I just shut down my startup. Here’s what I learned.
Most startups fail. I’ve seen some statistics that show a 60% failure rate, others a 90% failure rate. The exact number doesn’t matter — what matters is that most startups fail, it’s the norm, the expected outcome.
But surely it wouldn’t be my outcome, right? I’d beat the odds, my startup would succeed and, better yet, I’d succeed on the first startup I founded — I’d beat the odds and then beat the odds again.
At least that’s what I thought when myself and two other guys named Matt (that’s right, three cofounders = three Matts 👨👨👨) started Tali in February 2017. Two years later, it turns out I was wrong.
Sure, we had a bunch of wins — we had paying customers from across the globe, won $100k in a pitch competition and we raised nearly $1.0M of VC funding. But we had a bunch of lows too — nearly ran out of money several times over the course of a year, made engineering mistakes that caused users to churn, wasted money on paid marketing too early, and had technology problems that impacted user engagement, to name a few.
Startups are hard…like, really hard. And the decision to wind down your startup is an incredibly difficult one, yet it’s one that rarely gets talked about, despite the fact that most startups inevitably fail. There’s plenty of stories out there that glorify the startup grind — never give up! Eat breakfast cereal for dinner and sleep on your friends couch until you make it! Just keep going! — but very few stories on the harsh reality of how to make the decision to shut down your startup, and what it feels like to do so.
The truth is that making the decision to shut down your company is likely the most difficult one you’ll make along your startup journey…and it’s one that’ll hurt pretty bad.
I don’t know why this isn’t talked about more, but here’s my contribution to the greater good: my story of how I made the decision to shut down Tali, and what that feels like. Hopefully, it helps.
How it all started…
I’ve written in detail about the origin story of Tali and how we got started, which you can read here. Here’s the TL;DR version though:
- I came up with the idea for Tali, a voice driven timekeeping solution for lawyers, one random night in my dining room with my wife (a practicing attorney who tracks every six minute increment of her day)
- A few weeks later, I ran the idea by two other guys named Matt — one a product manager and the other a full stack dev — and we decided to form a company together
- Within 90 days of starting the company, we received an investment from an early stage VC out of LA — at this point, we had no product and were pre-revenue, all we had was a team (and each co-founder still had a day job), an idea and a demo video (which we shot on our iPhone)
- After receiving this first investment, we quit our day jobs and jumped full-time into Tali
The launch 🚀
We started the company in February 2017, received our first investment in June 2017, and launched our paid beta product in September 2017, six months after we initially got started.
Our strategy at Tali was to get a paid product into market as quickly as we possibly could. We wanted to do this for two reasons:
- Technology risk — we wanted to prove that our solution could work end to end, meaning you could log your billable time with Amazon Alexa and get that time entry into your billing or invoicing system, all without manually filing out a time entry form and
- Market risk — we wanted to prove that people would be willing to pay for this type of solution
On the front-end or input side, we started with a focus solely on Amazon Alexa (we later added Google Assistant). In addition, we built a simple web application that a user could access online to see all of the time entries they captured with Tali (we called this the Tali dashboard). Last but not least, on the invoicing side we started with an integration approach — rather than build our own invoicing and billing system (which would require a lot of engineering effort and take time), we chose to integrate with Clio, a legal practice management solutions (we later added PracticePantherand Rocket Matteras integration partners as well).
We went to market at a price point of $90 for a three month subscription (or $30 per month). This price point was higher than our competitors, but we didn’t focus on this — instead, we looked at the value we were delivering to our user. If a lawyer bills out at $300/hr then each six minute increment of their day is worth $30…surely Tali could save you more than six minutes over the course of a month! We included a free Echo Dot to sweeten the deal for our customers, but also to avoid the objection of “I don’t have a smart speaker for my office so I can’t use this software.”
This product — the Amazon Alexa skill, the Tali dashboard, and the Clio integration — priced at $90 for a three month subscription (with a free Echo Dot) is what we launched in September 2017 at the Clio Cloud Conference in New Orleans…and people loved it! 💜
By December 2017, our paid user base had risen to 101 people from all across the globe. At $30/month, that’s $3,030 of monthly recurring revenue (MRR)…not bad for a product built mostly on nights and weekends by a team of three!
Don’t forget about the “recurring” in MRR
We launched, and then we realized we had a problem.
When a user created an account and submitted their credit card information for a $90 purchase, which got them three months of Tali, they were making a unique, one-time purchase.
We never built in the functionality for the subscription to automatically renew. 🤦♂️
This meant that everyone who had signed up would need to submit their credit card information AGAIN, or a second time to keep their Tali subscription going.
You’re probably cringing right now, which is the appropriate response. This meant I had to reach out to every person, all 101 people, to ask them to submit their credit card information again.
I e-mailed 📧
I called ☎️
I e-mailed again 📧
I called again ☎️
After all was said and done, I managed to get 22 people to submit their credit card information again. Let me do the math for you — that’s a 78% churn rate…ouch. 😟
Is it pronounced “tally” or “tail-eye” ?
Part of the churn problem we had was due to two product challenges — 1) our on-boarding flow and 2) an invocation issue impacting the user experience. After all, if every one of the 101 paid users we had was using the product every single day to keep their time, then they would have had no issue with putting their credit card down again. That was far from the truth though.
The first product challenge we faced was our on-boarding flow.
In the early days, here is what you needed to do to get up and running with Tali:
- Create a Tali account — you did this online, and it required basic information like first name, last name, e-mail address and password
- Get your Echo Dot setup — this was something you did through the Amazon Alexa app, so user experience was outside of our control, and it was a rather clunky process
- Enable the Tali skill — go to the Amazon Alexa app on your mobile phone, search for the Tali skill, enable the Tali skill, and then link your Alexa account to your Tali account; if that confuses you, don’t worry, because you’re not alone — this is where most users dropped off in our on-boarding flow
After you got through all of that, you could start to use Tali! As you can see though, it required multiple steps and logins with different applications, so a lot of the users that initially signed up for Tali never even got their account setup, and therefore never logged an activity through our app.
The second product challenge we faced impacted the user experience.
So, if you were one of the lucky ones that made it through the complicated on-boarding flow mentioned above, you then encountered a user experience issue related to the invocation name for our app, Tali (pronounced “tally”).
Turns out that tali is an actual word (it’s the plural of talus), which you pronounce “tail — eye”, something we didn’t know when we named our company. Turns out this presented some challenges. We kept getting feedback from users that Tali would not respond when they said “tally”, and instead would only work when they said “tail-eye.”
Again, to state the obvious, this caused MAJOR issues with the user experience. Turns out this was an Alexa platform issue, one we couldn’t correct on our own, so Matt AW, head of product at Tali, spent months weaving his way through the Amazon Alexa support process before finally getting the issue resolved. The damage was done though — for months we would get support requests from people on this issue, and we had to tell them to say “tail-eye” while we tried to get things resolved with Amazon.
There’s nothing fun about fundraising
Fundraising sucks. It was the least favorite part of my job, but something I had to do to keep the team in tact and dedicated full time to Tali.
I heard “no” from 99% of my investor conversations — “you’re too early” were three words I heard often.
People laughed at me — “you’re going to put a listening device in the office of an attorney? Ha!”
Some rolled their eyes at me — “ugh, you’re raising on a SAFE? That’s such a California thing.”
That said, I did develop some incredible relationships through the fundraising process, and I also learned how to craft a pitch and tell a story, another invaluable lesson.
We received our first investment in June 2017. We essentially had a rolling pre-seed round open, and would collect one check here, another check there as time went on (rather than raising one lump sum). In total, I raised nearly $1.0M for Tali over the course of 1.5yrs, all on a SAFE or convertible note (typical terms were a 15% — 20% discount and a $3.5M — $4.0M valuation cap).
During this time, we nearly ran out of money on three separate occasions. This is a problem every startup faces, so nothing unique here, and each time our bank account nearly hit $0 we always had something else hit — follow on from existing investors, capital from new investors, or even a $100k check for winning a pitch competition.
Things eventually stopped hitting though, and the last time we ran out of money, we went out of business.
The last twelve months — a complete grind
We had some hiccups early on, every startup does, but we continued to grind away throughout 2018, and what a grind it was.
The first thing my two co-founders, Matt AW (also known as AW) and Matt Hoiland (also known as Hoi), did in early 2018 was fix the on-boarding issue. We ended up engineering our own flow so a user could create a Tali account and link their Alexa account all without leaving the Tali app. No need to go through the Alexa app, navigate several screens and link your accounts manually. This had a HUGE impact on the number of new signups that became activated accounts (e.g. those new users that eventually logged an activity).
The next thing was improving the user experience. AW hounded Amazon and managed to get our invocation issue fixed, so our Alexa skill was back on track. We then added Google Assistant functionality as well, and continued to iterate and experiment with a variety of interaction models to see what, if anything, would improve the user experience and increase engagement. We also released a V2 of the Tali dashboard, and added “fuzzy matching”, which improved the accuracy of Tali matching what you said to the correct client or project name.
These may sound like simple things, but they required a big engineering and product lift, which all landed squarely on the shoulders of AW and Hoi — in short, this was no easy task but they managed to do some absolutely amazing things.
Everything we did had a positive impact on user experience and engagement, but nothing really moved the needle. Our average daily active users (DAU) crept up, but was never greater than 10% of our total paid user base. We were able to get a lot more people activated because of the on-boarding improvements AW and Hoi made, but our free trial to paid conversion rate (those users that started with a free 30 day trial and then converted to a paid subscriber) never rose above 3.0%.
We were growing our paid user base each month, but growth was slow (only 10% — 15%) and driven mostly by direct sales efforts (which meant unsustainable unit economics). We even reduced the price from $30/user/month to $12/user/month to see if this would help drive sales, but it didn’t. We ended 2018 with around 250 paid users, more than we had at the end of 2017, but because of our price reduction our MRR remained flat at roughly $3k.
By December 2018 I knew we were in trouble. At this point, I had raised nearly $1.0M and we had 2.5 months of runway left.
I went to our current investors to ask for another follow on, and they all said no.
I tried to find angel investors that would write some smaller checks, and they all said no.
I even tried to find some later stage investors that would write a larger check, but they all said no too.
We weren’t going to grow our way out of this problem, and we weren’t going get additional capital either, which left us with two options — put things in cruise control or zombie mode, or shut things down.
The decision to wind down
I think the most difficult part in this process was simply admitting the fact that shutting things down was an option. As an entrepreneur, you need to solve your way out of a lot of problems and the odds are always stacked against you. So how do you know if this is just another one of those things you need to plow through, or if it’s different? Here’s what I did.
Talk to your mentors
My initial thought was we would just put things on hold at Tali for a while until we figured out what was next. We’d keep the technology up and running, do support requests and demos as needed, but would otherwise do as little as needed to keep the lights on. Myself and my team would go and get day jobs to pay our bills, and once we “turned the corner” with Tali we would jump back in full time. Sounds like a great plan, right?
Turns out, not so much.
I wasn’t able to admit that shutting things down was an option until I spoke to two of my mentors. Both had founded multiple companies in their lifetimes, some succeeded but most failed. They gave me the same advice — putting things in zombie mode is a dumb idea. “Give this thing everything you have over the next few weeks, and you’ll either go out in a blaze of glory or you’ll turn things around. Anything in between is not a viable option.”
With these conversations, zombie mode was off the table, and we were either going to turn things around or shut things down. Because of these conversations, I was finally able to admit shutting down was an option, and actually say the words out loud. Doing this was incredibly freeing, and took a huge weight off my chest.
Consider and reflect on everything you’ve done
After I spoke to my mentors, I went to the drawing board to reflect on everything we did up to that point and asked myself “is there anything I’m missing or anything I haven’t tried?” I looked at this mostly through the lens of our go-to-market and growth strategy, but also considered our product approach.
I tried outbound sales, but unit economics were not sustainable.
I tried digital marketing, but results were poor.
I tried Google Adwords and SEM, but this was expensive and conversion rates were low.
I put reseller agreements in place with technology partners, but these weren’t driving any volume.
Blogging, webinars, etc. all produced the same results — nothing seemed to be working.
I even went to other startup founders, asking them if they had any recommendations or tactics I could try. All of their ideas were things I had already experimented with, which didn’t yield positive results.
Then I looked at the numbers, and realized that, at our average growth rate, it would take us 26 months to reach cash flow positive at our current burn rate. How on earth would we even make that happen if we got day jobs and were focusing LESS on the business?
Is a “one-step” pivot viable?
By “one-step pivot”, I mean keeping one foot planted on the ground while lifting the other and moving it in a different direction (versus a two step pivot of lifting both feet off the ground and completely jumping in a different direction).
Up to this point our strategy was to be a horizontal SaaS company, one that was building a time and billing solution that could enter other industries outside of legal, rather than building a vertical SaaS solution just for attorneys. However, since we launched our product we had a long list of feature requests from our attorney users that were not focused on time and billing — things like taking notes, adding calendar entries, and assigning tasks, to name a few.
We hadn’t prioritized these legal specific things before, but could we build and launch any of them within the timeframe we had left? It sounded like a one-step pivot — we were still focused on voice technology for our existing core user, but would expand our use case to go beyond time and deep within legal (something we hadn’t previously planned).
Turns out this wasn’t a viable option, at least not with the time (or money) we had left. Are there any options left?
Can you sell?
We had spent nearly $1.0M and the last two years of our time building Tali. We had built a voice technology application for business that worked, something we believed (and still believe) will be core to future enterprise software products. So we asked ourselves — “would anyone want to buy what we’ve built?”
We had a few conversations, but nothing that ended up working out.
No more options
After I went through all of the options above, there was only one thing left — winding down. So that’s what we did — our attorneys started the legal process, and I notified all of our investors, partners and users to tell them that we’d be shutting down.
How it feels
Winding down your company sucks.
At first, it hurts…really, really bad.
You get sad.
You get mad.
Sometimes, you get mad and sad at the same time.
Once you near the end of the wind down process, you feel empty, isolated and alone. After all, for the last two years I was a first-time founder and startup CEO, but once things are shut down, what am I? Who am I?
I don’t have the answers to these questions yet, but here is what I do know — it gets better, and you eventually get to a place where you’re proud of the company you built, and the decision to shut it down.
Most people don’t have the courage to start a company, to go through the grind of having the deck stacked against you every single day. Shutting a company down is the expected outcome for any new business, and it’s just one more challenging decision that you’ll likely have to make throughout your startup journey.
It’s a scar that you’ll have for the rest of your life, but a scar that should be worn proudly.
The other thing I took away from all of this is that while running Tali, and for the first time in my professional life, I felt truly energized and empowered. Up until that point, I was mostly going through the motions because I wasn’t really sure what I wanted to do, or what I could do.
That’s not the case anymore.
I know exactly what I want to do now, which is start more companies (will take a lot more than one failure to scare me away 😉) and be a part of more early stage startups.
And I know what I’m capable of, which turns out to be a lot more than I initially thought when I first started Tali.
The end, and thank you
There it is. That’s my story of what failure looks like, and what it feels like. I hope reading it was helpful to you, I know writing it was definitely cathartic for me.
I want to end this post by publicly thanking everyone who has been a part of the Tali journey.
To my wife, Kimberlee — you’ve been by my side since we were 14 years old, and were with me every step of the way with Tali for the last two years. Because of you, I had the confidence (and financial ability, thanks for being an employed lawyer) to jump head first into this adventure. It wasn’t easy on you, and I often took your support for granted. Thank you for always being there, and for putting up with a crazy spouse like me. Without you, none of this could have happened.
To my co-founders, AW and Hoiland — thank you for taking the risk of leaving your day jobs to start a company with me. You both are one of a kind and true unicorns 🦄, and have taught me so much. Before Tali, my gut told me you guys were special, and my experience with Tali has taught me that’s certainly the case.
To my investors, advisors and mentors — thank you for believing in me, and trusting me to fulfill the vision I had for Tali. At times, you had confidence in me when I didn’t believe in myself. Going through this journey with you has truly been a pleasure. Oh, and expect a call from me when I start my next venture 😉
To the Tali community — to put it simply, without you we’d be nothing. At every turn, your feedback shaped Tali’s development, and your passion signaled a new chapter for what it meant to track time. Together we talked through all the things you wanted in a timekeeping assistant, and dreamt of a world were you never had to fill out another time entry form again. Thank you for dreaming with us, and for helping to bring this reality into view.
To everyone else that supported Tali over the last two years — thank you as well.
And that’s it, the Tali chapter is officially closed, but with that another one opens. So what’s next?
Who knows, but want to build something together?
