How we lost Rs 15,00,000 in startup and shutdown before first anniversary
I thought I would make millions through my startup, but I failed miserably. I read shiny stories of Flipkart and Zomato, but nobody told me that 90% startups fail within two years of starting up, I failed in the first year.
Sometimes I feel being cheated but the fault was mine, I believed one side of the story.
Today, I am going to tell you the other side of the story, the secret of failure of first-time entrepreneurs.
It was April month of the year 2013 when I was getting uncomfortable in my office. It was a dull cubicle of an IT company in Gurgaon. I was pretending like fixing defects but actually wasting time on the internet. The thoughts of getting freedom from the boring job were taking over my mind. I was losing interest in my work. My co-workers and my manager were sensing that something is going wrong with me.
I was just returned from the US last month, and I told my manager, “Sir, I need a little break to set up my home and adjust again in India”. My baby was just 6-month-old at that time, and he was also having little trouble in adjusting to the Indian climate. I worked from home for some days to take care of my baby.
But my real problem was the unhappiness from my job.
Like everyone else, I was also thinking about leaving the job and building a big company but I have to admit that I did not have the courage.
I was in discussions with my good friend Amit (who happened to be my brother-in-law as well) regarding the startup but we were unsure about the product. He also had the similar story with his job. He was heading a team in a recruitment firm, working in night shifts to work with the US clients, and making less money than his expectations.
We were very comfortable working with each other so we decided to start a company and build a product. I saved a good money by living frugally on my US trip. I decided to put all my savings in my startup rather than buying a home (unlike many other US returned friends).
The first step we took was incorporating a private limited company, invested 5L each and divided equity equally. It was going to take about two months to get incorporation certificate, so we planned ahead with ideating the product, hiring and setting up the office.
We found a basement office in Gurgaon with monthly rent of 13,000 rupees. We spent another 100,000 rupees on the renovation. We bought furniture, air conditioner, inverter, and refrigerator. We were having a good feeling of owning an office.
We wanted to solve the problem related to schools because education is a billion dollar industry. The second big expense on parents wallet is child’s education. We thought that we can build any product for schools and make big profits.
After long discussions, we came up with the idea of ERP for schools. Online software for schools to manage everything from fees, inventory, communication with parents, … bla. bla.. tons of features..
Another important step was to hire a team. I was confident that we will hire people easily. We had everything for building a good team; an office, money in bank account, hiring policy and most importantly a co-founder with recruitment experience of more than ten years.
We hired one person who was almost a fresher, and he was open to learn new technologies for our cloud-based product. We needed one senior person to own the product and handle all development work because we were still into full-time jobs.
We started interviewing people.
My co-founder analyzed a pile of resumes since he had access to all the major recruitment portals. We filtered out best out of best people and interviewed them in cafe’s or restaurants because our office was under renovation.
We interviewed many people for product development/design but no one was ready to join a startup like us.
We were shocked!!
My co-founder said, “I could have hired ten people for any other company by this time, I am not sure why people are not joining us.” I said in tension, “Maybe they will join after seeing our new office.”
Since we were from the corporate background, we spent few days on drafting new hiring policy. We introduced company incentives based on revenue and individual performance bonus along with basic salary.
Our office was ready in June. We moved to our new office and resumed our hiring process. Someone advised me to hire initial teams from the personal network, but none of my friends was having the matching profile. I asked all my friends to give me references of his friends who are working in PHP development or website frontend design.
I got contact of a person who was working in Chandigarh, and he was willing to work with a startup in Gurgaon. We were impressed with his technical capabilities but doubtful about his managerial & leadership skills. We thought of giving a try (anyways, no one else was ready to join us). He was a costly hire. We offered him 60,000 rupees per month plus company incentives if we made any revenue by the end of the year.
We were feeling lucky with two developers. We desperately needed one designer so that our work can be started. I architect the product and developers started coding without waiting for the front-end design.
It was an exciting time. Our product was taking a shape. The co-founders were spending hours on whiteboard discussing the features and developers were busy in coding. We managed to hire a designer on 25,000 rupees per month, but we compromised a lot with his skillset & attitude. We were feeling the heat of startup hiring.
We wanted to complete the product as soon as possible so that we can start selling.
Then we started facing unexpected problems. You know, startups are full of uncertainty and surprises.
Our junior developer was not performing up to our expectations so we had to ask him to leave. With a team of just four people, we completed the first version of our product.
We were confident that our product will sell like hot cakes once it will hit the market. We included all the features of top ERP products in the market to beat the competitors. However, we were not happy with the front end design and were continuously looking for a better designer.
Our first potential client (a known school principle) appreciated our idea & demo but put us on hold till she hear from higher management. We gladly sent her the sales material and thought we will deploy software in few months.
By this time (6 months) the cost of product development was: Company Incorporation: 30,000 Office Renovation: 120,000 AC/Fridge/Inverter: 40,000 7 month Rent: 91,000 Salaries: 3,60,000 + 1,00,000 + 65,000 Travel, Food, Marketing Material and Others: 100,000 — — — — — - Total: 9,56,000 — — — — — -
We had full confidence in our software but to get more sales we had to leave our jobs. We were ready to take the risk. We put our resignations. We decided to move our development office to Chandigarh where I will manage operations and my co-founder will handle sales by staying at Gurgaon.
We benefited with our step.
- Now our senior developer was spending more time into development than traveling from Gurgaon-Chandigarh-Gurgaon.
- We saved money on office rental.
- I saved money on my living expenses
Another surprise, our designer ran away with the laptop.
We tracked him and recovered the laptop, but we lost our only designer. I took the challenge and learned basics of web designing. We revamped the entire design in one month. The product came out nicely.
We started reaching out to schools and got the bitter taste of selling to schools.
None of the co-founders were from the sales background.
- We struggled for getting the appointments.
- We got exhausted calling 10–12 schools without any results
- Crossing the gatekeeper was a big hurdle
- We found out that principals did not have decision power
- The decision makers were never available in the school
- Most of schools admins do not check/respond to emails
- Nothing happens for 2–3 months when selling to schools
We hired one person from Ahmedabad for sales training and spent about 30K. Along with training, he introduced us with a few startup guys in Gurgaon.
We were unable to sell our product even with more features and less cost as compared to competitors. We started crying by putting our heads on each other’s shoulders.
We found few customers by leveraging references, but revenue was far away. My co-founder knew customers better than me since he was doing the sales. He said that few big schools wanted to buy our product if we could implement few more features.
I had a different opinion. I argued that we have enough features for any school to get started and there is something missing in the sales process. I thought we should focus on small to medium schools even if we earn less money. Conflicts between co-founders started rising day by day.
We were running out of money so we invested more personal money into our startup. We hired a sales person from a big competitor (Our big mistake).
We felt we found a silver bullet because he gave us access to competitors product and told us the secrets of doing sales to schools. We thought that “Ache din anne wale hain” (Good days are about to come)
He worked with us for a month but could not crack even a single sale. We wondered what the f*ck was happening!! Actually he was able to sell in his previous company because of the brand name. He never faced the heat of an unknown startup.
We needed more money to survive. My co-founder was busy in chasing big schools who can pay good money in advance. He also started establishing contacts with political and influential people to win the deals.
I learned a lot about education industry but we failed to implement the right things.
We, the co-founders were on different paths.
I was reading a lot of startup blogs and books. I started believing in lean startup methodologies and doing more with less resources. Unfortunately, my co-founder was still building our startup like a big corporate (alliances with other companies & politicians, hiring sales team for doing the shitty work, maintaining hierarchy in the team).
I proposed to reduce our expenses.
- Bring our only developer from cash to equity (up to 20%).
- Stop chasing big schools and focus on small schools (to reduce sales conversion time).
- Target schools on city outskirts those are relatively easy to win.
- Fire the sales guy and spend all our time in sales (including the tech developer)
But our vision and thoughts were not aligned. I knew that our relationship will be spoiled if we continued working together. We had long (and bitter) discussions on keeping the ownership and equity but nothing was getting settled. At last, my co-founder took over the company and promised to return my cash if the company made any profits in the future.
Expenses till end (11 months) Initial 6 months: 9,56,000 Salaries: 3,00,000 Sales Training: 30,000 Rent: 56,000 Travel, Marketing and Others: 200,000 — — — — — — — Total: 15,42,000 — — — — — — —
By now we had wasted more than 15,00,000 rupees on a product that nobody wanted to purchase.
After few more weeks of struggle, my co-founder had to join a job. THE END of the startup, SchoolGennie.
Here are seven reasons of our failure, if you wish to learn from my failure.
I started wandering for an another chance in the startup world. It was a great learning experience and my introduction to the startup thing.
It was the failure of my startup but not me. I had some of the great lessons of my life. Let me share some of those with you.
1. Know your customer before building your product
The point should be clear by now. We built our product based on the assumptions and feature lists of our competitors. We should have talked to our customers before building our product.
We should have convinced two or three schools of different size to test our product. In exchange, we should have provided a life-time free product and support for early adopter schools. We could have offered unlimited free SMS or something similar to save instant money.
2. Know where to spend money and where to avoid
We spent most of the money on office infrastructure and employee salaries. We could have avoided 80% of expenses by working from home and hiring employees on survival salary + ESOPs.
We were avoiding expenses on the professional design of sales material, marketing tools, and paid consultancy. We should have spent money on the things that translate into more sales or leads.
Now it seems no brainer but still most of first-time entrepreneurs are repeating our mistakes. If the primary source of your customer acquisition is your website then you should spend money on content marketing, sales deck, and sales pages. If you acquire your customers offline then spend money on sales brochures and other printed material.
3. Get your hands dirty with the code, even if you are a non-techy
Non-technical co-founders remain clueless of technical know-hows. They should not behave like a foreign client who just assigns work and expect to be completed by the technical team.
That did not work in my startup and it will not work in your startup.
I advise you to start coding even if you are non-technical. There might be some exceptions (that we can discuss in later articles) but a non-tech co-founder can take better decisions if he knew how things get implemented.
If you do not have a tech co-founder and building a software product, then there is no exception. Joel, co-founder of Buffer share why non-tech co-founders must learn coding.
4. Do Sales, even if you are from non-sales background
I was afraid of doing sales because I thought my co-founder is better at communication and public speaking. We were unable to close sales despite his good communication and HR background. One main reason was that we were not talking about the pain points of the customer but just trying to sell our solution.
The sales process is not just about good public speaking but addressing the concerns of the customer.
When I moved to Chandigarh, I tried sales in the local schools. I visited about 50 schools in one month and closed three deals. I learned not only the sales process but also got acquainted with customer’s real issues. You can build a great product with a better understanding of customer’s pain areas.
Disclaimer: I am not suggesting that all co-founders should be doing all the things at all the time. NO. They should be owners of their areas but at the same time they should have first-hand experience of all kind of jobs in a startup.
5. Take decision and trust your intuition
We became bad at taking firm decisions. We started postponing tough decisions like spending budget of sales, hiring or firing an employee, offering equity to the employees, chasing big schools or small schools, offering a free solution or charge premium, and at last how to separate our ways.
Since the closure of my first venture, I started taking firm decisions based on the available information at that time. You can never have 100% data available for taking any decision. You should be smart enough to derive a conclusion with 60–70% information and fill the gap with your intuition.
Trust me, I always felt happiness after taking a decision and sticking with it until I find a solid evidence to change my decision. That is how things evolve. If you are confused with your decision then you will not be able to execute with 100% confidence.
6. Don’t stop learning
Alarm bell rings in my ears when someone starts behaving like an expert and refuse to learn new things. You are doomed to fail if you stop learning.
There are so many sources of my learning — I love to read books/blogs, I learn from my juniors/seniors, I learn from competitors/customers/vendors, and I don’t hesitate to learn from my three-year-old kid.
The biggest source of my learning is by experimenting with my startup and life.
7. Money is just a by-product of a startup
I learned it very late, but some of you might have realized by now. We entrepreneurs start a venture to solve a customer’s problem (or to explore our passion) and money is just fuel for our startup vehicle.
If you focus on money then you will become short sighted. You can make money in short-term but you will lose strength in the long term.
Focus on solving problems and keep your customers happy. The money will follow.
8. Be Generous
The most important lesson from my entrepreneurial journey — Be Generous, Be Polite, Be a Giver.
I always remember a beautiful line –
“Be nice with everyone when you go higher in your life because same people will meet you when you come down”
First give something to the world then expect something in return. It will be even better if you just give without any expectation. Help people who can not help you at this time, that is the real gesture of generosity.
This was a story of my first startup, but I feel most of first-time entrepreneurs are on a similar path. There is another story of how I joined as co-founder at my second startup PocketScience and why we stopped working even when investors were ready to put money.
I will share that story soon. For now, just ask your questions in the comments. I promise I will reply to each comment.
Originally published at startupkarma.co.