The Adventures Of A Bad Startup #2: Dirt Rich, Filthy Poor
An incredible dive in the magical universe of a startup that methodically failed everything, narrated by its desperate founder which is doing the V2 and won’t let go, you hear me?
Talk about money, be funny
You got it, this week, to properly start these adventures in Fail Land, we’re gonna talk about money. I have to say, talking about money is a bit complicated in France, and particularly in the startup world. Having the reputation of a financially strong company is critical to attract talented partners, get your clients’ trust, and of course convince investors to, well, invest. But i know you’re here for the fact & figures, so i’m going to quit stalling and start telling:
Here’s the money story.
We founded Castr with our own savings, patiently gathered thanks to our beautiful other baby, Yodog production agency, as well as loose change from our close friends — about 50 k€ all in all. In french 10k is called a brick, and since i’ve already made the lousy drawings you’re about to discover we’ll stick with that. So, 5 bricks was pretty cool already, but i knew we weren’t going to do much with that.
We had to find more money. We didn’t have Peter Thiel or Andreessen phone numbers, so we went to the only people willing to drop us money on a simple idea, in a very competitive market, without any business plan whatsoever: friends, family and our sweet clients. That’s what we call “love money”: not a lot but it’s very nice, thank you.
Seeing our product at the time, we thought we would be able to gather around 10 or 20k.
We crafted a small deck explaining what Castr was, who the team was, with a production planning, etc. Note that at this stage, we didn’t even have a prototype, not even a screenshot of what the app would be eventually, nothing. But, surprise, everybody was interested. In a few weeks, 12 people agreed to fund the project. Instead of 10k€, we ended up with 100 000 more monies.
Aaaaallright.
At this very moment, you would think we said “what the fuck are we going to do with all this money?” — not at all. The mind of a startuper is made differently from those of mere mortals. The startuper knows EXACTLY what he is gonna do with his cash. He already has a masterplan, involving clever financing of his human resources, infrastructures, legal fees, security margins and the like. So as to smartly balance his capital during the different stages of his project.
Let me tell you how with blew everything.
The otherwise super-simple science of Cashburn.
This is what a truly wise startuper does — you guessed it, not me. He determines what’s called the “Cashburn Rate”: it’s the rate at which you spend your money. The concept is that you spend your capital progressively, so that you have the time to:
- Develop the project (at least a first version)
- Launch it
- Generate growth (users, for example)
- Convince investors — professionals this time — to fund what’s coming next
- Do the actual fundraising. It takes time, about 3 to 6 months.
This is how your bank account should look like:
Nice. A balanced rate, allowing you to work with a clear mind until your team produces the best possible project.
But that’s for entrepreneurs with a business background, or, you know, people with a brain. I just thought “OMG i’ve got so much money!”. So i could go big:
Add features in the app — check
Build a bigass team — check
Buy powerful computers — check
Business diners — check
3 law firms to manage legal — check
Business cards for everyone, 350g glossy & embossed, even for devs that don’t ever leave their office — check
“OMG i’ve got so much money!” — A lousy startuper, 2014
This is how our first 6 months went:
Ok, not good. Not only did we blew way more than we should have, the project wasn’t nearly finished yet. That’s the 90%-90% rule i’ve just invented, but we’ll talk about that another time.
This is getting obvious, i’m an amateur. I didn’t even audit my finances seriously. So after having burned almost 50k in 6 months, i wasn’t thinking “i have to cut spending right now or in 3 months we’re dead. What am i gonna tell my investors?”
No no no. I thought: “oh alright, i’ve got ONE HUNDRED THOUSAND MONIES LEFT everything’s FINE!”
What a douche.
Fast forward 6 more months:
Yeah, no surprises. At some point, naturally, the cold, hard truth hits you in the face like a brick (that same money brick). Money is really gone, a glance at your account instantly shows it’s been spent stupidly, there isn’t any kind of revenue at the foreseeable future… this is pure hell.
I’m not kidding, this is the hard part. You realize you have been acting like a fool, like a kid. It implies you’re not the visionary genius you thought you were, because visionary geniuses may have their head in the stars, but they also have their feet firmly on the ground, and you’re just floating. Take that, ego.
It’s also difficult because now you’ll have to explain to the talented people you work with that they will have to leave, and to those that trusted you that they shouldn’t have done so.
Still not finished: you finally get that thing every experienced entrepreneur said, “succeeding is failing”, because they all made this mistake or another at some point. Yeah, they were right, lesson learned. Nevertheless when someone comes up to you and say something like that, you kinda feel like the bride at a rainy wedding, being told that “it’s alright honey, rainy wedding, happy ma-OH SHUT UP BRENDA”
To conclude: expect a few weeks or months of deep anxiety, inability to sleep and a good knowledge of that crack in the ceiling over your bed. But eventually you get better, and you do what should have been done a long time ago: you cut costs. The prodigal son is dead, long live the cost-control psycho.
In the next weeks, i let go some of the developers, shut down a good portion of the server infrastructure, explained to the law firm we were going to scale down operations, and replaced the fancy food with greasy pizzas.
This is the situation a bit later:
We’re not dead. That’s a good thing.
Then again there’s still less and less money, and even if we were close to launch i still needed to find some fresh cash. Investors were out of the question without results, and friends were already squeezed out — poor fellas. Only one source of revenue was available: the team. After a whole year working together, it was (it’s still) a very complementary and competent team. And Yodog (the production company, remember) still has very good clients, particularly in big advertising agencies.
So we started doing side jobs in development. We quickly crafted a page explaining what we did, Castr Strike Team, and called our clients to tell them we were ready to help them on their digital projects. That’s the endgame. You launch a startup to change the world and you end up as a small digital agency.
Usually, this is when you start drifting away from the initial project’s vision, when your team’s interest starts fading as they work on meaningless advertising websites, and finally when you shut down the whole thing.
We hit rock bottom.
The message is clear: you played, you lost. And its true, there’s no point in dwelling on a project that doesn’t work, just leave it and move on. But in our case, we didn’t fail the project, we just lost our money. There’s no way we’ll stop before having properly failed. So we did the agency work.
Luckily, our clients are pretty cool. They trusted us and gave us a bunch of projects. Some of the were pretty interesting but more importantly they were short enough to leave us time to work on the main product.
This is were we are now:
We’ve been surviving for a year now with about 12 bucks. And you know what? It’s OK. Because we can continue our little adventure. We can keep doing stupid things. Proudly.
Let’s wrap this up, folks. Here’s this week’s lesson.
To remember — open your notebooks
- Having lots of monies do not mean you have lots of monies. Actually, the trick is very simple: just divide your starting capital by the time you need. In our case it would have been something like: 150 000 € / 24 months, about 6250 € / month. Looks ok, but no. You have to account for unexpected charges, marketing at launch, unforeseeable delays, etc. My advice is to lower the figure by at least 30%, just to be safe. So about 4000 € / month: not a lot of room for glossy business cards.
- The vast, vast majority of expenses are avoidable. But there’s a catch: anything that won’t cost you money will cost you time. Take a server at Amazon Web Services: reliable, instant, costly. Build your own, it’s free but it will eat precious hours — not necessarily yours — and you’ll have to maintain it. You have to balance what you will pay with your cash and what you will pay with your days.
- Don’t be alarmed by the amount of capital you have when you start, this is not critical. Some companies start with a millions dollars, others with a garage and Diet Coke. What’s important is the correlation between what you have and how much you need to spend to get your product (in its simplest possible version). If you have 3 dollars in your pocket but need to coin a huge chunk of tech before you can launch, then maybe it’s time to rethink your strategy: a simpler product? Just a prototype? Existing technologies? On the other hand, if you’re full of cash with a very simple product, then, for the love of the holy startup, don’t start spending just because you can !
That’s all for today! As promised, time for the culture corner, with a film a thought would be nice & chill but finally ended up being pure nightmare.
♩ ♫ Cultuuure corneeeer ♫ ♪
Before The Devil Knows You’re Dead — inexplicably translated to “7:58 That Saturday Morning” in French (7h58 ce samedi-là). A Sydney Lumet film; you may have seen 12 Angry Men or Dog Day Afternoon, pretty amazing movies. But this is old Sydney this time. He is 83 years old and this will be his last movie before he passes out in 2011. Expect a slower, more considerate piece, the last work of a man that has mastered his art since the 50's.
It’s the story of a failed robbery — at 7:58 that Saturday morning — that will progressively shatter the values, the roots, the family and the life of its perpetrators, two brothers desperate for a bit of money (i bet they’re startupers). The strength of the movie rests on them, and they are amazingly interpreted by Philip Seymour Hoffmann, as a phlegmatic and manipulating eldest, and Ethan Hawke as a candid and apprehensive youngest, pictured below playing trumpet.
The film is built on a peculiar temporal structure, starting with the robbery, moving backwards in time — with very, very kitsch transitions — to follow the motives and actions of each protagonist leading up to the dreaded Saturday morning, and then going forward to unveil their disastrous consequences. At any point, you can feeling the incredible experience and mastery of Sydney Lumet, taking all its time to build characters, humans, before mercilessly sending them to the pit. It’s pretty cool.
Cheers everyone.
Barth Picq
Hey don’t forget, this has been a bumpy road but we’re not dead yet. Get the latest info on social network or on the website. Here’s a link, free of charge, but full of French:
