Lessons from Starting (and Ending) a Startup
Five takeaways from my experience with Zocha
I’m Mitch Patin, engineer turned product manager, and founder of Zocha. I left my role as a Product Manager at Bolt in September of 2019 to start my own company.
Starting turned out to be the easy part. After 9 months of incredibly hard work, I’ve decided shut down the company. This was an extremely difficult decision given the time, money, and effort invested. After much reflection, though, I don’t see a viable path forward for the business, especially given the current climate. I wanted to share a few takeaways for anyone considering a similar path. These thoughts are most applicable for startups selling to businesses, and while they’ve been said before, I believe they are worth articulating from a new perspective.
Note: While I was the sole “founder” of Zocha, I reference “we” below to include others (contractors, mentors, etc.) who were involved in helping build the product and make decisions.
The Idea
The idea behind Zocha was to enable small and medium size businesses (SMBs) to collect payment in a simple, secure, and cost-effective manner. Based on conversations with merchants at Bolt and personal experience with small businesses, I saw firsthand the challenges and expenses associated with collecting payment from other businesses. While consumers have seen a plethora of new payment options in recent years, business-to-business (B2B) payments have not seen the same innovation (with over 50% of B2B payments in the US still occurring via paper check).
We started by building a Venmo-like experience for B2B payments that leveraged the ACH network. We set out to provide businesses a simple, digital payment solution that didn’t require the expensive processing fees associated with credit cards. Ultimately, I believe we built a product that accomplished this goal and provided users a delightful experience. Unfortunately these are just two small components to building a viable startup.
Below, I’ll outline five lessons I learned about other challenges to creating a successful business.
#1: Build a product that will generate revenue today, not in the future.
We charged a flat transaction fee in hopes of attracting a large number of vendors and growing our customer base quickly. Since we were providing an alternative to paper checks, the fee needed to be fairly minimal. While checks have low direct costs (checkbooks, envelopes, stamps), the indirect costs can add up (manual reconciliation, bounced check fees, check fraud), so it was reasonable to expect businesses to cover a small fee for this efficiency and security. We planned to generate significant revenue in the future by offering additional financial services to our network of vendors and clients.
The problem with this multi-phase plan was the amount of time it would take for this to actually come to fruition. Payments companies, in general, have to operate at large scale before they can see any meaningful returns. For us, not only would this be true, but we would then need to build and validate additional financial services (point-of-purchase lending, guaranteed ACH, etc.) in hopes of generating significant revenue.
While multi-phase plans can be extremely impactful, the initial product should be able to generate sustainable revenue.
#2: The growth strategy should be a core tenet of the company, not an afterthought.
Initially, I naïvely considered the building of the product to be the most challenging part of starting a successful tech company. I now realize that while building a product is a requirement, it is just one small component of what is needed. A more nuanced challenge is devising a unique, scalable growth strategy.
With Zocha, we optimistically hoped to generate a network effect. The plan was to focus on acquiring vendors that sold to other businesses. These vendors would have dozens (hopefully hundreds) of business clients from whom they collected payment. Each of these clients would be exposed to the product and could potentially be converted to paying customers themselves in transactions where they were the vendor. In retrospect, I believe the network effect could’ve helped with growth; however, we didn’t focus enough on our initial distribution strategy to get a meaningful number of vendors on the platform.
While network effects can be very powerful, a creative and compelling growth strategy is vital to generating an early customer base.
#3: If you’re building a two-sided product, make sure there is a clear value add for both sides.
While both vendors and clients agree that checks are an annoyance, the “hair-on-fire” problem does not exist on both sides of the payment. For vendors, any delay in receivables introduces cash flow concerns. They want their money ASAP! Conversely, clients are incentivized to do anything they can to delay payment. “The person in charge of payables forgot to cut a check to the vendor? Oh well, we’ll put it in the mail tomorrow.” The longer a payer delays, the longer the cash stays in their account.
While this is basic accounting, and we knew these facts going in, we chose to press forward with the belief that businesses on both sides of the equation could benefit from a more efficient, streamlined payment experience. These competing incentives proved to be a more challenging than we initially anticipated.
Consider all potential users of the service, not just direct customers. It must be enticing and provide obvious value to all parties expected to engage with the platform.
#4: Focus on building a strong business case, then meet with VCs.
We did not raise any money from investors. My perspective was that we should get a product in the market and prove its viability before dedicating significant effort towards fundraising. While I don’t think this is necessarily a bad approach, we should have also avoided the costs of incorporation, domain name purchase, legal counsel, etc. until we proved that viability to ourselves.
I spent too much time meeting with potential future investors even though we weren’t looking for immediate investment. I thought it would be worthwhile to develop relationships before actively fundraising. Most of the conversations went well, but generally there wasn’t much benefit for either side. While I did develop some relationships through these meetings, I believe that staying focused on the product and customer growth would’ve been more impactful.
A solid business with obvious growth potential will speak far louder to investors than any newly formed relationship.
#5: Find a partner and enjoy the ride.
I was the sole founder for this endeavor. While there were many others involved (contractors, mentors, friends, family), at the end of the day it all came down to me. This was empowering in some cases and allowed for quick decisions and decisive action; however, I missed out on the opportunity for true collaboration and cooperation.
The highs were high and the lows were low. When I got an interview with YCombinator, I was absolutely ecstatic. When a huge lead turned us down, I was disheartened. Overall, I believe it would’ve been better to have a partner, or two, to both celebrate and commiserate with throughout the journey.
Prioritize finding the right co-founder(s) as early as possible. Be thoughtful about this important relationship but don’t expect the right person to show up later down the line.
Conclusion
All of these lessons are easy to discount in the moment. Part of creating an innovative company is doing things differently, right? While I explored opportunities to leverage what we created, potentially pivoting towards a new strategy, I ultimately decided that it was not in the cards at this time.
A final, somewhat personal, takeaway is that “the grass is always greener on the other side.” For years, I dreamed of starting a company, owning large strategy decisions, growing an organization, and all of the things associated with being a founder. Throughout this journey I’ve realized how much stress and emotion are associated with these responsibilities. I still get excited about these opportunities, but I greatly missed having a collaborative team and supportive organization around me.
What’s Next?
I’m not exactly sure. I’m currently part of the On Deck Fellowship and have been discussing a few opportunities to join an early project. I’m also considering product management roles at startups in SF. I’ve been thinking a lot about the future of work in a post-COVID society. This massive WFH experiment will have significant lasting effects, so I’d love to be part of a team tackling these new challenges.
Feel free to reach out via LinkedIn or Twitter if you’d like to connect.
Thank You!
Thanks to everyone in my life for encouraging me throughout this journey. I would not have had the courage to take this leap without the immense support of my friends and family!
