How I Burned 10 Million Dollars So You Don’t Have To.
(An Education in Humility, Humanity, and Leadership)
This post was originally published in the Reboot Publication by Matt Munson (CEO, Twenty20)
In startups, we talk a lot about the value of moving quickly. But sometimes, speed is dangerous and not the appropriate answer. We learned that lesson the hard way in the last 12 months. We’ve changed up our playbook significantly. My hope in sharing our lessons openly is that we might spare other teams the pain we faced, and that we might all slow down, when appropriate, to build a better world sooner.
In February, my startup (Twenty20) employed 35 people. We had a board-approved plan to scale to 85 by the end of the year. As of July, we were at 55, and well on our way. Now, four months later, our team size is 12.
Strangely, our revenue is growing twice as fast.
But don’t worry, this isn’t some “rah rah we’re amazing, we’re killing it” bullshit Medium post. I hate those. Yes, I’m going to tout some of the ways the Twenty20 team is amazing. And resilient. But mostly I want to share openly the shame I wrestle with over the time and money we wasted. The mistakes I made. The people I hurt. The lessons I learned the hard way.
I feel scared writing this. Nervous. Embarrassed. I feel ashamed. This is the first time in my life I’ve shared this stuff publicly.
I’m scared of what you’ll think of me as you read this.
I’m afraid of what future investors might think.
I’m scared of what other founders will think.
I’m nervous about my competitors seeing our data and divining some genius way to kill us.
But mostly, I’m just afraid of being found out and looking foolish. Looking like the imposter CEO I often feel. Especially on the bad days.
So why share?
For my first three years as a venture-backed startup CEO, I walked around feeling scared and alone most of the time. I thought it was my job to have all the answers. To have “vision” (whatever that is). To control the company’s messaging so it was always clear to the world that WE had it figured out.
But I’ve been learning. Learning that great leaders don’t have it all figured out. That the job is more about bringing smart people together around hard problems than it is about having all the answers to those problems.
I’ve also learned a lot about what’s important to me, and that I’m accountable for helping create the startup ecosystem in which I want to work.
I’d rather live in a world where people share ideas, learnings, experiences…and especially failures. And I’m pretty sure letting people in on the fact that I’m human, that I run a company where we struggle, fail, get up, learn, and keep trying…that might be ok.
Perhaps my story might normalize some part of your own struggle to build something from nothing. To deal with your own inner critic. Or perhaps it might help you find the path sooner to peace. To safety.
So…here we go.
Background.
Twenty20 is a simple product. We are a marketplace where people sell their mobile photography to agencies and brands looking for an authentic alternative to traditional (read: terrible) stock photography. We raised an $8M Series A in May of 2014. More money than we’d imagined anyone would give us, and from amazing partners.
We’d raised on a story. We had no customers and no revenue on the business model we believed was our future (b2b image licensing).
Rewinding two years before that, Twenty20 started as a product called Instacanvas. Turning people’s Instagram images into canvas prints.
Users loved us, but it was a tough business. Low margins. Lots of complications. We’d raised $1.2M in capital and burned through nearly all of it. What we had to show for it was a growing community of photographers who trusted us to help sell their photos and an idea that we might be able to use that fresh, real-world content to take on Shutterstock and Getty.
Fast forwarding a bit, with under 30 days of cash left, we closed our Series A. And breathed a sigh of relief.
We had $8M in the bank. We thought the hard days were over. We were wrong.
In that next year, there were some early missteps. We hired too senior too early. We took too long to get specific about our target customer segments. We under-leveraged technology in problem solving.
Most damning of all, and what I’d like to focus on today…we failed to thoughtfully validate our acquisition model.
We went ALL IN on an inside sales driven model. For good reason. With solid proof. But we nearly broke the company. We certainly caused incredible heartache for dozens of people.
I wish we’d tested earlier. More thoughtfully.
I regret not staying smaller for longer. Living off $3M to find product-market fit, with a real, scalable acquisition channel. And keeping the other $5M in the bank for scaling powder.
There were reasons for each step along the way. But there were also signs we should have caught earlier. In sharing our story openly, maybe we can spare others some of the hard days we faced.
Early Signal
It took time to get the product functional, to evolve from Instacanvas to a B2B licensing platform. But by February of 2015, we had a functional product and a dozen customers regularly licensing. We had the early signal we’d been looking for.
Our head of growth, and I, called dozens of agencies and startups each day for weeks. We found creative directors, designers, and marketers who hated their experience with Getty and Shutterstock and agreed to try our product. We were ecstatic.
It didn’t take long for us to decide to hire our first sales people. And again it kept working.
Within 60 days, we had our first two reps each bringing in > $30k in bookings per month. Enough to make us nicely profitable on a per rep basis. Even more exciting, we tested selling only annual, prepaid contracts. And that worked too. Suddenly, our sales team was generating not just revenue but cash back to the business every month. Something incredibly rare at that early a stage. We felt we were off to the races.
Then the missteps started to pile up.
Must grow grow grow.
We have fantastic investors. Supportive, stable, kind, good people. That didn’t prevent me from self-imposing an expectation of rapid growth at all costs. I felt we’d raised so much money. And we were spending so much money. The Chinese stock market was imploding. The future looked incredibly uncertain. We had to grow fast so that we could raise fast so that we could find our next safe harbor.
That self-imposed pressure, while it was well-intended (keep the company safe) was dangerous.
We moved too fast.
We searched frantically for a head of sales. It took three months to find someone, and she only took the job on the condition we open a second office in North Carolina. We opened that office. Grew it to 14 people. Then, when it was quickly clear spreading a sales team across two locations so early was crazy, we shut it down. All within 12 weeks. There’s $500k eviscerated.
We gave up on hiring another sales director. There was no time before fundraising. We were scaling fast. Revenues were coming in consistently from the LA-based team. It was November of 2015, and we wanted to start our Series B process 8 weeks later. We had to move. We had to keep growing. We promoted our best closer to first-time manager. And we kept hiring.
Late-January, we started taking investor meetings.
We told the sales team to keep selling at all costs. And keep growing.
No money honey.
We decided to raise in Q1 of 2016. The worst quarter for fundraising in years. Not to place the blame entirely externally. The business was too early. We had great revenue growth, 20%+ MoM, but we were early. Sub $1M in revenue. Plus, we were carrying around a lofty Series A valuation. Investors balked at the idea of pushing the valuation up with such early revenue proof. Fair enough.
We huddled with the board and decided to take a crack at getting the company profitable on our own cash. After all, our sales team was nicely profitable and growing quickly.
By March, the sales team was 30 people. Up from 10 in January. In April, the wheels fell off.
We couldn’t figure out what went wrong. We’d blown away our numbers for six months in a row. Then, in April, we couldn’t sell anything. Sales blamed marketing. Marketing blamed sales. Product and engineering were fed up with the whole thing. For months, I’d forced the company to slave away supporting the crazy scaling of this sales engine.
This is what happened to our cashflow:
Holy shit!
There goes another $600k.
We tried desperately to fix the problem. If only we could find it. We found some evidence we could point to:
- We’d relied heavily on one lead channel. That channel had problems that were hard to see easily.
- Our sales team was burned out. We’d pushed hard, and grown fast, for months. When the leads dried, up even for a few weeks, it hit morale hard.
- Sales discipline and processes fell apart. We’d massively underinvested in leadership and tools. And gone way too fast.
By July, although revenue was growing, our burn wasn’t shrinking. It was clear we weren’t going to get profitable with plan A.
Laughably, in hindsight, plan A was to grow the sales team from 8 to 60 in 10 months. We had rented extra office space and signed crazy contracts with Salesforce and phone system providers. We had two full-time recruiters doing nothing but hiring SDRs. Funny what looks clearly crazy in hindsight. When it was working, it seemed smart. I didn’t have the foresight to think “maybe there’s a reason even the most well-run startups don’t scale sales teams this fast!”
The Pain
On a hot Wednesday in mid-July, the executive team huddled offsite in Venice Beach. We needed a new plan.
We knew customers liked the product. We knew they’d pay for it, and use it, and tell their friends about it. But we needed a new acquisition strategy. One that wouldn’t burn the rest of our cash before Thanksgiving.
We decided to investigate two areas where we had some signal:
- We’d steadily grown our ‘a la carte’ business where customers could purchase one image at a time without talking with a salesperson (as opposed to our primary, monthly-subscription model which we’d been selling through inside sales alone.)
- Our enterprise business was growing. Customers like Apple, Google, Lyft, Snapchat, and Demand Media had purchased big annual contracts that dramatically boosted the LTV of those cohorts.
So we made a plan:
- Cut the team from 55 to 20
- We’d let go of all sales, save five, whom we’d focus exclusively on enterprise sales
- We’d keep our services team, whom we believed we’d need as enterprise sales grew
- Meanwhile, we’d start experimenting with selling our SMB-level subscriptions via a fully self-service experience
The company’s managers met at the office from 5 PM to 1 AM on a Sunday to plan every detail of the layoff. While we’d made mistakes in scaling too aggressively, I was really proud of the leadership team in how hard they worked to take care of the entire team.
Nonetheless, it was just plain awful. We laid off 64% of the staff that day. I shared the news with the entire sales team together, minus the 5 remaining, and 30 sets of eyes looked at me with with shock, disappointment, and contempt.
In spite of our efforts to share openly throughout those months with the team about our financials, the targets we needed to hit, the increasing burn, there’s no way for 35 people to feel ok about getting their jobs taken away.
And ultimately, the entire thing was my fault. My responsibility. I’m the founding CEO. I’d recruited each of those people and personally trained many of them. While many of those leaving were gracious and expressed gratitude for the time they’d had at Twenty20, many were angry.
They took it out in emails, in text messages, and, at times, by personally attacking those who decided to stay. Glassdoor became a trashing ground for our once beloved workplace.
They were right. People could do better. We’d failed them. I’d failed them. I spent hours reading and re-reading every comment. I still haven’t worked up the courage or words to respond. Maybe this post is my attempt.
Moving Ahead
We landed somewhat on our feet. We took the remaining 20 people to a two-day offsite. We tried to get real. To stay open. To let people vent, and process, and drink, and come together. And largely, it worked.
On July 25, 2016, we launched the first pass of our self-service engine. To our surprise, in our first month of self-service testing, we outsold the once 35-person sales team.
By contrast, our five-person enterprise sales team was having a tough go of it. They were bright and hungry. However, it was quickly becoming evident that enterprise sales was going to be a costly and complex endeavor.
That left us in a predicament.
We promised the team that we had cut deep in the layoff to avoid future cuts. 64% in one pass. At the time of the cuts, we’d anticipated it would take us months to find validation in enterprise sales or self service. Not weeks. But there we sat, four weeks later, with clear evidence that self service was efficient and compelling. Enterprise sales, by contrast, was costly, complex, and filled with uncertainty. The choice was clear. But painful.
Harder and Harder Decisions
Once again, the executive team huddled offsite. We debated our next move.
- Did we go all in on self service? After only four weeks of data?
- Did we press on with enterprise and give it a few more months to play out?
- What were we to do with our services team if we did hone in on self service, smaller more transactional customers to whom we needn’t promise account management services?
We spent time pouring through the fully weighted costs of both enterprise sales and account management. Something, in hindsight, I wished we’d done much earlier.
We decided that with our focus on getting profitable ASAP it was critical we move fast on the data we had. We decided to go all in on self service. That meant making the painful call of letting go 40% of the remaining staff. People we loved who had been with us through the initial painful layoff. Who had attended the rallying offsite with us. Who had dug in and done the hard work of exploring enterprise sales. Who had cared for our larger customers through the many ups and downs.
To this day, I feel a weight of tremendous gratitude to our departed team members. The learning they helped us gain provided the foundation for the business we have today. Alongside that gratitude is a sense of shame and disappointment. I should have done better by those people.
As the CEO, it was my job to ensure the business was building on stable ground. It’s intensely important to me that I keep my people safe. I tried to keep my company safe by moving fast. Growing fast. The words “Move fast and break things” hung on the wall in our office in the early days. I even named our corporate entity “Fast Labs Inc.;” a nod to the importance I believed speed played in startup success.
In hindsight, my perspective has shifted. I now see it’s not speed of doing that matters. It’s speed of learning. And to learn, you frequently must slow down. A rushed mind misses obvious lessons. A rushed team cannot see clearly the decisions you are trusting them to make.
The culture of speed I had been complicit in creating nearly destroyed us.
By slowing down, by buying ourselves time, and more importantly evolving our workplace where thoughtfulness and self-care are prized not eschewed, we just might have earned the opportunity to build something great. And sustainable. It’s strange, but by slowing down and getting smaller we:
- build faster
- learn more quickly
- make our customers happier (as measured by NPS)
- make more money
My beloved coach, a boxer in his youth, is fond of saying that in boxing, like in business, sometimes you have to slow down to go fast.
The Lessons
A few lessons I wish I could go back and share with the earlier me. Not every lessons fits every company or situation, and I’ve certainly become a big believer that you must run a company in a way that works for you and your team, but perhaps some of my heartache might bare insight for you in your own exploration of business building.
- Product market fit. Foundation building. THEN scale.
Once we had paying customers and a basic knowledge of how to reach them, we announced we had product market fit and started to scale. We should have slowed down and built a foundation. Hired leaders. Dealt with tech debt. Set up the necessary tools. Cleaned up our data. Kept the burn low. - Test major strategic alternatives early.
The decision to go with inside sales over self service was a huge one. We spent millions hiring and training 35 sales people when four weeks of testing could have taught us there was a far more scalable path. It’s easy to rush down an appealing path. It’s important to not. - Take time to look for the trail.
Backpacking alone recently, I spent two hours climbing over boulders and bushwhacking through dense brush only to realize there was a clear path 20 meters to my right. I thought I was on the path, but I didn’t stop to look around until I saw another hiker cruising by me. Sometimes, it’s worth the extra time to see if there’s a clearer path 20m away.
- Consider fully-weighted costs early.
“Do stuff that doesn’t scale” is advice that’s taken off since Paul Graham gave it. I get it. However, eventually stuff that doesn’t scale will start to burn up all your cash. Fully weight all costs, including healthcare, software costs, management costs, etc. You’re losing money in more places than you think. - In boom markets, live on half the money you raise.
This a big one that leaves me wrought with regret. I’m a frugal midwestern boy from a farming town in Michigan. I swore after our Series A we wouldn’t be one of those cautionary tale startups that burned through its cash. But somehow, it just happens. Never again. From now on, when capital costs are low, I’m living on half the raise.
Present Day
Looking back on the last year, in spite of the regret and shame that I know will be with me for some time, there is an enormous sense of gratitude.
There’s no textbook for this shit. And as a CEO, I would be lost without the incredible team, investors, and advisors around me. Each of you have been patient and loyal through this crazy ride.
To those of you we failed who have moved on to other places, I am sorry. I wish I had done better. I wish I’d grown up faster. I regret not being a better steward of your career, your hard work, and your trust. I hope to do better.
At Twenty20 today, we are pressing ahead toward a very bright future. We have a clear path to profitability built on the painful but powerful lessons of the last year. We are doing our best to live up to those lessons.
Going through these experiences together, talking openly about what we have learned, and moving ahead with a different kind of company might just have saved us.
It’s certainly made us closer. The office has become a place where friends come to dig in on challenging problems together. A group brought closer by shared difficulty and shared humanity.
There is so much to learn in a startup. I hope that some piece of our experience might save you a few days of pain and allow you, in the midst of your own perilous voyage, to reach safe ground more swiftly. May you navigate your journey in peace.
Thanks to Tracy Lawrence and Todd Emaus.
