To cut a long story short we successfully registered the company, got a geologist to confirm there was indeed coal and got a mining license from the government. We then signed a contract with a sub contractor to come and mine. When the share certificates came instead of owing 5% I ownwed 0.00086% of the mine. Yes there were 3 zeros before the 86. Our elder the uncle we had sent to do the paperwork basically screwed all of us, including the uncle who originally came up with the idea.
1. Never use your cultural beliefs in business. Stick to contracts.
2. Don't just trust family.
That, at least, is the theory. There are of course many, many steps between a theoretical case and successful claim. And it's certainly easier to win a case if you have a written contract as evidence --- though 20 people's testimony is pretty strong evidence, too.
I am not (quite) a lawyer, and certainly not in your country. But it doesn't sound like you did anything wrong: it sounds like fraud.
It is fraud. Some of the family members wanted us to get the others arrested but this isn't so easy when you are family. It literally ends up with you getting your cousin's dad arrested, the same cousin you grew up playing soccer with. We collected money for a lawyer to sort it out but that dragged on and on.
I now have first had experience of the saying that "the love of money is the root of all evil". None of us had quit our jobs so we moved on. I hold no grudge, just took the lessons.
I grew up in the Southeastern US. Here, getting your cousin's dad arrested is a Tuesday. ;)
In all seriousness, sorry you had to go through this, and glad you took away good lessons. On the other side of the coin, never feel guilty about getting what's owed to you.
You're the only one you can trust to have your interests at heart.
That your uncle would choose very deliberately to alienate his entire family is the astonishing thing. Would be curious to know what his social life is like, now ...
So, yes, the farther away in the social network, the weaker the social pressure. If the link is mere nominal membership in the same faith, that may be worse than no link at all. Most of Madoff's victims were Jews -- because they were inclined to give him the benefit of any doubts.
>If the link is mere nominal membership in the same faith, that may be worse than no link at all
So which is it?
We still meet at extended family gatherings. Funerals, weddings but no one stops by to visit him and his immediate family. Which I gather is fine with them because they have renovated their house and bought themselves a new set of wheels.
Didn't you sign after reading? I dont know how it works there but generally one has to get all signatures for approval.
You need to be there in person to keep an eye on everything, or possibly complain to government relgulators / go to court if need be. If it's all remote and it's not practical to do this stuff in person, you are asking to be taken advantage of.
Not in the US in many cases. Take the Uniform Commercial Code, for example, which requires a written contract for the sale of goods over $500, or agreements creating a security interest.
See https://www.nolo.com/legal-encyclopedia/when-is-written-cont... for a decent overview.
But I believe in the UK it is only transfers of land that require a written contract. However you might want to think about how you would prove a handshake to a court
In the US, I cannot transfer land to you with a handshake. I can't sell you most goods valued over $500 with a handshake. I can't assume your debt to another party with a handshake.
Always ask a lawyer.
Nothing happening now, I guess we tired from fighting.
Reminder what happened to Joseph in his life .
Have you made explicit the share you will end up with or you just assumed that all of you would get 100% / 20 people, i.e. equal share? It sounds that your uncle worked a lot more (from the moment he looked for partners and invited them into the venture till the end of the paperwork and beginning of the operations). I concede though that your share was way too small. If the rest of the partners (18, without you and your uncle) received the same share, your uncle gave you all only a little over 0.015% which is just below any justification I can imagine.
On a side note, this made me realise why there is so much conflict in some mineral rich areas in Africa. Honestly if we weren't peaceful people there could have been serious conflict.
Care to elaborate?
One theory being that, essentially, legal controls and enforcement are expanded with economic activity. But a sudden surge in resources (e.g. discovery or exploitation) exceeds the existing system's ability to control corruption, and it's very hard to steer a cash-rich system back to good governance after this happens.
There is an argument against aid to developing countries for similar reasons.
The lesson is never trust the size of a company as sufficient reasoning that they can and will pay their bills.
- Their own 'highly matrixed' organizational structure makes it near impossible to find 'the correct person' to talk to about accounting issues, let alone get a straight answer out of them - so chasing these issues down becomes a huge drag on your time and energy and you may very well just give up after a while
- Past-due invoices are typically penalized with tiny interest percentages [in the <2% range], so even if they do intend to pay eventually, they can gleefully treat you as a bank with really low interest on short-term loans.
- They know full well that you, the small company, probably aren't willing to put up the massive time and dollar resources in order to sue them, the big company, for what is to them small potatoes. They have a bench full of experienced attorneys, you might have a single one, and they know exactly how to extend and complicate a legal process such that the litigation itself costs you far more than the outstanding AR.
Over the last 15 years or so, a lot of my best customers have been super-late payers. You take the good with the bad.
Has this been your experience as well?
... and do you "outsource" your AR for a % of your invoices?
You can try setting late payment penalties, but my experience has been that client procurement and legal people get those stripped off routinely.
At Matasano, I remember one of our anchor customers taking something close to a year to pay an invoice.
That at best. others just "forget" about the late payment penalties in my experience.
The sibling comment from @mrhappyunhappy is interesting but when I tried it, clients would rarely pay the premium.
I tried both methods and clients would rarely pay the premium compared to those who would avail of the "on time" payment discount.
I have less happier clients when I make them pay a fee than when I take away a discount although mathematically they are the same number.
Note that I’m not referring to charging interest for late payment as being illegal. I’m specifically referring to charging 10% compounded weekly, which comes out about 14200% annualized.
But like you, I'm pretty skeptical. Probably wouldn't hold up in court.
A sensible business would settle out of court with a very low offer. A sensible contractor would accept the offer.
But generally this is another example of corporate privilege.
In reality, late payments kill many small businesses. In a political system that was genuinely friendly to the small guy, fines for late payment would be mandatory.
I have tackled this issue (late payers) in two ways:
1. My cashflow from other investments ensure I did not run out of money. This is a bad design where I am effectively extending a 0% APR loan to the client with a term of their choosing
2. When I have ARs large enough to entice "parties that handle payments", I choose to let them handle the invoices on my behalf for a cut. A pretty large cut but 80% is better than 0%.
I am effectively looking for a way to optimize the later but happy to hear alternative solutions, specially when the ARs are not large enough to outsource.
For a bootstrapped business, this cashflow can be critical.
The big boys are not even going to consider me unless I am a safe choice (they really don't care if I am a kickass programmer who can solve their problems - they want to do business only if I am a known quantity so that they don't get fired if a deal with me go sideways).
I am really lucky to have positive cashflow because I can be picky about clients but a lot of friends ask me how to get started and my experience with cashflow is that a fantastic business with client set A can absolutely fail compared to the exact same business with client set B just because of cashflow issues.
Maybe I am too old and jaded but now I always ask people to include and test for cashflow in addition to the efficacy of their business ideas vis. market fit.
Honestly though, this becomes too demanding of entrepreneurs who are already overworked with lead gen, product design and development as is.
You should definitely write a few articles about cashflow. People don't write about it enough.
Too many startups riding high on how much revenue they bring in without controlling the costs. If you spend to get revenue, it really isn’t a business (or at least a solid one anyway)
I size the prices with the retainers. Bigger the retainer, higher their priority and less the per project prices.
I personally have helped out a few businesses with a 2% CB CC (which helps offset the Plastiq fees) that offers a 6-mo 0% APR term but the CL is the limit of the loan which limits the extent of the loan.
Most CCs don't have such gracious terms in which case you could be paying a hefty fee to gain that cashflow.
Having done this a few times, my conclusion is that this is a very bad practise and exposes a business with cashflow issues if this is a regular occurence.
A healthy AR is better than no AR but you know what's even better?
A healthy cashflow.
I have excellent clients who could not afford to pay for a consultation because they themselves were waiting on the client they were farming out jobs from.
They still work with me because they know I understand their cashflow issues.
We once were jerked around by a reasonably well known customer. Their accounting people decided they did not need to perform under the payment terms the customer signed off on. First time they did it, I sent an email to the EVP that signed the order. We got an apology and a payment. The next month the same thing happened again - we redirected all their traffic to "We are unable to process your request - please contact your account coordinator to restore access" message and did not remove it until the wire hit our account ( 5pm-8:02am ). We received a letter with apologies from the customer's CEO, customer was saved and they never missed a payment again. I heard, via the grapevine, that three people at the customer's AP group were shown the door as the result of our message.
Having said that I mostly don't offer credit terms anymore, my average order value is about £500 which means it isn't worth the time spent chasing late payments. In 99% of cases the customer will find a way of paying upfront.
Exactly. On MBA finance courses (and I guess CPAs too) you're taught about working capital - and one half of that is basically stretching supplier payments as far as you can.
If they are well known enough surely a well placed social media post is all that's needed to oil the wheels.
That 2% is usually monthly, so the APR is more like CC debt, not bank loans.
This is a classic cash flow problem in business. Any very simple (usually free) “start a business” course from local government in the UK will cover this. I went on such a course and they explicitly talked, in detail, about this issue. They flagged it as a major cause of business failure.
Point being not to criticise the parent but to emphasise that startups are not different from any other businesses when it comes the basics like cash flow. Something that really stands out in the startup world is how little regard is given to the simple everyday business issues that business advisors the world over teach about every day. Anyone starting a tech business should do a simple course on business basics, in this example it could literally have saved the startup for an investment of a few hours.
AP: Accounts Payable (money you owe)
APR: Annual percentage rate (usually converted from a different timeframe so you have a consistent timeframe to compare with other metrics)
Retainer: A fee that you pay to get priority from a consultant, which may or may not come with services included.
Cash Flow: the balancing of AP and AR so that you can stay afloat.
Say your startup needs $10k a week to meet payroll. You have $20k in the bank and Accounts Receivable of $100k. "On paper" you have $120k. Cash flow wise you have 2 weeks of money left on hand.
This situation is in constant tension as:
- Large companies stall regularly on paying or require terms like "Net60", aka you complete the work, then send them an invoice, then they can take 60 days to pay that.
- Public companies have to report their financials and will often manipulate their AP schedules to help "massage" their numbers. I was once told bluntly: "our CFO said we aren't paying any more invoices this quarter"
- The reason large companies do this is they are also trying to balance their cash flow (just at a larger scale).
The two general things to do to help with this situation:
1. Keep invoicing tight, bill as often and in as small as increments as possible. Better to ask for $20k every 2 weeks than $40k at the end of the month.
2. Offer discount terms where they pay less if they pay earlier.
Great article on this topic by Tomasz Tunguz of Redpoint Capital: http://tomtunguz.com/timing-sales-cashflows/
I’m curious if your experience in this case was similar.
Even more surprising is that it happens pretty frequently.
Companies (small to medium) aren't some machine with automatic parts; it's just people, and sometimes people don't pay their bills.
And because you sell your invoices, the factor now takes the payment default risk.
Does cost a penny though.
Even though I did all the software, I had only around an 8% stake in the company at the time.
The person in question decided we needed to “perfect” our product before taking it to market. She had us working 12 additional months and since we did not have “enough tests over the new features yet” she cancelled the 550 orders and gave the contracts to one of our competitors. At that moment I and the 2 electrical engineers in the team left the company and they ran out of money and close 6 month later.
Lesson learned: Big-corp CEOs don’t make for good startup CEOs 99% of the time.
Possible lesson: Don't piss off the staff in an early stage startup.
Reminds me of kozmo.com at the end, when they started hiring "experienced" executives from traditional logistics companies.
Best way to take out a competitor is from within?
While this may be true, I don't believe it is fair to reach this conclusion on the basis of a single experience.
Large companies are optimized for a different set of outcomes - usually including extreme concern about quality and public image. That doesn't fly in a startup.
From my experience hardware is hard all around and finding partners, even no traditional ones like we did on that occasion can help a lot.
a group of words established by usage as having a meaning not deducible from those of the individual words (e.g., rain cats and dogs, see the light ).
"99% of the time" almost never literally means 99% of the time. C'mon, don't be that guy.
Yes, no one likes smugness... I'm not the GP if you hadn't noticed, but honestly; don't be that guy.
After that company died I joined a real robotics startup with some seriously talented founders. They had already built out several robots and had the core skills (mechanical engineering, software engineering, electrical eng, and controls) to design and build a working robot. More importantly though they knew the process to make a robot real which involves personal contacts at custom component suppliers, the right outfit to do engineering review, how to raise enough money to get the kind of runway hardware needs. And on and on.
Moral of the story, you can't fake hardware. Get experienced people on board from day one or your going to flounder and most likely die.
But we were just too early. The robot didn't even need to be very autonomous, shared autonomy was part of the plan (fake it till you make it and honest about it :-) ). I controlled the robot from the other side of the (small) country to give people their teddy bears and TV remotes etc.
Problem was that we tried to do our hardware completely by ourselves, whereas nowadays there are several options for mobile manipulator robots that look good enough to put in a home.
We spent more time getting the robot to work than on useful applications (we had dozens of activities of daily live a robot could support). And even the getting our robot to work could be done more efficiency (in hindsight). We should have used e.g. an EtherCAT motor controller instead of writing of doing it all ourselves on a micro-controller.
We didn't progress enough quickly enough for our investors and subsidizers and ran out of money.
A another great lesson was this though: when you hear talk about robots in care, the complaint I get a lot is that that is sad for the clients, because they don't get someone to talk to (but a robot) and they will get lonely. That turns out not entirely the case. A lot of disabled clients told me they don't want to talk to the care-givers all that much, they just want their drink/toilet break/pen they dropped etc. They have friends and family and don't feel lonely. The complaint about loneliness is coming from the care-givers.
For elderly people, it may be different though, but I found that very interesting.
From my experience, healthcare usually comes down to figuring out who is willing to pay for it (insurer, user, govt, etc.) and less so about the tech. You are right that the tech doesn’t need to be fancy but funding model is usually the bit needed to be fixed.
A buddy of mine is successfully taking took a smart baby mat to market (so far anyway)
But it does require to build a robot that can do a lot of things, which is not a minimal thing to do.
Things get expensive and complex when robot arms get involved, which do give you lots of capabilities in return. Arms and mobility make the difference between a smart speaker like Alexa and a robot.
Is there still animo for this? I would love to invest in elderly care technology, especially AI for Alzheimers.
Would this still be possible, or is it a big company (Philips?) thing now?
I don't know any companies that focus on Alzheimers, but there is a bunch of medical robot tech companies around here, eg. http://microsure.nl/ that do micro-surgery and http://www.preceyes.nl/ that make eye-surgery robots.
There's Health Valley (https://www.healthvalley.nl/welcome-to-health-valley), that may know some companies that do focus on Alzheimers more.
Why is bottled water a billion dollar business in the U.S. when the U.S. has the safest drinking water in the world? I am very sure it's not the product.
If you can't sell, define your vision and prototype and find someone to sell them for you. Salespeople are viewed as BS'ers by engineers but without them, companies can never succeed.
Can't see it in any of the top 10 (or 20) via google....
But let's say it is the worst in the world. Bottled water is not the best way to fix the problem. A water filter would be much better in terms of cost per gallon and quality.
Just by you asking the question, highlights how well sales and marketing have worked when it comes to bottled water.
All that means is “it’s very safe”. To call it “the safest in the world” is just blind patriotism. There might be long-term health effects caused by but difficult to attribute to water that are more prevalent in the US than other countries, for all we know.
> Just by you asking the question, highlights how well sales and marketing have worked when it comes to bottled water.
I’m not the person who asked, but no it doesn’t! All it highlights is how hyperbolic your statement was. It wasn’t an argument for or against bottled water at all.
The product of bottled water is availability - being able to purchase anywhere and to bring it with you.
I started a company to leverage an order taking and customer management system I’d built for a friend’s b2b outside sales company. Before, they were managing everything with excel spreadsheets on a shared drive and it was a mess. After, everything was in a php application that could set up a recurring credit card transaction within a few clicks. It used AJAX (in 2004, before responsive forms took off) to take different form inputs.
I rode that one client pony for too long. Managed to get a second client, but I hadn’t worked out a good pricing strategy. I needed to offer the program publicly, but we were too busy doing feature development for our two clients to develop features for multi tenant. I was bad at the administrative aspects of running the company, so I inadvertently ran up a bunch of bills. I wasn’t keeping my sales funnel full or dedicating much time to finding new clients and calling on them. The whole thing went crashing down when my clients decided that they didn’t want to have 100% dependence on my company anymore and per our contract paid a one time lump sum for a copy of the software. Still wasn’t enough to fill the holes the bills had left.
I could have been SalesForce if I hadn’t been an arrogant 24 year old who couldn’t learn from other people, but instead I ended up in about $50k of personal debt.
Did you overcome that and learn from the mistakes? No offence, but to be honest you saying "I could have been SalesForce" makes it seem like you're still working on the arrogance part.
I’m still a bit arrogant and aggressive in my approach to solving problems, but it’s tempered somewhat by experience.
1. You got to work closely with 2 highly engaged customers. The value of the product development research you did with them is probably worth more than your debt, if you ever decide to build something similar again.
2. You actually built something they wanted and were willing to pay a huge lump sum for. Many startups never get to this point. You now know you have the ability to create something highly valuable. Don’t take the confidence that comes from that for granted. It’s worth more than $50k in the startup world, in my opinion.
I’m curious, knowing you’d created something valuable at the time, did you continue to try to sell it in the years after the 2 original companies left you?
I can see how you’d be temporarily without money, but not sure how they’d take away all income.
I had thought I needed to develop a multitenant feature set in order to sell to more people with a subscription, but I was probably incorrect on that (in hindsight).
The bigger issue was that I didn’t know how to plan for anything like that. I was essentially in reactive mode and got way behind.
I learned a few things, much of you hear already but is worth repeating :
* The MVP thing is real. I had a competitor that regularly released simple things that barely worked - while I continued to polished my project. By the time I'd finished the competitors stuff was all over the internet few a year or two and no one was really interested in my product. Plus by then the dotcom boom was pretty much starting to bust - I was way too late.
* Developing software is the easy part. I figured when I was done people would be lining up which is of course naive. Selling and support is harder and takes more time and effort than writing code.
* Writing software for developers sucks. No one wants to pay for anything as there is usually a cheaper way of doing it. The exceptions being big firms that really don't like small independents. Its better to write software to solve real problems - not software problems.
So is this.
We built a software platform that intended to automate the job of market researchers. Those researchers we hoped to replace ended up finding the tool itself useful. Since the platform didn't replace the employees, our pricing model fell short. In the end, we found success by hiring our own market researchers and effectively pivoting into a software-driven consultancy. Profitability came slow and steady.
After months of profitable growth, things changed on a dime. Our lead investor effectively unseated the CEO one day, and made the statement that we were doubling down on the original SaaS vision. Within a month our 100 person company had been reduced to around 60. The now-unneeded consulting staff were recipients of strategic layoffs. Revenue dropped overnight.
The morale of the company also fell off a cliff. The C's lost their ability to cheer up the team and the senior staff saw the holes in the boat and promptly abandoned ship. The company folded about 1.5 years later for a fraction of the initial investment.
My learning in all of this: the tales you hear about the "bad VC"s are occasionally very real. Make sure when bringing on investors that they align philosophically with your founders' vision. Make sure that philosophy is deeper than "we want to make that cash". Great investors i've worked with since can be an immeasurable resource in so many ways. It is absolutely critical that founders be excellent in their courting of valued investors. Similarly, they must be ruthless in their rejection of the bad ones, however sweet the check may appear.
After 2 months of not paying myself or any other employees, the COO and I drainked the remainder of the US account and paid out as much of what was owed as we could to the employees before helping them find jobs elsewhere. I didn’t get any of the money I was owed and was facing pretty bad debt, but the experience was enough of a resume boost that I didn’t have a problem making it up in my signing bonus.
What I learned is that a title doesn’t grant you any control, and that if someone can’t be transparent with their inner circle of friends and colleagues (in this case cofounders), then they have no business leading a company.
Also leaned to not fuck with the cartels.
Armored cars and armed security are nice and all, but being in a situation that necessitates riding in an armored car and armed security detail is not really fun.
Is this just for anything other than CEO? Or are they always held to the board/investors.
The bigger problem I had with lack of control was when things started to go south. The CEO was never around, so I was the "boss" in the office every day, being the technical and cultural leader of the dev team, who came to be close friends. Once the money stopped coming in, it was really hard emotionally to be the person who needed to convey that to the rest of the company, but without having any real control needed to get them money or real answers.
The CEO came from a very wealthy family, and never had to worry about money. Myself, and most of the employees weren't so lucky, and were pretty new out of college, so didn't have a pile of savings to fall back on. I am not even that upset about never seeing that pay I was owed, it was more just emotionally draining to be seen as an authority figure, but to have absolutely no ability to exact change or get answers when they mattered most.
Oh come on, you can’t leave us hanging like that! This is the beginning of the best story in the thread. How did the cartel connection form? Was your contact named Estefan? Did he have a mild accent and project an aura of power?
“Bad decisions make good stories!”
With that goal in mind, we were targeting areas in Mexico that needed the most help. Cities with a decent small business sector, looking to grow, and having difficulty doing so. Juarez was a perfect fit, especially given that a lot of citizens have been across the border and can see how much better things can be. My parents were not amused. Then the movie Sicario came out soon after, and they were somehow less amused. But I got to ride around in armored vehicles with a security detail, so that was fun.
Really my "learned not to fuck with the cartels" lesson came from our market research. This may surprise you, but the banks in Mexico are... sketchy. Well, not all of them, but definitely a few. In particular, we were in a competing market as Banco Azteca. It appears to have since been removed, but at the time, the Banco Azteca wikipedia page described it as having "a uniquely effective debt collection system" or something like that.
Yeah, what they actually have is a motorcycle gang. They give you a loan with massive, often times impossible to pay off interest rates, and if you don't pay them back, motorcycle dudes with bats show up to collect, or take enough of your property to make up the difference.
A lot of citizens also (understandably) don't trust the banks and keep most of their money at home. As a result, there's very little data available to make credit determinations on, since you can't even use most people's record of good standing with their bank accounts, so the process for getting a loan is generally sit in a room with a group of bankers and try to convince them you're a swell guy/gal and won't lose their money. This results in extremely high default rates, because people are good at misrepresenting themselves and lying about their intentions .
With such high default rates you only really have two options; improve your credit worthiness determination process somehow, or increase interest rates and have an effective (if unethical) collections process. With some data protection laws making the creditworthiness determination route a legal minefield, most banks in Mexico opted for the latter. Our entire business strategy was to take the other route.
Startup #1: too hard to believe it could be big. Widely loved consumer website we tried to fund with angel/VC money, and it was too implausible it could ever be a $1b+ company. We needed a non-VC strategy to fund that business but didn't realize that - ran out of gas.
Startup #2: found PMF, business-model fit, high-growth, and had an amazing team. Blown up by a nightmare original founder (I was part of re-founding an existing business) and poor corporate governance. The original founder blew up a Series A and re-cap after the team new team made the company actually work.
What I learned from both is how finicky startups are and why conventional wisdom exists. The more you try to re-invent things that aren't core to the business or fit a square peg into a round hole, the more chances to fail you create.
Don't try to get 1000 things right. Try to get 1 thing right and rely on the wisdom of others to get the other things "close enough" to right to attract talent, capital, time, and attention to the 1 thing you did get right.
I'm in the position of believing I have "1 thing right." I worked in an industry (banking) with a serious software problem and one particular vertical that I'm confident I could build a good product for. I was in a position to evaluate all of the major vendors that would be my competitors, and I'm confident that I could get one particular thing very right. Ths problem is that I have pretty much no idea where to go from there. I've never started a company, I didn't even study business in school. In my career so far I've pretty much done two things: I got very good at that particular aspect of banking, and I taught myself to code and now do it professionally. But I'm so aware of the gap between my own knowledge and the skills required to run a business that I wouldn't really feel confident trying to go get investment money (and wouldn't know how to begin even if I thought I could use it responsibly). I guess what I'm trying to get at is: once you have the one thing, where do you go for help with the thousand?
To get to that point, you have to do a lot of the things bigger companies have to do. Those things just tend to be less complex and you have fewer people to do them. Accounting, sales, engineering, marketing, etc., etc. all exist, to some degree, in a two-person company. At first, you learn to do them yourself. You'll probably suck at them. It's okay. They all have some degree of a feedback loop. If you're open, you'll figure it out.
Eventually, with success, you'll hire other people to do them.
From there, you can get access to a great network by doing an incubator as someone else mentioned, or by just getting out there and talking to users (do this day 1). But you're worried about years 2-4 when you haven't even started year 1 yet.
If you want to discuss in more detail, I'm a founder with a product in banking that's been moderately successful. Email's in my profile. Feel free to reach out.
The main thing is you have to start, get a team to follow you somehow, and get a reference client live and on the record using your software to solve a huge problem. Consider YC or techstars for your first $$$ investors. Some may tell you the negative of working w them but they’re deeply wrong
I don't know what you're asking with the rest of your question.
The problem came with the marketing. When I did my due diligence before building the app, it seemed cost per click for ads was around 20 cents per click. 20 cents * 2% conversion rate = $10 cost to acquire customer. My lowball avg. lifetime value of a customer was $18 if customers stayed for 3 months on average. $10 / $18 seemed like a decent ratio, and if I could get the conversion rate up or the churn rate down, it could be a good ratio.
So I set out to build the app, which took about a year and half. But, when I finished the app and went to launch my marketing campaign, I was shocked when I saw the cost per click had skyrocketed to $2 per click, meaning my cost to acquire a customer was $100 with an average lifetime value of $18. My backup marketing plans were content marketing based, with a networking campaign with Mommy bloggers, but this takes a lot more time to scale your customer base than blasting out an ad campaign. This caused me run out of runway with my cash timeline, and so the startup failed.
I learned that its important to not get too heads-down coding your product - its important to review your growth strategy every few months while you build your product, because things can come up that can dramatically affect the speed at which you can grow, and that can jeopardize the whole operation. In my case, if I had noticed the ad costs climbing, I could have started networking with more people earlier, doing more content marketing pre-launch, and slowly increasing the size of my waiting list, or evaluating alternative marketing plans before my runway got so small at the end.
In my case, I wouldn't have been able to quit my job and attempt this startup in the first place if it wasn't for my wife taking that hard job for a couple years - so I felt like it would have been a bad idea to respond to her good deed by taking advantage of her and burning her out so I could have my dream.
Heres a demo if you're interested https://vimeo.com/2221065 The demo doesn't show much of the learning management features but they were also complete.
But the app had memory leaks and I didn't have the cash to pay expensive engineers to fix them. For months and months I tried to fix the problems myself until finally I was given the choice of giving up my business or my wife.
I don't regret choosing my family because we had another daughter before the marriage ended and she wouldn't be alive if I chose to continue with my business instead.
I learned ...
1. I should never have given up. If you don't give up you can't fail.
2. I shouldn't have believed my mentor who said there wasn't a market for my product. A company entered the same market and now they are worth over $1bn. Listen to other people but have faith in yourself.
3. Be careful to choose the right technology. I chose Plone/Zope/Python the same stack that was used by CIA. I thought I was very smart about that but I didn't realise that specialists in this tech would be so difficult and expensive to hire.
4. Don't blame anybody. In the end it was my choice to give up.
5. Everything is as it is meant to be.
I fell for that once. I'm embarrassed to admit that I thought she was a spy for a couple of minutes until I picked up more context. I'm sure I looked super disappointed for the rest of that conversation.
I think if you expand the scope of 'failure' to mean your life, as opposed to just the business, then you didn't fail. You were pursuing a strategy that would have led to the failure of your marriage, which is much worse than a failed business. I think you succeeded.
From the first one I learned two things that are probably still applicable today, and from the second I learned one big thing. In order:
1. If people from outside the tech world end up controlling your software startup, that indicates you are doomed. Pretending otherwise will just make it worse.
2. Great teams are incredibly rare, and if you have the good fortune to be part of one you should really try to keep it together for the next challenge. (We dissipated so hard it was ridiculous... one went into motorcycles, one got a PhD, two floated back to Europe, one became a bartender...)
3. If the founders can not convincingly dogfood their own product, you are doubly doomed. I remember sitting at a table with founders while they tried to think of things they could maybe do with The Product we'd just spent months building, and feeling the rats of doom nibbling at my toes. It had not occurred to me that this was a possibility. Engineers: vet your founders!
I feel like this is an incredibly common software developer turned entrepreneur mistake. Lack of confidence in asking for money leads to a reluctance to put a price tag on the thing you have built.
Bad programming, (me) had just finished college and thought I could lead a team of programmers because I had done an ok prototype that was actually working at a small scale. Given that specs were being defined on the fly then the programming was a mess. To scale it, we brought in programmers hoping it would help but they mostly sat around because we didn't know what we were building. Also, we got subpar programmers because they were cheap. One guy managed to BS his way into a paycheck for 5 months without ever programming a line of code. After he was fired, I found out that that was his specialty, getting hired and getting fired a few months later.
We could not meet deadlines, we could not meet self-defined deadlines so the investor's money stopped.
A lot of useless infighting due to egos, we could not figure out the business but we sure found ways to fight and argue.
I wish we would have been more willing to learn as opposed to being so arrogant by thinking we knew everything. I use it as a warning every time I think I know everything and it brings me back to reality. We lasted 2.5 years. We should have closed shop at 3 months.
With our internal team, we’ve managed to create a killer backend that would do all the hard routing stuff without issues. It was better than Google Maps in most cases!
Now, we just needed the app. We used all our money to pay a third party contractor to make the app, and they failed miserably. We never received a working prototype. We ran out of gas.
The backend still exists, in case anyone wants to give the app a shot. I might release the backend as open source. Ping me if this interests you.
1. making a _live routing_ app is tougher than it looks
2. our team was really emotionally exhausted after this (the whole process consumed around 2 years) and some key team members needed some time off
But yeah, it could have been possible to make the app ourselves.
You can email me: michaelv at uber
Where did you hire/find the third party contractor?
Friends of mine, in two separate startups, got burnt badly by those outfits that offer the "native apps for iOS and Android" package for $10K or so.
I talked to some of those "developers" once, when I helped my friend troubleshoot an issue. It was horrible. They were so inept, they couldn't solve a problem if you provided a solution to them (literally -- they failed at copy-pasting).
What's the backend tech stack?
If you manage to open source your project please stop by our docs repo, would be great to have a real world PostGIS project in our ecosystem list.
Running out of money. We were bootstrapped, and the style of work we were doing had some decent capital costs. We failed for a "bargain" (less than 7K), but we had cut to the bone and deeper while trying that. Side jobs to make rent just increased stress and distracted from the business.
Why did we run out of money?
Focused on engineering instead of sales and marketing. Manually spinning up servers would've been the right thing to do--since we instead were both technical we solved technical problems and kinda missed the people side of things. It was real and hard work, but it was not work that was relevant to making sales.
After we ran out of money, why didn't we keep at it?
Stress blocked further work. Too much stress led to neither founder being able to even think about the company and its business without severe anxiety. Times were dark and bad.
I learned that you want to prioritize the money funnel over literally every other thing that you as an engineer think matters. Coffee is for closers.
I learned to try out only with other people's money. Don't put your rent and basic living on the line for an idea if you aren't comfortable with what that can entail.
Probably most importantly, I learned that the glorification of the startup lifestyle is a lie perpetuated by people seeking to make money from it at all levels. Nowadays, even the glorification of failure and celebration of mental health seems to be by people looking to advertise their businesses, cure-alls, or just get internet famous.
It's rotten to its bloody core, and unlike finance doesn't even pay well.
This I would say is my main learning point. My first startup failed because of inexperience and team implosion following incapability of generating revenue fast enough on one side, and attract favorable investment on the other. Failure could have been lighter on both me and the other members of the team, was it not for a self-immolation mindset probably driven by glorification of "startup lifestyle". Things fail. Most of the time. Assume failure. Optimize for resiliency. Never expect success as the natural outcome, but rather consider it will come collaterally to continuous reaction to ugly realities, and damn slowly. You can stumble upon a rocket ship, but it is not how businesses usually get to come to life.
Printed and stuck on my desk. Thank you very much for this well-said wisdom.