Part 1: Reality Check
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“You took some funding, and you didn’t make it to the next milestone. That’s what failed startups look like”
It was late on a gloomy Saturday afternoon in Mountain View, and we were doing a walk’n’talk ‘office hours’ session with Paul Graham - "PG" - on the street outside the Y Combinator office.
“What do you have to show for the funding you’ve taken so far?”
I tried to explain. “We felt we needed to build our own technology platform for flight search, because nothing already existed to support the product we were trying to build. So, basically we spent all the money on back-end engineering.”
“Well that sure was a mistake,” he huffed.
“How do you know your product is something people want?” The pg-bot had engaged.
It was hard to explain.
It was the way people’s eyes lit up as they exclaimed, “That’s exactly what I’ve been wanting for years!” when we talked about Adioso.
It was the emails people used to send us, thanking us for building it, and calling it “amazing”.
It was Melina Chan, a Melbourne expat who’d moved to Battambang, Cambodia to found a social enterprise. The first time I met her, she expressed with visible emotion, just how much easier we’d made her life, and how much more trustworthy Adioso was compared with all the other travel search sites.
More recently, it was the number of people, many of whom seemed seriously talented, who’d responded to our recent job listings, telling us how much our concept excited them.
“Surely that’ll impress investors,” I’d thought. “Everyone keeps talking about how hard it is to find good people. That’s the easiest part for us.”
“You need to have a number going up, or some deep insight you’ve discovered,” said PG. “Anything. Do you have any number at all that’s increasing?”
Sigh. This was a sore point for me. In the 18 months after our Y Combinator stint in Feb 2009, our traffic had been increasing steadily. In September 2010, when after an eight-month build we activated our new version, then launched with coverage on TechCrunch and LifeHacker, our monthly traffic doubled. It had stayed eerily flat at that level for the six months since.
“Our email list is growing at 10 percent a day,” I replied.
“10 percent a day? That’s huge!” It was the first time he’d sounded optimistic.
“Yeah. Well, 10-a-day, but it’s about a hundred total,” I replied.
“A constant 10-a-day? That’s terrible! It’s a declining growth rate!”
It was the middle weekend of our 12-day trip to the Bay Area. Before the trip, we had about two to three months’ cash left in the bank. After the cost of the trip, it probably wasn’t much more than one.
We’d already tapped the Melbourne angel-investor community to try and pull together enough to get us through another couple of months or at least give us time to work on a proper Silicon Valley raise. The response was, “Not at $5M valuation, that’s crazy Silicon Valley talk.”
We thought we could justify it. A year earlier we’d raised $270K at a $3M valuation. Not a big raise, but right for us, we felt. Particularly given how easily it came to us. We assumed we’d be able to get more whenever we needed it.
12 months on, $5M seemed like a reasonable step up. We’d written so much code and learned so much important stuff since then! “If you think you can get that valuation in Silicon Valley,” one politely-interested prospective investor had said, “Then you should just head over to Silicon Valley.” It was partly in defiance and partly out of a desperate need for the kind of guidance or inspiration you can only really get from the Y Combinator world that we did.
“OK...” PG sighed, in that way that’s so familiar to any founder of a struggling YC-backed company. “You’re just gonna have to go away and figure out a way to get a number going up. Fast. Do it from here, or go back to Australia then come back when you’re ready. But until you’ve got a major discovery to show, or some serious growth, I can’t recommend you to investors”.
The three of us piled back into the hire car. My co-founder Fenn in the passenger seat; Ned - a friend from Melbourne who’d been helping us out with marketing and was in town en route to South by Southwest - in the back. We were all pretty silent as we drove off. Silent, apart from Fenn intermittently gasping, “Stop sign!” It was my first day driving on US roads. And it was fully dark by now. Staying on the right side of the road was enough of an effort. Particularly now.
Fenn tried to lighten things up. “Who cares if PG says we can’t raise. It’s just one opinion. Those VCs we met with last week seemed pretty interested.”
“They’re always nice to you”, I scoffed back. These days I didn’t have the fiery temper I used to have, but I still needed to vent a little. I wasn’t angry. I couldn’t be angry at Fenn. No one ever can ever be angry at Fenn. And Ned was mostly an innocent bystander. It wasn’t his fault. It wasn’t anyone’s fault. Well, perhaps mine. Fault? Responsibility? Due to my deficiencies? It was certainly the burden I carried.
We headed for University Ave, Palo Alto. It’s considered by many as the main street of Silicon Valley. It’s home to the Apple Store that was Steve Jobs’ local. It’s where Google and Facebook both had their first proper offices, and where it’s common to spot Valley celebrities just out for a coffee or a frozen yogurt.
If there was ever a time when I’d felt worthy of being on this street, now was not it.
We found a just-affordable-enough-looking Thai restaurant. Ned took care of ordering. I stared at the table, turning everything over in my head. After a couple of minutes I gave a big sigh that turned into a laugh as I said, “OK, now what the fuck do we do?”
I don’t remember much more from that dinner. It was March 2011; fourteen months prior to first writing this post. What I remember is that by the time we finished dinner and got back in the car for the drive back to San Francisco, I was spent. I didn’t want to do any more thinking. I just needed to listen to some happy, familiar tunes to remind me of happier times and familiar places. Ned dropped into the Apple Store to grab a car radio adaptor.
Before seeing PG, the belief was that somehow we’d figure out how we could paint a good enough picture to get investors interested, raise a round at terms we were happy with, and get back on with the job of building the company as we’d been doing before. It’d be a close call, and it’d be painful and probably undignified, but somehow we’d make it happen, like we always had in the past.
PG had opened the floodgates on the dissonant reality that nothing we’d done to grow our traffic in the past six months had made a jot of difference, and, until we had some fireworks to point at, no investor was going to touch us. I’d been working hard to resist it for a while, but there was now no avoiding the fact that all my expectations and plans for the next few months - possibly longer - now had to be rewritten.
This is what PG is for. He’s the little boy in that story The Emperor’s New Clothes. He says those things that no one else is game to tell you, but that you so desperately need to hear. This is what we’d missed out on by living back in Melbourne rather than here in Silicon Valley for the past two years.
Sunday was another cold and rainy March day in San Francisco. We were meeting with the founders of a major travel website in Europe. They just happened to be in town at the same time as us. It was their first visit to Silicon Valley. We met them at the Hi Dive Bar on the pier where Bryant St meets the Embarcadero. It was a humble venue, but they were humble, friendly guys. We all got along really well.
Despite their 10-year history, VC-backing and huge success in Europe, they seemed somewhat wide-eyed and innocent about the ways of the Valley. Maybe it was just that they weren’t as downtrodden and wrung out as ourselves and many of the founders we knew.
Any gathering of travel-tech company founders quickly develops the atmosphere of a self-help meeting. “A trillion datapoints,” said the engineer of the pair. “That’s what you need to cache if you’re going to index every flight combination in the world.” It was a big number, but not hugely surprising to us. We’d built a platform that could handle about 1% of the world’s flights - just the easy, low-cost airlines - as individual one-way segments, but attempts to scale it beyond that had so far fallen short.
As we’d suspected, the catchup wasn’t merely social. They had big ambitions to expand globally. They were impressed with what we’d achieved with so little. We’d been able to do things they’d long wished they could do. And they knew very well, just how hard it is for a small travel startup to survive on its own. They’d already acquired a few startups.
They shrewdly dropped all the tyre-kicking questions about how much we’d raised, how much we’d given away, how things were progressing with our next raising. They asked us if we’d be open to an acquisition offer. We agreed to think it over and try to catch up again later in the week.
We hadn’t started Adioso with a view to taking a quick exit. It wasn’t something we’d thought we’d seriously consider, even under the circumstances. But it sure was nice to feel wanted.
Fenn and I headed for an Indian restaurant in Nob Hill. We chatted quietly, reflecting on the last couple of days, and tossing around the options. Maybe being acquired by a big, safe, successful company, one that shared our values and gave us the backing to do what we’d aspired to do, was the best option for us. Maybe it just wasn’t possible for us to make it alone.
On the downside, it meant becoming employees, for at least a couple of years. And maybe moving to Europe for a while. And we weren’t in a position of strength. We couldn’t command a high price. Maybe not even enough to cover all the savings we’d put in, and the personal loans, and the maxed-out credit cards. But maybe that’d be OK if we could just pay back our investors and get a nice salary.
There was another factor that was starting to dominate my thinking. I’d been feeling pretty rundown and exhausted that day. Actually I’d been battling the feeling of being rundown and exhausted to some degree for at least the past 6 years. But on this day, I was succumbing to the feeling that I just wasn’t winning the battle, and perhaps I really wasn’t going to be able to win as long as I was still trying to run a startup.
Maybe what I really needed to do was just take an exit that allowed me to escape to a tropical beach or health retreat for 6-12 months, or however long it would take to be properly healthy again, then start afresh doing something new.
But would this exit allow me to do that? Not likely.
On Monday, Ned joined us in our room at the Broadway Manor Inn on Van Ness Avenue. He was taking charge. We were going to do whatever we could to get numbers going up. Fast. The way to do it was with deals.
Everyone was talking about it. Groupon. Living Social. That’s what the world wanted. Maybe it’s what our users wanted; plenty of people had asked us if they could sign up to receive alerts when flight prices dropped. It was something our platform could do - in a way that others couldn’t - but it just seemed tacky. Sure, we wanted to be able to do some kind of outbound notifications, but something a bit nicer than boring old email. But suddenly email was back, and now it was our big hope.
That evening, Fenn and I were walking to meet Ned and some friends for a drink. We chatted about the day’s progress and the bigger questions about what we should do. Fenn had done a lot of thinking. His feeling was that an acquisition could be the best option. And he was becoming quite resolute, even stubborn about it. That was always a bad sign.
All the things we were trying to do to get numbers going up, he thought, have already been done by the incumbents. And besides, he didn’t start this company to wind up building a fucking daily deals site.
The previous week, we’d met with a VC who was in a position to know as much about flight search as anyone. Flight search was a terrible business, he told us. It soaks up extraordinary engineering talent and resources, you still end up with shitty products, and it doesn’t make any money. Why, Fenn thought, would we persist, when the people who know more about it than anyone else are telling us not to bother?
To Fenn, an acquisition now had plenty of appeal. We could wipe away our debts, make our investors whole, relax for a few years in the cosy employ of another company, then go off and do something else. Also, having a successful exit on your CV would put you on better footing to raise funding for our next thing. “Like Dennis Crowley selling Dodgeball to Google,” he said. No, I thought, we are not Dodgeball, our suitor is not Google, and neither of us is Dennis Crowley.
To me it seemed like a mirage. Going to join a company would not be relaxing. The whole reason I started my own company was because I couldn’t stand working for or with other people, apart from the ones I chose myself. There was a lot that sucked about startup life, but it was never as bad as employee life.
Also, spend three years working for someone else, then start something new? In the three years since we’d first launched Adioso, I’d learned more about myself and the world than the rest of my adult life put together. If I kept up that rate of learning for the next three years, anything was possible. To spend that time working for some other company would be like being cryogenically frozen. And besides, in Melbourne’s timezone it was now my 34th birthday. I was already on the old side for a startup founder. Wait till 37 or 38 then start something new? That was no age to be starting again. Again.
There was something else eating away at me. This would probably be little more than a talent acquisition. And I wasn’t even sure what talent I had that anyone would want to acquire.
After the first drinks catchup, we headed with Ned to Zeitgeist to join another Melbourne friend, Ross. Ross is normally someone I particularly enjoy hanging out with. But right now I was impatient to get back to talking things through with Fenn. As soon as Ross left, I wasted no time.
“What’s with the change of heart, Fenn? The other day you were the one saying everything would be fine.”
“C’mon, let’s settle down,” said Ned.
I was mostly settled. I knew the most important thing to do was to stay calm. But Fenn was always the one to keep his head, and it was worrying to see him starting to lose it.
I didn’t want to rule out an acquisition; if we got a good offer and the opportunity to build what we’d envisaged with better backing by people who were really on our wavelength, it might be tempting. But we could only get a good offer if we were in a position of strength ourselves, and to do that, we had to have numbers going up, just the same as if we were going to raise funding. And if we could raise funding, there’d be no need to sell anyway.
The thing was, our situation wasn’t all that dire. Sure, funds were low, and there was no immediate answer to how we’d find more. But, we were a very lean company. All we needed was $1000/month to cover our hosting bills, and basic living expenses. Fenn and I were well accustomed to living a frugal existence, and we could be even more frugal if we had to.
Far from being a crisis, I thought, this is our biggest opportunity. It’s in times of extreme adversity that you learn the lessons and make the changes that come to define the company. Every big and successful company has a story of struggle and at least one, if not several, near-death experiences. Well before applying to Y Combinator, one of the PG essays that had inspired me the most was “How not to die”. All startups need to do to become successful, he implored his proteges to realise, is avoid death for long enough to figure out the formula to succeed.
It seemed so simple. Sure, we’d been going a while; four years since Fenn wrote the first code, three years since we released the first experimental public version, and two years since Y Combinator. But that’s forgivable; everyone knows what we’re trying to build is really hard. Every other company that’s tried to build disruptive travel technology has taken at least this long. There was only one other company in our YC batch that was building comparably ambitious technology to us, and they hadn’t released anything at all yet.
“How about this?” Ned was trying to be helpful. “I can tip in a bit of cash to keep you going for now, and then you guys can just do some web development work to pay the bills.”
“No,” Fenn and I said almost in unison. We were not going to be doing web development contracting to pay the bills.
“OK,” Ned went on. “We’ll just do a sprint to get everything in place to get the numbers going up, and you’ll be fine.” Ned was a few years younger than us, and had a lot more energy.
Fenn went to the bathroom.
“This is the problem,” I tried to explain to Ned. “Fenn’s burning out. And I’ve been trying to overcome burnout for years.” Even if a sprint would get us anywhere, which it probably wouldn’t, we just didn’t have the energy to do it.
I started to think Fenn was tricking himself into viewing the acquisition as a successful outcome, when really he was just looking for an escape from what was becoming an increasingly miserable existence. If we were going to get through this, we were going to have to find a way to ease Fenn’s pain.
Tuesday was my birthday by the San Francisco clock. It was more a day for rumination than celebration. I thought a lot about the differences between what Fenn wanted and what I wanted. Fenn was never in this business for wealth and fame. Indeed the prospect of that was somewhat of a turnoff; it might be quite inconvenient. He wanted to work with people as talented as he was, and who were a lot of fun to be around. He wanted to work on hard problems and write brilliant code. He wanted to make things that could solve important real-world problems for many people. And somehow he’d convinced himself that selling what we’d already built and seeing it put into production by a much larger company would satisfy that. He had loads of interests and ideas, and he didn’t want to be stuck in the travel industry for another 5-10 years. In fact the prospect of that seemed awful.
I wasn’t in this for wealth or fame either, anymore. I mean, some money would be nice. I’d grown up in a modestly well-off family, but for most of my adult life, even when I’d been in full-time employment, I’d been on a knife-edge financially. It’d be nice to live without that hassle and fear for a while. Fame was something I’d fantasized about as a weird high-school kid who struggled with comical desperation for acceptance and approval, and to some degree that need for validation had stayed with me well into adult life. But over the past couple of years, as I’d come to understand the world and my place in it, that didn’t matter to me anymore. People who live in constant pursuit of external validation, I’d realised, are people who never achieve it. I’d figured that out the hard way.
For me, Adioso had become the driving force in my own life journey. Four years earlier, as I turned 30, I was at the lowest point in my life. In the couple of years prior I’d been suffering increasingly severe anxiety and panic attacks, but it lately it had been descending into deep depression. A sequence of disasters in our first business, along with tumultuous events in my personal life had me feeling deeply angry at the world and at most of the people I knew. I felt I couldn’t trust anyone, including, or especially, Fenn. And my mind was so frazzled it was becoming hard to function. To pay the bills I was having to apply for software development contracting jobs. In the my first interview, I was so foggy and crippled by nerves I couldn’t even complete a very straightforward coding test, and walked out in shame.
Two weeks after my 30th, my grandfather passed away, age 95. He had been loved and revered by the whole family, and widely respected for his intellect, his accomplishments in business and sport, and for his decency, dignity and determination, right through to the end of his life. It was only in the couple of years before his death that I’d started to truly appreciate him. And as I sat with him in his final days, I was ashamed at just how low my life had sunk. I resolved to become the kind of person that was worthy to have had such a man as a grandfather. 20 months later, Fenn and I were flying to San Francisco to for an interview with Y Combinator. It was an inheritance cheque from my grandfather’s estate, which arrived the week before we received the YC interview invite, that covered the cost of the trip.
Though we managed to get into Y Combinator, and raise a small amount of funding after that, my physical and mental health was still pretty fragile. I knew that if we were going to make Adioso work, I’d have to devote myself 100% to getting healthy and becoming mentally strong. Y Combinator gave me the strength and the safety net to do it. No matter what happened from here, no one could take away from us the fact that we’d been funded by YC. It might mean being misunderstood for a while, but I was already pretty used to that. I was willing to spend as long as it was going to take.
Adioso had given the motivation to get my life together, and the opportunity to get into YC. It was what had given me the willpower to quit booze, eat healthy, and keep away from the people who’d been bad influences. It had meant giving up most of the indulgences and social outlets that I’d always relied on to make life enjoyable. It had been a pretty bleak couple of years. I needed there to be a happy ending, both to my own journey, and to the journey Fenn and I had shared for so long. A talent-acquisition and a return to full-time work was not going to do.
On the Tuesday night we went along to the Socialcam launch party. The venue was both fabulously extravagant and delightfully nerdy. It was held in The Exploratorium, an interactive science & arts museum located at The Palace of Fine Arts. Though I’d never seen it in real life, The Palace of Fine Arts had quite some significance for me, as it features heavily in the hilariously shambolic movie The Room, by Tommy Wiseau.
I’d first seen The Room about a year earlier. It had been the most entertaining, joyous couple of hours I’d had in years, but there was more in it for me than just that. After the hysteria of the initial viewing subsided, I started to find myself strangely moved by it. There are so many formidable barriers to getting a feature film to market, I’d reflected, that it should have been impossible to complete the production of such an abomination of a film, let alone get it into cinemas. That Tommy Wiseau was able to clear those barriers could be seen as a freak accident of cinematic history. Or, it could be seen as an example of what’s possible when a person is both unshakably determined, and tragically delusional.
Since seeing the film, I’d read and thought a lot about Tommy Wiseau. I was inspired by his determination. And I was intrigued at how someone so delusional could function in the world at all, let alone create something of such cultural significance. How, I’d wondered, can one know whether their determination is leading them down a path of rationality or delusion?
For admission into the Socialcam party, you had to have their new app already installed. Fenn and I obligingly presented our iPhones to the door staff. Ned had proudly quit his iPhone. He held out his $20 Nokia - his “burner”, he called it - and shrugged “I would if I could”. The door-girl smiled and rolled her eyes, as she gestured us all in.
We wandered into the party and scanned the crowd. We spotted a few YC alums we knew - mainly from our batch, the class of Winter ‘09. As we’d been back in Australia for most of the time since then, we didn’t know a whole lot of people from the other batches. I didn’t know how many of the crowd were YC alums but it was fair to assume a good portion were.
The room was full of energy and optimism. The whole Valley had a whole lot more energy and optimism now than it did back when we did YC. At that time, being the lowest point of the GFC, there was such pessimism around fundraising that Y Combinator picked a smaller-than-usual batch, biased their selections towards the teams that seemed particularly tough and resilient, and dubbed us “The Cockroaches”.
Now, it couldn’t have been more different. It had just been announced that every participant in the current and future Y Combinator cycles would be offered a no-questions-asked $150K investment from celebrity investors Ron Conway & Yuri Millner. The standout companies were quickly raising angel rounds at pre-money valuations of $10M or more. The middling ones were at $5M. Just two years earlier, we were deeply grateful for our $1M valuation.
Adding a little sting to it was the fact that recent Y Combinator applicants had been reading my post about our YC interview for pre-interview comfort and guidance, some of them contacting me for one-on-one advice. Before going on to leave us in their dust. I didn’t like to feel resentful. I wasn’t really, I understood how it all worked. I just wanted to be able to be as confident and optimistic as they all seemed to be.
We went up for a chat with Joe from Airbnb. They were far-and-away the rockstar startup out of our batch, and now they were rivalling Dropbox as the rockstar startup for all of YC. We high-fived and bro-hugged the way you do with Joe, and I said something congratulatory about just how much they were killing it. “How you guys doin?” he asked. “Oh man... y’know.” Yeah, he knew. “We went through some pretty low times man. You’ll get there.”
As we went for the bar, we ran into Jude from Heyzap. He was always full of enthusiasm. “Guys! I saw that Valentine’s Day promotion you did.” Heh, that. The How Much Do You Heart Me? campaign. The best and worst thing we’d ever done. “So cool, love the concept.” Yeah, everyone loved it. Not one person bought anything from it. “You should do more stuff like that, there’s gotta be something in that that can work really well for you.” I appreciated his optimism. I really did.
Daniel Gross, a recent, celebrated up-and-comer with his Sequoia-funded Cue, was similarly excited about our campaign. It was great to get the affirmation from such talented people. But perhaps also crushing to realise we’d misdirected the effort toward something so tangential to the right direction for the company.
We spotted Dave Rusenko of Weebly. A few months earlier, he’d been reminded about our site, had gone to check our progress, and had got in contact with some suggestions. As we hadn’t met in person for two years, I had to re-introduce myself, but he was totally up for a chat. “You guys should totally be able to raise funding for what you’re doing,” he insisted. “I need your product, I want it to work so badly.” Steve from Hipmunk was also with us. Despite the festive occasion, the self-help-group atmosphere briefly descended as Steve, Fenn and I talked about the cost and pain around getting access to flight inventory, and how hard it particularly was to get data to support a product like ours.
Dave remained optimistic and supportive. “Just build something that makes it easy for people to find their paradise. That’s what I care about. Some place I can get to that’s cheap, and that’s paradise. Build something that just looks amazing, then get in front of investors, you can totally do this.”
“Paradise...” I pondered. I turned to Ned. “Did you get that?” He was already typing “paradise” into his burner.
Next we spotted Robby Walker, also now of Cue, and an Adioso investor - indeed the lead investor in our first angel round out of YC. We chatted at length, explaining the ups and downs and the troubles we faced. He was unsurprised at the challenges, impressed that we’d persisted this long, and confident that we’d find our way back onto the right track.
We went away from that party more content and upbeat than we’d been at any time on the trip. Ned and Fenn decided to pop into Safeway for some beers to take back to the motel. They were ready to unwind. So maybe PG wasn’t willing to put us in front of investors just yet. But, some of the most successful people in YC believed in us. As long as we had that kind of support behind us, we’d be able to find a way to make this work.
The following day, I only remember doing two things. I went to Amazon and ordered a copy of “Web Design for Developers”. And I went to Airbnb and listed my own bedroom.
