The Reality of Startups: Not Everyone Wins
The letter I sent to investors when I shut down my company
Entrepreneurship is hard. The majority of startups fail. I will step out on a ledge and speak broadly for those of us that have started companies which ended up folding and say — we don’t want our companies to fail. But it happens. In fact, it happens to most founders. How you handle yourself in failure will determine how set up for success you are in the future.
If you have never been a founder it can be difficult to understand our psyche, or the ups and downs an entrepreneur goes through. It is impossible for an entrepreneur to separate themselves from their company. There is no separation of work and personal. Your company is a part of your identity. When you shut it down, you feel like a complete failure. That feeling can very easily reverberate into your feeling of self worth, regardless of how those around you actually view you. I’ve lived this.
Even for those of us who are serial entrepreneurs, the emotional toll from shutting down a company can be intense. It was certainly an incredibly difficult time for me. If I didn’t have the support that I had from our employees, investors and my family it would have been much worse. Knowing most startup companies fail doesn’t really make it feel any better. Again, I didn’t set out with the intention of shutting down my company.
However, if you truly leave it all on the table, represent yourself and all of your stakeholders well, and handle yourself with class while things are tough, then failure isn’t a bad thing. If you have never failed you have never truly pushed yourself.
One of the hardest parts about shutting down a startup is telling the people who have invested money in you, and no one really talks about how to do it, so below is the complete, unedited letter I wrote to my investors at the end of my most significant failure. Prior to this letter, I had an incredibly transparent relationship with all of our investors and had been sending very realistic updates monthly for the entirety of my time as CEO. Before making the decision to wind down, I had multiple conversations with advisors, our team and several investors. People can’t help you if they don’t know what is going on. By the time I sent this letter, the fact we were shutting down was not remotely a surprise.
An unfortunate update. We are in the process of winding down BBP. How did we get here? I have thought long and hard about how to answer that question and decided on a timeline with a bit of commentary. I am going to try and be concise in this email even though a lot of questions will likely go unanswered. I am also going to avoid any “looking back” or “learning point” insights here but I am more than happy to chat with you about the process, current situation, or what the future holds. Please just let me know when you are available.
- March 2014 — I jumped in as full time CEO, invested personal money along with my co-founders, and brought along a few of my Team members from prior start-ups.
- July 2014 — Launch the current version of our production site
- August 2014 — Close a small seed round and begin to focus on artist acquisition. We raised enough for a 12 month runway.
- January 2015 — Pass 1,000 active artists and begin making small channel tests to try and find a scalable marketing channel that would provide a + ROI.
- May 2015 — Pass 2,000 active artists
- June 2015 — Run our first truly successful marketing test, a partnership with Citrus Lane that included an in-box promotion made up of a tri-fold brochure with a “mystery” gift card. The promotion converted at a 1.75% rate within the first month and had a positive ROI. It was not scalable with Citrus lane as their subscribers did not turn over fast enough. We believed that the same type of promotion would translate to other brands that ship product to our target market, Zulily became a logical target for a partnership.
- June 2015 — Begin Fundraising for the second part of our seed round, the use of capital would be to explore additional marketing channels.
- July 2015 — Established a partnership with Zulily to run a 50,000 insert promotion to start and end the first week in November.
- August 2015 — Renegotiate supplier deals & add an 25+ new SKU’s
- Sept 2015 — Runway is up without any new financing closed. To their credit the team was all in and decided to stick it out, unpaid.
- Oct 2015 — Receive ~ $200k in commitments to close at the end of November. This would be enough money for us to scale the Zulily channel. If our numbers had matched the Citrus Lane test we could have scaled Zulily to ~$75k revenue/month by March.
- Nov 2015 — The Zulily partnership falls significantly short of expectations. We do not have enough capital committed to truly vet any new channels, nor do we have any proven channels that can drive revenue to a point that would allow us to be self-sustaining or raise enough money to take the company to the next level and my team needs to eat.
In talking with my team, board, and advisers we decided that the best next steps for all of our stakeholders would be to provide some finality on the company prior to the end of 2015.
I am happy to expand more on this with you 1-on-1, please just let me know if you would like to set up a time. We also have three team members that are currently looking for their next position. We have already made some inroads for them but any additional leads would be appreciated. See a quick blurb on each of them below.
I appreciate your support and advice over the last two years. It is obviously an incredibly difficult situation but this is the unfortunate side of what we do.
Shutting down your startup is not a failure that should derail your career or life forever. If you handle it well, engage with good people to help you through it, and learn, you will come out even stronger.