Lessons from startup #1
Pretty much a transcript from my post-mortem on June 23rd, 2015 for Digital Rochester.
In 2012 I partnered with a college roommate and close-friend to try to revive a business he had started in 2009 with another college friend. The business was in the study abroad space. They made student’s lives a lot easier when they studied abroad. I had helped them out along the way here and there when it furthered my academic interests. But the business had sort of sputtered to an end in late 2011. Earlier that year we had a conversation about how some new advances in technology, like Task Rabbit and Uber, might allow us to do something cool in the local discovery space. A sort of “Book a Local” experience. When the existing business dried up, it seemed like the perfect time to try something new. My friend moved to Chicago and my wife and I put him up in our spare bedroom as we work-shopped the idea of trying to build a tech company.
We decided there was enough upside potential to give it a go. It was pretty easy for me because I was working as a contractor at that point and, as long as I could put hours into paid client work, I could work on this sort of stuff on the side. We detailed out an incredibly complicated workflow of a new product that would allow travelers to connect with locals on the ground. It also had a pretty sweet marketplace feature in it where travelers could find cool things to do that our locals would host.
We recruited a local Chicago dev shop, Launchpad Lab, to build our first product. We were totally rookies! We had grand visions for a website that did a million things really well and couldn’t understand why it took so long to build them. The Launchpad guys were awesome but we treated them like shit. In our defense, we didn’t know better, we didn’t have the money to treat them right, and we didn’t know what we wanted to build. The whole thing was an underfunded experiment.
But some good came out of it. We discovered that people did book a few things here and there. We discovered that we had a real supply-side issue with creating things for travelers to buy. We discovered refunds suck, especially when you’ve already spent the money someone paid you. But, most importantly, we discovered that it wasn’t going to work on web.
Travelers didn’t want to go back to their room, open their laptop, and chat with locals through a browser. The experience had to be mobile and it had to be instant.
With some of the early successes we had gotten the word out about who we were and what we were up to. We had an internal discussion about locations and came to the conclusion that a travel startup with one location just isn’t very impressive. We needed at least a couple high-profile cities in our quiver. We started to recruit from our own networks, people that we knew would be awesome at evangelizing the word in other cities. We worked through a lot of people and places and came up with six killer locations.
Chicago, New York City, Paris, Barcelona, Berlin and Mexico City.
These cities were awesome and the people we had found were once-in-a-lifetime catches. I would wake up some nights in awe that we had them on our side. I felt an intense pride for them and what they were choosing to be a part of.
We brought them on in the beginning as per-hour team leaders, a sort of point person in each city. Their goal was pretty simple:
“Find the very best people in each of the six cities and nurture them as a team. We think 40–50 will be enough.”
In January of 2013 we got lucky. We got hooked into an international event planner that was planning an event for a corporate client at The Louvre in Paris. He needed help getting “local” pricing for the event instead of the inflated foreigner pricing. We just happened to have a strong team of 5–10 people in Paris by that time and offered to help sourcing things. We ended up handling all of the entertainment and decor, design, sourcing and logistics. All of a sudden we were event planners.
We did most of the work from an abandoned office space on Green Street in Greektown. Sitting at a couple of desks we had snagged when GrubHub moved to a big new office downtown and got new furniture. We would sit there for hours. Just two guys, two laptops and coffees in this old beatup space that no one wanted, planning an event that would cost well over $500,000 when it was all said and done. We would figure out that we needed new pricing for something new and send it over to our guy in Paris at the end of our workday. He’d get it when he woke up and go out, source it for us, and come back with pricing that we’d put into our proposal. We did this for a good three months.
We killed it. Our team did amazing. We ended up flying all of the other team leaders to Paris to help work the event. We rented a 10-person apartment in Le Marais for a week and a half.
With some cash in the bank from our “little” side project, we knew we had to start building a mobile experience and quickly.
We found a full-stack developer that had been helping us as a contractor and talked to him about coming on full-time. This was a big deal for us. We’d never had someone on the team that could actually build things. We’d always had to scope things out and then shop them around to different dev shops. But in Chicago at the time, these guys did not come cheap. After some negotiation he agreed and we got to work on a mobile app.
We were so excited. We could see it all coming together.
We started bringing our team leaders in-house and full-time. The morale was building as the new employees now had the time to devote to finding and nurturing each of their own little communities. It was interesting to see how each of these communities began to take on the different personality of its leader and of its city.
NYC was edgy, all-out and amazingly fun. Chicago was storied, strong and friendly. Berlin was weird but in an amazingly comfortable way. Mexico City was flashy and brimming with untapped potential.
By the summer of 2013 each of the teams had a community of about 35 volunteer locals. They would answer the questions of travelers in real-time, without bias, and based on their own experience and knowledge of the city. The potential of that network is still amazingly exciting.
We launched an iPhone app in early May and began to see some early traction. We had tapped into a number of different events, hotels, tourism agencies to drive travelers to our product.
We got some good early press. Our advisor worked at Mother New York and got a great article about us in their magazine, ANIMAL. We didn’t even know it was coming. The reporter just used the service, tried to beat our system, and actually had a great time trying us out.
The ANIMAL article led to a feature in The Atlantic — Cities, which then got picked up by The Atlantic — Wire and then The Atlantic itself. With The Atlantic article crushing it, The NYTimes came calling. As founders, we were doing all we could to keep the business going, keep the team happy and deal with all the press inquiries.
We had done all of this without really figuring out how we wanted to make money or even raising a significant amount. And it started to show.
We wanted to build in the ability to “tip a local” for their advice but we had never had the time to devote our CTO to actually building it. Without any money coming in we had started to miss payroll for our CTO. With each missed check, the more he checked out (and I don’t blame him).
The initial boom of press and hype had given way to the reality of slower than expected growth by the summer months. Everybody was running on empty. We had been selling the “we’ll raise more money” or “just until we can get this next feature out” line for weeks. Some months we we’re lucky if we got $1000 to each of our team leaders. Some of them started to check out as we couldn’t keep food on their table and they had to start taking on side jobs.
Our burn rate was killing us.
We had been trying to raise some cash around Chicago without a lot of luck. We were missing the one really important element to any business, especially when your trying to raise Midwest money. Revenue.
We had a bunch of contacts in LA and SF and had a sort of “grass is always greener” mentality that told us:
It must be easier to raise money on the west coast.
An old boss of mine had just moved to LA and needed her car driven out to her. We told her we’d drive it out and we figured that would give us the opportunity to spend some time in LA and the SF trying to raise the money we desperately needed.
We headed out in August. We left Chicago after breakfast at Lou Mitchell’s and drove the entire Route 66. We arrived in Santa Monica about a week later. For the next two weeks we did the rounds. We had phone calls with A16z, Shasta and Greylock; lunches with executives from WME and Weinstein; dinners with former GM and Facebook executives; lived with a VC in Santa Monica for a couple of days, lived in a carshop in the Mission for a week, partied with other startups, hitchhiked through the Central Valley, and snuck into Tech Crunch Disrupt without paying.
The most vivid memory I have is of a dinner we had with a former GM guy at a Thai place in the Mission. It was all set up. We had a warm intro. He had lots of money. He drove all the way up from the Valley to have dinner with us and hear us out. He loved the concept. He loved the applications. We really needed his money. Any of it.
But we couldn't close the deal. The growth story, the revenue model, the opportunity for growth just weren't there.
I can remember feeling absolutely spent. The road, the grind and the pressure had beaten me down.
This is when I really realized we were going down.
We hung around SF for a couple more days partying and schmoozing and left to go back to Chicago. I don’t remember exactly but I feel like it was raining when we left the Oakland airport.
When I got back to Chicago I knew I needed some time off. My wife and I were so stressed out about paying the bills and I had been gone for two weeks. The emails and phone calls just wouldn’t stop. We just needed a break.
I called in the next day. “I’m taking the next two weeks off. Only call me if you really need me.”
I could see in the emails and online conversations that things started to unravel. A couple of team leaders were completely MIA as everyone else clawed at anything that could keep up the appearance of momentum.
And then it happened.
September 18, 2013
I think it was my second or third day back from my two weeks off. I woke up to a flurry of emails and phone calls.
“Our app doesn't work.”
Apple had released its latest operating system, iOS 7, and our app was not compatible. Not just incompatible. NOT COMPATIBLE IN ANY WAY. If you tried to open our app you would see the splash screen and then, boom, it would crash.
It’s not that we didn’t know it was coming. Apple had been sending us emails about it for months. It’s just that we couldn’t fix it and I had no idea it would be a hard stop. I couldn’t pay our CTO, who had now returned to contract-only work, to fix it. He’d come on as a co-founder under the assumption we actually had a plan to be able to pay him for his work and time. We’d brought him on under the assumption he knew we needed his time and work to go get money.
That’s what catastrophic miscommunication looks like.
I had nothing left to pay our employees, our contractors, our vendors or ourselves and the one thing that we had that could eventually make us money just didn’t exist anymore.
We had breakfast a couple days later. We had to tell everyone that we couldn’t pay them anymore or even pay them what we owed them.
A couple weeks later I decided to get a temp job to try to pay the bills and my friend went back to the East Coast. It was over.
Even now, writing this, there is so much guilt and sadness I feel. We let so many people down. Friends, colleagues, family, investors, ourselves.
I went to my new job everyday, hating the fact that it hadn’t worked and hating the fact that I had to go sell ads in a magazine for $10/hr. I’d lay awake at night thinking about doing it differently. Thinking about how we could have made it. Thinking about what we should have done.
I would walk the 3 miles home from work instead of taking the train so that I could think about it.
I was still convinced that it could be done. We just had to find a way to make money from day one and we needed an app that worked.
I chatted every once in a while with our advisors about the situation and what I thought we needed to make one more go at it. I figured we really just needed an HTML web app that was responsive enough to mimic native to give ourselves a chance at a multi-platform system that could connect people. We’d need to make money and people had always sort of thought of us as a concierge service. What if we played into that? Embraced it.
We could sell the service to hotels that didn’t have a concierge or couldn’t keep a concierge on 24/7. We could crowd-source the concierge aspect of it from our volunteer locals who’d sort of been in a painful/painless purgatory for the past couple months.
I pitched the idea to a couple other people who thought it might work. I had lunch with an advisor who connected me to a friend of his who had an off-shore dev shop. For about $8K we could rebuild everything. It’d be responsive web with a native app wrapper but it’d look decent and it would work OK. I had to beg my parents to give me money to help restart it. I just couldn’t walk away now that there was hope this thing could live again.
By mid-January we had started development and finished our first version in February. We hit the streets, everyday we’d wake up and got to the hotels, pitching our service to the General Managers. Sometimes we’d sit in the lobby for hours just waiting for the GM to walk by.
We got our first customer. And our second. And third.
We had rebuilt it from nothing.
I eventually sold my stake in the company in January 2015. When the deal was done, I was gone, but without the guilt and remorse I felt the winter before. Without the sadness of letting people down. I knew that I had taken a dead company with no pulse and revived it into something that had value. Something that could thrive. Something that could succeed.
And now it was time to do it again.
Beware of silver bullets
While progress and feature development are essential pieces of growing a business I spent so much time hoping that the next thing we were building would be the one that made it all work and I spent way too much time trying to convince other people that was true. I wish I’d built something that sort of worked and then driven our team to make it 5-10% better every week instead of a huge project that might make it 300% better 6 months from now.
Beware of “we’ll just raise more $$$”
Watch your cash-flow like a hawk. In a startup you’ll need to take risks but a stupid risk to take is to spend money, especially someone else’s, if you don’t have it yet. And its even more stupid to think you can refill the coffers with more investor money. Raising money is a hope and a dream, not a reality until the check is in the bank.
Beware of ignoring the data
Track everything and when the data tells you something you don’t like, don't ignore it. Numbers don’t lie no matter how much spin you put on it.
The glamour of entrepreneurship and “why you start”
I got into tech startups because I like to build things. But I stayed in it because it was really fun and people think you’re important. They’ll take meetings with you. They’ll take you to lunch. They’ll think your life is really great. But those are not reasons to start a startup.
Don’t confuse the glamour of startups with your mission to solve a problem and build something around it.