years now and haven't done anything with it.
Maybe you could work out an arrangement to sell a position in the company to
those that you partner with to sell the leads to there customers.

------
cabalamat
The first thing I would do is talk to an expert about bankrupcy to see what my
options are.

------
ahoyhere
There's lots of good advice here but I want to chip in my two cents, because I
was once in a very similar situation and my advice is different enough than
what's already here.

Short backstory so you know I'm serious: In 02, I lost a client along with
about $20k of unpaid work (long story), $15k in debt, NO money, my ex-
boyfriend stole my car (worse than a stranger, ha - and no, I couldn't get it
back), working all the time & money stress lowered my immune system, I caught
a ridiculously bad case of mono and could barely sit up for 3 mos, leading my
only paying client to threaten to sue me. My father couldn't help me at all
with money and my mother is an evil bitch who had an extra car but wouldn't
help me anyway. It sucked. It was by far the worst period of my life BUT
there's a huge upside, too.

The first thing is: you can deal with this. You're smart, dedicated, and
capable. This is just a temporary setback for you. You're already being
proactive instead of wallowing in self-pity - way to go. It took me much
longer to get to that stage.

As another commentor pointed out, only sell your things if the equivalent
hourly rate works out. For most things, that's a "no" right now, since
consumer spending is tanking. Keep your stuff. Don't pay to store it - but
keep it somewhere. Unless you're like that savekaryn chick and spent it all on
small, easily shifted designer purses. ;)

Second thing is: Call your credit card company(ies) RIGHT NOW and tell them
"Look, it's lower my interest rate or I'm going to go bankrupt." This is the
#1 mistake people in our situations make (after the racking up of debt, of
course). Credit cards ARE negotiable. Allow me to repeat: CREDIT CARDS ARE
NEGOTIABLE.

And right now, CC banks are especially vulnerable because of the shit economy
and that means YOU, an actual customer who intends to make good, is GOLDEN to
them. If you tell them you have no other option, they WILL lower your APR,
which will do HUGE things for you.

If they don't respond to your approaches, try another (male?) friend or family
member who can pretend to be you - who isn't feeling beaten down & can be
assertive. If that fails, get a (reputable, genuine) debt counselor or lawyer.
It's WELL worth the investment - it will return way more than 30% on your
money.

Third thing is: pay off your debt quickly but DON'T KILL YOURSELF DOING IT. If
you eat only ramen and work 18 hour days, you're going to be unmanageably
unhappy (read: depressed, beaten down, and totally burnt out) and possibly
physically ill, too. I tried both approaches, and the overworking one nearly
landed me back in bed.

I got a f/t job - my first ever after being a freelancer since a teen, that's
how low I had sunk - and that helped a lot because it greatly reduced my
feeling of uncertainty. However, my first job was shitty and I was only able
to stand it for 3 mos - by the end of which I'd lined up a better job and
jumped to that seamlessly. Again, this falls under the category of "don't shit
all over yourself just to pay off a debt." Better to go bankrupt, in my mind.

Fourth thing is: Hustle. I got my job by hustling. I got my second job, the
better job I stayed with for a year to pay off my debt, by hustling. And I
made extra money by hustling. What's hustling? Not anything illegal. But
you've got assets, so work em!

What has the company gotten you? Software you developed? Know-how? SELL IT.

Ask EVERYONE you know if they have work for you - and, most importantly - if
_they_ know anyone who might have work for you. Refine your pitch, give people
as concrete examples as possible. Stretch your skills to fields where you
hadn't worked before.

Ask everyone you meet who is at least tangentially related to your work -
politely - if they could use you, or know someone who does.

There is NOTHING wrong with this. People are reluctant to do it because it
seems sketchy or exploitative, but that all depends on how you do it.

I got every job I ever had by asking, mostly people I had barely just met
(last job paid me about $180k/yr so this is not just for small fish). You HAVE
TO ASK, because most people - even ones who really could use your help - don't
think about the possibilities until you do. And for the people who know you
best, trust best, ask them to help you figure out ways to hustle better.

Now, for the rest of the know-how, consider training other people to do what
you do. Consider writing an ebook or something, once you get on your feet.
Your knowledge is valuable, and if you do a cursory look into the world of
self-published niche topic ebooks, you'll find tons of people are making a
couple extra hundred bucks a day doing it.

Remember that your time IS worth something - and probably quite a bit.
Remember that what you do today with your time is like investing or spending
your future income, too, not just for this month. This year or two or three of
your life that you're going to take paying off your debt, you don't want to
look back and have nothing at all to show for it but, well, less debt.

Invest in yourself and your future where it makes sense.

If you pay off your debt a bit more slowly, but stay sane and have built
something that can help you in the future (an ebook or teaching web site,
say), that's almost surely worth the extra interest. You just have to be
sensible.

Also, pro tip from a girl who knows: never, ever, ever work for anybody again
who won't make a 30-50% advance payment. Put kill clauses in your contract, so
you keep those deposits. Otherwise you're "putting yourself on sale" and
letting everybody know it.

Oh, and that upside I mentioned earlier? It's this: this is probably the worst
personal situation you will ever have to deal with. And you WILL deal with it
just fine. And after that, you'll realize A) how unimportant money is to your
overall happiness, which paradoxically makes making money that much easier
because you have its number (so to speak), and B) if you can conquer this, you
can conquer ANYTHING.

Cheers and best of luck.

Amy

~~~
hapless
It's not a good idea to say the word "Bankruptcy" on the phone with a credit
card rep. I'm told it triggers all kinds of Bad Stuff behind the scenes.

Not to mention, they want to negotiate with you. They have an obvious
incentive to do so. You don't actually have to say the B-word - everyone
understands the consequences of financial distress.

------
mini_word
Use your talent and experience, and bend the rules
<http://en.wikipedia.org/wiki/Blue_Ocean_Strategy> ... Or dunk for the next
couple months waiting for the moment that will never pass...

