When you know it’s time
What to do when you are at a 4 way stop sign with your startup
Over the past few months I have done a lot of entrepreneur sole searching. I’ve read far too many blog posts from other startup founders regarding how they have shut down something their team had passionately worked on for years. Each one of them hit me to the core, and I realize today that this is far more prevalent than some would like to admit. Startups shutting the door occurs far more frequently than press releases about companies raising money. The reason why shutting down isn’t covered is because the founders are scared to put everything out there. The posts that seem to rise to the top are the ones that are brutally honest about what exactly happened. That is what I’d like to do. I hope it can help other entrepreneurs who might be on the fence regarding what to do with their startup before it completely consumes their life.
I embrace failure & to those who say failure is an attribute of stupidity, have never tried.
Failure is something that is either embraced as one step in furthering the education of what it’s truly like starting a company or learning from mistakes for the next time around. I enjoy reading some posts from founders who say, “it sucks”. Sure, there are times where it sucks, but that doesn’t necessarily mean you are a failure. Being challenged to build something new ultimately comes with many hours, months, years of complete suck! To me, if it sucks — bring it on.
To some people failure means that you truly have failed and that you are a failure in everything that you have done. I propose that this viewpoint and attitude is complete bullshit. Entrepreneurs do not just “jump-in” with no plan in place for the future. We certainly didn’t jump-in with no plan at Goodsmiths. In fact, we planned and coordinated every single process and product for how we saw the market moving for the next 10 years. This is something that I take away as a true positive for those we had the privilege of working with.
There were opportunities, and we didn’t get lucky.
Over a year ago we had a signed $750,000 term sheet from a prominent e-commerce venture fund located in the Midwest. After going through early due diligence we all were on the same page on monthly burn, the plan for significantly increasing shop sign ups and more importantly increasing our revenue streams beyond our 2.5% transaction fee on each sale. After the term sheet was signed (we were locked for 60 days from talking to anyone else..cough..red flag), slowly but surely the fund began to walk back on the numbers that were initially agreed upon. This sucked because during this process we had increased revenue to show them our plan was working. I was beyond pissed off. Until, I started talking to others in the Midwest startup community to find out that this is pretty common with this firm. So we walked away and I began hitting the road pitching Goodsmiths to approximately 70 firms located throughout the US. What we found, was that we were only getting the “nice feedback” which was perfectly outlined by Jason Freedman in this article. But what we also found out, was that a lot of these groups we were talking to were already involved in this niche through investments into the largest player in the space. Conflict of interest much? Other firms were interested in funding us if we moved. Sorry, but we love Des Moines and you should too. That’s a conflict of interest for us!
Nice feedback = a no
After walking away from the original term sheet and pitching like crazy to VC’s, local angel groups and finally to the State of Iowa for economic assistance to continue the momentum that we were seeing — it was apparent to me, this was turning out to be a business that is extremely difficult to understand. Building a marketplace takes shop inventory first. Second, it takes eyeballs to search for exact products in your marketplace (and on Google shopping). Marketplace dynamics isn’t something that can be done at scale in 2 years without a massive marketing budget. The #1 job of a startup CEO is to make sure the bank never goes negative. And unfortunately, we were closely approaching that time.
A series of calculated decisions/risks were made regarding staff hours and like all smart people, our team began to recognize the situation we were all in. Our Community Builder left. Two of our developers left. Our Design Lead left. Goodsmiths, was back to the two founders..who were not getting paid.
The last stage: strategic overload
Many successful startups, especially in the Midwest, find strategic investments as a catapult to further their growth. Dwolla was succesful in doing this with the strategic investment from Veridian. TelePharm was successful in their recent round by individuals involved in the healthcare space. We started strategic partnership discussions shortly after launch in April 2012. In particular, we had many discussions with a large publicly traded company in Des Moines who hits over 100mil+ females a month (our largest demographic). What I learned far too late after months of discussions, is that ultimately trying to find a middle ground on a partnership was far too difficult for them to understand. It’s like a new innovative technology trying to bust through the door of a machine that is fine churning on their current processes and just “OK” with the way things were. There was no individual champion within the company who could push the agenda. If it fails, it’s their ass on the line. If you don’t have a champion, you are up a creek without a paddle.
Through research in the space, we found another perfect fit for Goodsmiths. This time, the largest player in the crafts niche who was “looking” for a marketplace. This company does around $225mil a year in revenue of which $65mil comes from their e-commerce properties. Initial discussions were tailored around the current Goodsmiths employees coming on board with salaries and an earn out potential on EBITDA for 3 years. No money would exchange hands upfront for our hard work on the technology we created. To me, that signaled to us that they weren’t “all-in”. If you are interested in a technology that has already been created by a small and nimble team, showing respect for what was created with a small initial cash outlay for the acquisition is common. This happens ALL the time in the M&A world. When this signal was sent, in my heart I knew it wasn’t right.
The burnout happens around year 3
After managing the building of the products, the process of raising capital, making sure the monthly growth was still at or above 20% a month, keeping the current users happy with service, growing ad revenue and working strategic partnerships that came to be dead-ends..you come to a 4-way stop sign. You wake up every day and think to yourself, should the gas pedal be pushed down one more time? In our particular case, it’s better to throw the car into park and move on with our next journey.
I love The Startup Curve image below because where we are today is at the end of the Experimenting & Pivoting. Had we secured that initial Series A, had we closed on some strategic partnerships..who knows where Goodsmiths would be headed. It’s important for all startup founders to keep this in mind while you lay out the future of your company. In all the companies I’ve been a part of..the curve is spot on.
Thank you
There are a lot of people to thank during the formation and growth of Goodsmiths. First, my co-founder Levi. We both pushed each other extremely hard over the last 3 years and to this day we remain friends (many co-founders can’t say the same). Second, everyone who helped us build. Brandon R, Riane, Rachel, Emily, Lil Rachel, Eric T, Eric H, Brandon W and all of the bloggers who helped us create content for our blog. Our advisors; Dave, Deb, Mike, Jeremy, Kelly. Third, our investors. I owe a great debt of gratitude to them for being the first ones to believe we were onto something that was (and is still) needed in this marketplace. I am forever grateful for their belief in our vision, and this is something I’ll have to live with for a long time. Finally, to my amazing wife who has endured the ups and downs of running a startup in the same fashion as I have. We had our first child during the days of Goodsmiths and I will never forget getting the phone call that we needed to go to the hospital. Many employees will remember me yelling “fuck” and running out the door for the arrival of our son 30 days early. As our family has grown during this time of building Goodsmiths, so too has my appreciation for what it takes to have a partner in crime on the homefront.
Closing down a business is harder than starting one. The odds are constantly stacked against you while building. Closing it down, breaks your mold. You never want to give up, until you wake up that one day and realize its the only way to be happy again. The future is bright for everyone who has been involved in this journey and I couldn’t be more proud of the work we have done. We put right around $150,000 into the pockets of makers across the US — there aren’t a lot of people who can say they’ve done that with their startup on a shoestring budget.
My journey is taking me to the talented team at Dwolla. I am beyond excited to get started in my new role as Product Manager at Dwolla on Thursday this week. #timetobuild
(More details on the closure of Goodsmiths will be coming in the next few weeks on the Goodsmiths blog and will be communicated to shop owners during that time)
