
Why our startup failed - kaelig
https://oncletom.io/2014/why-our-startup-failed/
======
exelius
This sounds like a pretty typical trajectory for a failed startup: CEO dreams
big, encourages sales guys to chase big fish through the commission structure,
but meanwhile the big fish demand more features, guarantees, complex
contracts, etc. than 15 smaller customers would. I've seen it happen quite a
bit; and it's one of the biggest (and most common) mistakes that B2B software
startups make.

An early-stage company really needs two things from its customers: cash flow
and feedback. It's fine if you don't make any profits, but you need revenue
coming in the door to get future rounds of funding. It's fine if your revenue
per customer is lower than you would like. Small customers are great at both:
price it low enough to start that it's not a huge business expense for them,
and you will be able to deal directly with the people who will use the system.
If they have a problem, your product guys will know and be able to relay it to
development.

Big customers often get you neither. They require lengthy contract
negotiations that will rack up thousands in lawyer's fees from your side
before you bring in any revenue. They ask for features that aren't core to
your product and are likely years down on your roadmap (think LDAP
authentication, customer admin functionality, audit logs, etc.) Again, these
have to be developed before they sign a contract and before you see money. If
you actually manage to get them into a production environment, they're much
less likely to give you actionable feedback.

tl;dr: B2B software startups that target big contracts are much more likely to
fail because the market dynamics of chasing after big customers will increase
your burn rate while diverting your sales team's attention from smaller fish.

~~~
danielweber
Yes, I've heard (and experienced) most of this. It's still good to hear it
again, though, and being from another country we can learn that some mistakes
are universal.

 _EDIT_ : Joel's Camels and Rubber Duckies[1] is essential reading for how
hard it is to sell enterprise software. Price it free, cheap, or dear. Not to
say that there is no hope in selling to enterprises, because lots of people
are very successful doing it, but you need to know how hard it is before you
start.

[1]
[http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...](http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html)

~~~
oncletom
Hey guys these are excellent feedbacks! I discovered too late this behaviour
was typical, and you confirm it even more… I wish we had sought this kind of
trustful insights beforehand.

We actually thought our lawyer was helping us but you know, he was a "close
friend" with the CEO so the game rules were a bit faked.

Thanks for the book reference as well!

~~~
exelius
Yeah, it can be hard to know some of the core things like market entry
strategy without having been burned before. Even if you get the strategy
right, setting up your sales and marketing plan (compensation, market profile,
etc.) such that it implements your strategy is also a challenge. My belief is
you should never have commissioned sales people in a young software startup;
always pay them on a salary + bonus structure with bonus targets that reflect
your strategic priorities (i.e. number of customers, revenue per customer,
etc.) These can and will change frequently as you "pivot" your product
development.

------
hartator
First thing to do: Recognizing your own failure.

You seem to charge solely the CEO for the failure of the company and you may
be right. But you can't be the number 2 of a company and not taking your part
of responsibility. Does your innovation was truly disruptive? Maybe not. Do
you provide awesome products that make customers' eyes cry? Maybe not.

In you area of work, you seem to be in charge of products and research. Where
are the results of the research? Where are the products? Where the open-source
projects? You seem to forget why you got money, time and public subsidies. You
seem to forget to explain why you guys were disruptive.

Your only fault cannot be to not confront the ceo sooner.

Again, failure is okay. Do not worry.

~~~
nickstinemates
Agree. Proper grammar and editing of your own content also might help.

~~~
hartator
Sorry, I have made some corrections. (English is my second language) Do you
see anything else?

~~~
keithpeter
You are communicating a difficult lesson very well.

Do you want me to copy-edit the text? I can do this later Wednesday evening
(UK time zone)?

~~~
oncletom
Are you proposing to copy-edit the blog post? If so, this is kind and much
appreciated :-)

If you have a GitHub account you can directly edit the content through the
following URL, and propose your changes.

>
> [https://github.com/oncletom/oncletom.io/blob/master/source/_...](https://github.com/oncletom/oncletom.io/blob/master/source/_posts/2014/why-
> our-startup-failed.md)

~~~
keithpeter
No git account so will just post it here.

No major issues with your communication, just obviously not English as first
language.

~~~
keithpeter
OK, here is the first 40% of my (light) edit of the original post. This took
about 90 minutes which is longer than I thought it would. The rest can be done
Sunday...

OP: is this too far from your inner voice, what you intended? Is the edit
worth finishing?

I'm having to link to the text file as HN says the 1200 word extract is too
long.

Markdown

[https://dl.dropboxusercontent.com/u/8403291/Dijiwan-
rewrite](https://dl.dropboxusercontent.com/u/8403291/Dijiwan-rewrite)

Formatted to 55 col

[https://dl.dropboxusercontent.com/u/8403291/Dijiwan-
rewrite2](https://dl.dropboxusercontent.com/u/8403291/Dijiwan-rewrite2)

PS: I need to sort my editing tools out! I just used two plain text editor
windows side by side and it was clunky.

------
joewee
Can I ask, what is the meaning of the name "oncle tom" to you? Curious why you
choose that name.

~~~
kjackson2012
I came in to say this. "Oncle Tom" translates to "Uncle Tom" in English, and
in the US it has an extremely derogatory meaning towards African Americans.
It's essentially a "black man that sold out to the White Man".

The name choice probably wasn't motivated by this, but it's an unlucky choice
if the goal was to grow in North America, similar to the Chevy Nova, which in
Spanish was equivalent to "No Go".

~~~
Patrick_Devine
It's from a book Uncle Tom's Cabin[1] by Harriet Beecher Stowe who was
staunchly antislavery. In Europe it was very popular, and there was even an
U-Bahn station in Berlin called "Onkel Tom's Hütte"[2]. Also, the story of the
Chevy Nova in Spanish has been debunked many times[3], but for whatever reason
it's a nice story and keeps getting retold. I suppose it's like JFK allegedly
proclaiming himself a donut, coincidentally also in Berlin.

I do agree with you though that it's probably not a great choice for a name,
if only because people in the US will be hypersensitive and might completely
misconstrue the meaning.

[1]:
[http://en.wikipedia.org/wiki/Uncle_Tom%27s_Cabin](http://en.wikipedia.org/wiki/Uncle_Tom%27s_Cabin)
[2]:
[http://en.wikipedia.org/wiki/Onkel_Toms_H%C3%BCtte_%28Berlin...](http://en.wikipedia.org/wiki/Onkel_Toms_H%C3%BCtte_%28Berlin_U-
Bahn%29) [3]:
[http://www.snopes.com/business/misxlate/nova.asp](http://www.snopes.com/business/misxlate/nova.asp)

~~~
tptacek
The term is very loosely derived from the character from the book. Speaking as
an American not given to hypersensitivity on this issue --- my _immediate_
association was with the epithet. If I polled my block, which is majority
African American, I'm guessing you'd get the same association from them. If
you want to evoke the book in America, you probably use the whole title.

Not that there's anything wrong with the name, at least that I see. I'm just
affirming the feedback you got previously. This isn't hypersensitivity; it's
simply a cultural difference.

(PS: we chose the name "Matasano" for our software security firm because we
gave up on naming and flipped through a list of cool-sounding plant names;
turns out, in South America, a "Matasano" is an incompetent doctor.)

The best answer you could have given was, "it's from the name of our favorite
Warrant song."

~~~
Patrick_Devine
I agree. My intention in using the term "hypersensitive" was to mean "very
sensitive" and not to conjure up the connotation that someone _should not_ be
sensitive about it. Given the history of prejudice and intolerance in the US,
there absolutely is reason to _be_ sensitive about it.

~~~
tptacek
Or, it could also be that Africans make up ~13% of the US population, and as
much as 30-35% of the population in urban America, compared to 3% in France
and less than 1% in Germany, and so we're just more familiar with African
(American) cultural signifiers.

~~~
napoleond
This may be an odd nit to pick, but:

"As of 2004, French think-tank Institut Montaigne estimated that there were 51
million (85%) white people or European origin, _6 million (10%) North African
people, 2 million (3.5%) Black people_ and 1 million (1.5%) people of Asian
origin in Metropolitan France, including all generations of immigrant
descendants."
[[http://en.wikipedia.org/wiki/Demographics_of_France#Ethnic_g...](http://en.wikipedia.org/wiki/Demographics_of_France#Ethnic_groups)]

(emphasis mine)

So Africans make up 13% of the population in France as well (granting that
"North African" does not typically conjure the same image as "African
American"). It seems odd to deny that America's history doesn't affect its
cultural sensitivity toward certain terms (especially the term in question).

~~~
tptacek
You think I'm being more charitable to the US than I am. I'm implying that
white people in the US _aren 't_ hypersensitive to racial stuff, which makes
"Uncle Tom's" associations all the more significant.

------
AznHisoka
Read the entire article. Still no clue what this company did/does other than a
few vague buzzwords like "web graphs". Maybe that's why it failed.

~~~
oncletom
Yep that was not the point I wanted to express (what did the company do). I
shallowly explained it as well: we hardly described our own product, making it
difficult to read from a market perspective.

As a sentence: Web opinions miner and network of influences analyser.

As an example: national market study on insurances based on expressed opinions
on the Web, collected in two days, classified and weighted on various criteria
relative to the business requesting the study.

Hope it helps.

------
mgkimsal
"One should not ignore the business process and issues of a company because it
is not their job. It can eventually deprive them from any future in that
company."

And yet, in most companies I've worked in, management rarely takes on board
any observations from low-level plebs - how could person X even _begin_ to
understand the complexity of our org? They're only the call center worker, or
IT grunt, or delivery person, or receptionist, or accountant, or...

The prospect of company success/failure has been at the root of most of the
issues I've tried to raise with management at places I've worked at. I went
from a failed venture of my own to a small company a year later. They were
making some of the same operational mistakes I'd made a year earlier. I tried
(tactfully) to raise these points, and was rebuffed. 9 months later the
company laid off half the employees (guess which half I was in?) and they
folded a couple years later, from what I recall.

tldr - many company owners won't take input from lower-level employees. Is
there a connection between failure rates and the openness of owners/managers?

------
arbuge
This seems to be why it failed in only 6 months:

>>We had 2 marketing officers, 2 business developers, 2 strategy analysts, 1
researcher contractor and 4 developers when operating at full speed.

...with just 500,000 euros in the bank from the capital raise. A good rule of
thumb is for raise to allow for 18 mos runway given the burn rate,
approximately.

------
josephschmoe
The startup violated rule #1: Never do anything for free, especially if it
costs you money to do it.

Not to mention the total lack of honesty within the company.

~~~
snorkel
It's really hard for a young startup to turn down big potential customers, so
offering the first taste for free is reasonable, but it's equally important to
then quickly discontinue the free trial and leave that customer wanting more.

------
pkorzeniewski
It's beyond me how a startup can drain 500K€ in 6 months.. Yes, he gives some
details where the money went (mostly flushed down the toilet), but I just
can't understand why a startup, that is generating little to no revenue, waste
so much money.

~~~
mikeryan
500K isn't that much money if you're not supplementing it with revenues. 11
salaries burn cash fast if you're paying market rates, even if paying 5k per
month per employee then just on salary costs you only have 10 months of
runway. Thats nothing. This team should have been leaner and product focused
with that 500k and their goal should have been a product that they could spin
into a second round of funding.

~~~
oncletom
The top salaries were roughly 3K€ per month. Officially and speaking for
myself. Without the detailed accountancy we can only speculate about it.

We built a working software using Node.js and Chrome Extensions in less than 3
months, to reach that second stage of funding.

As our baseline was not clear, our market not proven and probably because of
the investors suspicions, we never got an answer (well he had: "we'll see
later").

I forgot to mention this product was based on scientific research about graph
theories and user behaviours in an established society.

From science to market, another challenge as one needs to distinguish the
scientific interest of a feature vs. a sellable feature on a business market.

------
restless
I guess everyone in this industry goes through a company like this.sooner or
later. I once had this CEO, who was gifted with speech.Looking back in shame,
i cannot believe how trustful I and all the other were, the alarmsigns were
there all along still we couldn't or didn't want to see it. Anyway I found
some got friends in this time,still doing projects with some of them. I just
lost 8 month of my time,so I guess it is ok, since it gave me some experience.
Anyway nowadays I check first before jumping in with full force.

------
gregd
Because there isn't an ounce of usable information above the fold on a 27"
screen?

~~~
reboog711
I've seen a lot of "blog/articles" use the same approach. It is bizarre isn't
it?

I've never seen a company do that, though.

~~~
gone35
To be fair, it seems the site is his personal blog as well [1], well before he
started the homonymous company.

It's still a garish design anti-pattern, nonetheless. All this baroque excess
of late with gigantic fonts in the name of "space" and "readability" really
needs to stop.

[1] [https://oncletom.io/](https://oncletom.io/)

~~~
oncletom
Oh I understand better the critique now: yes it is my personal blog (the
initial startup website does not exist anymore). I refreshed the design
recently (like, 2 weeks ago).

I used [http://lamb.cc/typograph/](http://lamb.cc/typograph/) with a "Le
Corbusier" scale to calculate the font size, the paddings and margins etc.

So the size does not come out nowhere, it has been made for readability and as
my eyesight decreased, I found the change much welcome… I will try to find a
good balance to end up your sufferings ;-)

~~~
gone35
Nice, thank you for the reference to the typography tool you used [1]; I
didn't know about Le Corbusier's proportions.

The discussion in [1] on "vertical tempo" is interesting because I think that
_is precisely_ the problem with your site. Your body font size is large but
within currently fashionable standards [2] at around 10 words or 60 characters
per line; but the headings and subheadings are so huge they are breaking the
vertical flow of the page.

On my iPad, for instance, it currently takes me an unreasonably long 27 (!)
full screens to scroll down to the end of the article, not counting the header
(another full screen) nor the comments section. And often the subheading alone
occupies the entire screen. With such huge disparity between body and headings
size, it makes little difference whether both sizes come from the same
proportional scale or not: the sheer size difference is perceived as out of
proportion nonetheless.

[1] [http://lamb.cc/typograph/](http://lamb.cc/typograph/)

[2] [http://practicaltypography.com/line-
length.html](http://practicaltypography.com/line-length.html)

------
programminggeek
So they spent money foolishly, hired too much, and assumed that the gravity of
business expenses didn't matter? That sounds like most failed businesses I've
seen or heard.

If the basic economics of a business don't work, it will fail eventually. You
have to make more money than you spend. If you can't do that you don't have a
business, you have a very expensive and time consuming hobby.

------
keithpeter
" _I never had access to the accountancy results_ "

Disclaimer: I work as a teacher and have done management committee work in the
UK voluntary sector; charities housing coops &c. Pretty tight regulation.

Isn't having monthly management accounts (cash at bank, income, expenditure,
liabilites) sort of basic? Am I being naive?

~~~
oncletom
We agree this should be the case. And eventually bank account reports should
be available to anyone in the company as long as the details do not create a
possible business threat.

On the other hand, I requested the account details but never got access to
them. What do you do when you insist and get nothing? At some point you stop
asking.

Considering the structure we had in the company, I am not sure there were
legal obligations for the company to deliver the accountancy reports. If the
CFO and CEO do not want to share the information… I never found a legal way to
oblige them to do so. The CEO owned 52% of the company. Aka `root` access to
the machine.

Maybe I am wrong on that part, feel free to add anything I have missed (I do
not pretend to know everything, I just wish I would have know all that
sooner).

~~~
keithpeter
OK, I may have misunderstood quotes like this...

" _The tension between us (the cofounders) eventually arose and grew. I paid
less attention to ours conflicts because I felt it was useless to waste
energy._ "

I took 'cofounder' to mean an ownership stake. Therefore at least as regards
my limited experience, a seat on 'board' and therefore access to management
accounts.

Were you an employee? (I'm the one volunteering to proof read the blog post,
so its best if we are clear).

~~~
oncletom
Yes I had shares in the company.

Technically, there were two companies:

\- a __holding __where the cofounders owned shares as of 52, 30, 12 and 6
percent. This company had no business activity and no employee. I owned 6
percent of its 100K capital; \- a __startup __which was 100% owned by the
holding, sharing the same CEO. I was employee and paid by this company (well,
"paid"…).

I had a vote decision in the holding, not the startup. And for some reason I
had a reason not to work anymore for the startup (including being fired when
we think about it), I would have to sell my shares. If you want to evict
someone, this is a great system.

Also, the 12% shares were held by the spouse/partner of the CEO, creating a
50/50 balance which let all the power in his hands, whatever the scenario is.

That is a reason why fighting was useless. And making a viable platform was
more a chance for us to get funded, to have an external observer who could
eventually rectify the power balance.

~~~
trhway
when i was very young - 20 years old - i was a part of similar situation once.
I hope i learned form my mistakes :) The main lesson is that you're just an
employee with 6% of [easily claw-back-able] shares, nothing more. Whereis you
sound like you felt like you were something more than that. You didn't even
had the power to initiate audit check of paperwork and financial info -
minimum power of a "minor" stakeholder.

And this even without getting into having CEO girlfriend in the mix. Man, the
time-proven standard practice to not have GF/relatives/etc... in the chain of
command of their BF/relative/etc.. exists for the reason.

------
balls187
The tl;dr: is pretty great, but could be genericized:

One should not ignore {{blank}} and issues of a company because _it is not
their job_. It can eventually deprive them from any future in that company.

While there aren't enough resources for founders to continually second guess
each other, and duplicate efforts, it's everyone's job to ensure the company
succeeds.

------
pouzy
Being french and living in the US, I have a question: Do you feel like the
french system (hard to hire/fire, etc) helped in that failure ? And do you
feel like if you had started outside of Europe, you could have raised 10x what
you did and maybe found a what to become sustainable ? (even if you say that
you don't need money)

~~~
oncletom
Interesting question, as it is a regular debate with the US/FR startup
ecosystem.

Hiring is longer than harder: I already knew and contacted directly some of
the engineers I wanted to hire. I also used GitHub and requested candidates to
apply through a Pull Request
([https://github.com/Dijiwan/Jobs](https://github.com/Dijiwan/Jobs)).

I am not based in the US, and if I had to hire people there, I do not have
enough step back to judge if I could have successfully operated the same way I
did.

Most of all, the engineers hiring process was rather 1) an individual trust,
2) a cultural fit (we share the same values) than a "I want the most expensive
guy on Earth". I value the individuality of people equally to their skills. I
think this is harder to achieve in a more money-driven environment. Not being
located in Paris but rather in a chilled out city like Bordeaux created an
emphasis on the "we want to work and enjoy a good work/life balance". Working
on the grass, at the coffee or a nap on the river bank while being able to
have a 100% JavaScript codebase when it is your favourite language, _this_ has
no money equivalence ;-)

We had more problems with other roles, but I assume it is because we were not
clear enough on the expectations and for the reasons explained in the blog
post.

Hiring is a lot of paperwork. Firing is a lot of paperwork. Jobs are
sacralised in France and this is normal from an historical point of view:
people fought for that. A lifetime full time job was the Nirvana of the
Industrial Revolution.

Hiring someone should be a huge responsibility is most businesses: you not
only deal with money but with individual's life. So you need to make sure you
generate enough revenues to hire someone. It is an ethical debate, and
cultural. I do respect individuals, whatever role they have in the company,
and I want them to be able to be happy at doing it, even if it is not their
dream job.

What was stupid on the business plan is the "hirings objective". They
preferred us to hire 8 average engineers rather than 4 excellent ones. At a
bootstrapping stage, I bet on reliability and efficiency. It is easier to
scale conversations with 4 people rather than with 8.

What I think is wrong in the french public investment is they care too much
about job figures and not enough about the company sustainability. Whereas I
think in the US, investors care too much about the money and probably not
enough about people (this is how I perceive it through the Internet lens, so
certainly there is a bias in my opinion). CEO are still perceived as bank
robbers and slave masters. We like national companies to succeed but we hate
so much people earning money. Maybe because there is an unfair wages balance
between "high value" profiles and other people.

I wish it could be easier to be trained at creating companies, to be promoted
and to be educated at creating a successful business. For this, I think US are
way better than us. To market and to define a product as well, the US are far
better than us.

We did not more money: we needed to make more money. We might have needed more
money in the US, simply to scale with the salaries expectations (and to
provide benefits, which are provided by the government here in France through
the tax payer system; it linearise the cost over the entire country rather
than creating an auction system for equal benefits coverage).

The failure we had was human: wrong persons at the wrong place making wrong
decisions (including myself, except I think I did my leading job well; the
cofounder one has been my weakness). The failure we had was a product design:
we had a super powerful tool and we did not know how to sell it, and we had
the wrong persons to sell it.

We were pretty lucky (and probably worth it) to get that much funding. It took
us one year (a year you have to fund on your own because you need to pay your
bills meanwhile) to get it anyway. And investors have been fooled by some of
the founders as we did.

So no, I do not believe the french system helped: we had access to free legal
support. The only lie we discovered is a continuing contract in France does
not protect that much when your employer is not able to pay you. In that case,
you are prisoner of a system rather than protected by it. _This_ is wrong.

I do not know if it provides all the details you expected to have, so feel
free to question me more about that :-)

------
dkyc
It sounds like a combination of two rather common startup mistakes: Not making
something people want (enough), and spending raised money too fast. Side note:
I think the font size is _way_ to big on this page.

------
wiradikusuma
"0.5M€ in January 2012 from french public investors" how did you do that? (4-5
months after incorporation)

~~~
laurentoget
i think public investors means the government in this context.

~~~
ricricucit
that's what i've assumed

------
LukeB_UK
This is unreadable on mobile. You get about 3 sentences before you have to
scroll again

~~~
oncletom
Oups sorry about that. What is your device config? Because so far I tested
only on a Nexus 5.

~~~
spigoon
I have the same problem. I have an iPhone 5.

------
ricricucit
Thanks for sharing this. I could have written almost the same article, but
probably my english would have ruined it. Good luck with your next project!

~~~
oncletom
"Glad" to read this. Obviously my English can be improved. I hope people are
not bleeding too much from their eyes ;-)

