How to Bankrupt a Company in 26 Days
Do you know what a unicorn is? No I’m not talking about the mythical beast that doubles as Scotland’s national animal. See, in modern business finance, the “unicorn” I’m referring to is a company valued at over 1 BILLION dollars. And, apparently, one valued at over 10 billion dollars is a “decacorn”. Which is not at all excessive in America.
If you don’t know, now you know…
Ever wonder what it would be like to run one of those billion dollar tech companies in silicon valley? Of course not. But what if you did? What would it be like? How rich would you be (on paper)? There are books, articles and the Internet for days that’ll answer those exact questions. There’s also a trend in the way in which these companies are run and how they too, sometimes often, fail.
So being that I have the power to manifest my imagination via technology, I’m going to tell the story of your every-day would-be billion dollar company without leaving my ass-indented seat. This is the fictional story of Johnson Electric, Inc., and I’m going to be using Free Enterprise by Tsunami Software to tell it.
It Started with an Idea
The thing about BILLION dollar companies is that at some point most of them had to pivot to get where they are. A pivot, is when your initial idea was a bad idea but your new idea might be a better idea, maybe, and you do that instead. Otherwise you lose all of your own or someone else’s money. That said, I needed to come up with at least two ideas before I got started. I like software but that’s a grind so let’s start a hardware company. We’ll do computer peripherals and all that. Like Mad Catz except we won’t go bankrupt, right?
That’s just one idea but I’ll worry about the other later because right now THIS is just too killer! It’s also very proprietary, you understand.
Then I Raised Some Money
We ain’t runnin’ no mom-and-pop shop here. That also means we won’t be using our own money to do this. Too risky expensive. Besides, I heard that’s outta style and money for new unicorns is everywhere! We’re trying to create a BILLION dollar business on an obviously BILLION dollar idea.
But here’s the thing, we need a valuation and the prerequisite to that is an investment when it comes to startups. Any idea can be worth a BILLION dollars if the people saying it is are willing to put their money where their mouth is. So say you sell 25% of your company for 250 million dollars. That shit is worth 1 BILLION dollars, in theory. On paper.
Well, not quite worth a billion. YET!
But apparently $250,000 is worth 25% of JE which gives us a 1 million (no caps) dollar valuation. So fine, maybe it’s not a BILLION dollar idea yet. But it’s a million dollar idea, which is a step in the right direction.
I Began the Journey
It’s time to put this money to use, but first we need an office which should double as a factory because why not. It’s one of those open floor plans that are all the rage these days. That means we need a lot more space than your typical garage.
We Started Hiring (Competitively)
Gone are the days when people worked for free pizza and soda for the chance to “make the world a better place”. I’m sure some start-up down the street is actually paying these kids in cash, pizza AND soda. I can top that.
Now I heard somewhere that it’s easier for a marketing team to sell simple things that people need. Even if we can’t really tell anyone what it is we’re doing yet. It wouldn’t hurt to establish the brand. We definitely should hire a team to do some pre-launch marketing.
And Then We Pivoted
We’re still scaling JE because you always want to hire the best people before someone else does. And by now we’re all in and out of conferences about how great this new product is! At some point the new clerk asked what it was we actually do, which isn’t really good etiquette so we set her up by the finance people who don’t really talk much. But about that product…
“We’re gonna be SO RICH”
We bought this really expensive equipment because at the last conference I decided that the premium circuit board market was underserved and those are used in lots of things, I heard. So we pivoted. What were we doing before? We don’t talk about that anymore. The marketers probably cried themselves to sleep. At least the pay is good.
Just have the CTO look at it.
Everybody gets on board immediately because they probably don’t want to lose their jobs. The salespeople get to work and pretty soon we get our first order!
We Had Sales But No Profits, Yet
As is the silicon valley tradition, the party that night would be full of live music and free booze. We’re on our way to dominating the marketplace. We got the world by the balls. We toast, to riches! The party was off the wall.
We Got Competition
Somebody else making circuit boards? Cheaper!?
I call an all-hands meeting, we even hire a consultant. It all happened so fast! It’s only been a month since our very public debut, after all. And where the hell did this $363,000 in market revenue even come from? That’s around $317,000 that people didn’t spend on JE products! The marketing department is sending me memos about being shortstaffed. But we obviously need more sales if we’re going to please the investors. Meeting! We hire more salespeople too.
Have the CFO look at it.
Production issues are creeping up on us. By now we’re talking to the loan manager at the bank and he’s shaking his head solemnly at the numbers we’re presenting. Still, we manage to pull an extra $150,000 to make payroll for the next few months since, we only had $63,000 left after all the equipment and building out the space in the first place. We took a big loss our first month (January) but I was so sure…
Our first quarter sales were rising but our cash-on-hand was decreasing fast. In the world of venture capital this is also known as the burn rate. The consultants said our competition just had a more solid product but we had the edge on pricing. If we could just keep the company afloat..
No golden parachute? Fuck!
Johnson Electric went bankrupt 26 days later. But hey, wasn’t my money!