A business degree, Wall Street background, and prior startup experience couldn’t save me from these grave mistakes.
I knew something was wrong when I couldn’t get out of bed until 9, then 10, then 11 am. I had spent the prior years working 80 to 100-hour weeks in high-pressure investment banking jobs pitching and selling $100M companies, so running on minimal sleep should have been a habit by now. I should have been a pro. I also should have been a pro at understanding and building financial models, pitch decks, and successful businesses, with the added help of an entrepreneurship and finance degree from a top ten business school.
Yet here I was, wiring out my life savings in $20,000 increments to developers for a product I was losing faith in day by day. We didn’t have one customer and were nowhere near soliciting them. My unwillingness to wake up and face the day was merely a symptom — an indicator of something much more concerning than a sleeping disorder.
I was staving off the fears that rattled in the back of my brain and sleep was my escape. If I was asleep, I couldn’t face the somber truth. Until one day, six figures in the hole and 18 months into a prolonged disheartening journey, I’d come to my senses and call it quits. If only I’d listened to that little voice and acted sooner, perhaps I’d reminisce on strategic decisions, rather than regrettable confessions.
1. My burn rate didn’t scare me when it should have
I knew building a bootstrapped tech company as a non-technical founder was going to be difficult and expensive — at first. For some reason, I thought those costs would abruptly cease once the development was completed and the business launched. I also completely forgot or neglected to include any significant marketing expenses into my financial model…perhaps I was subconsciously preparing for our pre-revenue demise from day one.
Once I realized small feature upgrades, technical fixes, and backend enhancements to improve the product’s value would come with a $2k to $25k price tag each, I should have been worried. Add on our $10k legal retainer (required for our industry), and we had a money pit on our hands.
The bottom line: At the end of the day, all tech products come with ongoing maintenance costs, and they rarely* (*ahem: never) taper off to $0.00. If you can’t look at your burn rate and clearly articulate (or illustrate with a straightforward formula) how you’re going to exceed that with sales, you may have a costly problem. Oh, and if you don’t factor marketing costs into your burn rate, you’re doing it wrong.
2. I did equity distribution all wrong (and assumed paying someone $70k+ makes them care)
You can slice equity any way you want, but here’s the only thing that really matters: Equity is a tool, an incentive, and a reward; as such, it should be given to the people you want to care and contribute most.
In other words, your most valuable team members should probably have some equity. Don’t you want them all-in and committed for the long haul?
I did equity as wrong as you could. My developers — who were the crux of the business, implementing my and my co-founder’s vision and turning it into valuable proprietary technology — were outsourced. They had no equity, and they weren’t even full-time. Being that they didn’t have equity and were juggling a multitude of higher-priority client projects simultaneously, they didn’t necessarily give us their A-game. I was too inexperienced to realize, though a few hundred hours QA-ing the countless glitches, lazy development work, and a few major mistakes in the code clued me in.
I don’t believe they were bad developers; I just don’t think we gave them enough of an incentive to care. I had a tool, and I saved it all for myself, just so I could retain a big fat 95% of nothing. The takeaway here is simple: Equity is a tool to secure better talent and build a stronger team; use it wisely.
3. I paid others to solve my problems, while I remained ignorant
There’s nothing wrong with paying talented experts for tasks that aren’t your strong suit — so long as you understand what you’re outsourcing enough to assess and determine whether they’ve done a good job. That said, it wouldn’t hurt to further your knowledge in those areas, so you (the business owner) can add some value — especially if they’re key to your company’s operations.
In my case, five primary areas were key to the business:
- The technology behind user-generated content platforms (devs)
- Revenue-sharing payment systems (devs)
- Sweepstakes legalities (lawyers)
- Acquiring early adopters to new content platforms (influencers?)
- Fostering social networking (influencers?)
I allowed my outsourced tech team to cover the first two, my expensive lawyers number three, and I saved four and five for later, when we were launched and influencer collaborations would carry the platform to success. I truly believed paying my problems away was a substitute for doing the hard work of learning, becoming an expert, and mastering those crucial core competencies — be it through research, online courses, or trial and error. In doing so, I robbed myself of the educational opportunity of a lifetime.
If nothing else, a startup journey should be the foundation for an invaluable entrepreneurial education and the chance to set oneself apart with unique domain expertise. If you put all your time, money, resources, and effort into developing your product and not yourself, you may come out with very little to show for it if the startup doesn’t achieve the desired outcome.
4. I settled for developer’s shortcuts, at the expense of our most valuable asset
Coming out of investment banking, I simply assumed that robust analytics would be a given with any website or tech product — especially one I’d end up paying six figures to develop. Apparently investment bankers and tech developers think a bit differently in that regard.
When the developers handed me the first functional iteration of the platform for review, I logged into my admin panel to check the test user data and export the file. It didn’t take more than two minutes to conclude that this data was severely lacking. The worst part was finding out enhanced exportable reports would cost another few thousand to enable — and they still wouldn’t be nearly as user-friendly or robust as I’d like.
In my opinion, thorough user data and analytics were some of the most important and valuable aspects of the platform we were building. This must have been news to the developers, as getting them to improve and amend that reporting functionality was like pulling teeth. In the end, I let crappy reporting fly because I was afraid to upset the tech team or blow my budget.
The lesson for you: Don’t assume your developers will build in the reports, data, and analytics you want. Be discriminating and specific in your requests, and don’t settle for subpar data, especially when you’re paying an arm and a leg.
5. I should have infiltrated the industry or poached in-the-know talent
Back when I built my first startup, I mistakenly believed that a few months of round-the-clock Google searches and pouring over endless interviews with industry experts and pioneers would catch me up to speed. That was pure delusion — at least for the burgeoning industries-in-development we were treading along.
No matter how much you watch, read, or listen to about an industry — especially an under-wraps up-and-coming one — you will lack critical knowledge and insights that can only be gained through real firsthand experience. You have three good options to counter that gap:
- Hire an industry expert (fastest, but expensive)
- Become an industry expert (slowest, but great for exposure and connections)
- Infiltrate the industry by becoming or employing a “spy” who’s working in some capacity that receives broad exposure and valuable connections
If I had years to infiltrate the industry or had an army of clones to deploy as spies, I would have sent my minions out to glean firsthand insights working for all of the semi-relevant companies in our space: Omaze, Rafflecopter, Patreon, Famebit, YouNow, and so many more.
Being uninformed and lacking industry experience are problems with a very clear solution. That solution should not start and end with a Google search.
6. I was too afraid of failure to get external beta testers
Building a startup might seem like a lonely, solitary process fit for back-office-loving introverts. Launching it, however, isn’t.
I long awaited that magical moment when a voice from above would break through my fears and doubts to announce: “Rachel, now is the time. Your creation is ready for its public debut!”
That memo never came — and apparently, it never does. For most startup founders, you never feel “done” or “ready” to launch to the public for the first time. My thought pattern was mired in questions:
- What if something goes wrong?
- What if greater-than-anticipated traffic crashes the site?
- What if we get hacked?
- What if people find a ton of bugs?
- What if a copycat clones our site and steals our IP?
- What if we should have added more functionality?
- What if users don’t understand the interface?
All of those “what ifs” could have been answered by simply launching the product — even just to a small focus group (or beta tester audience) and soliciting feedback. Instead, I delayed and delayed, telling myself we had yet to hit that mystical tipping point when a product suddenly becomes “user ready”.
In truth, that tipping point has little to do with the product and everything to do with the founder answering one vital question:
- When are you ready to be vulnerable and open up your creation to the world for feedback?
7. I hid behind the product so I didn’t have to market
Of the six figures I spent building the business, want to know how much I earmarked for marketing? Or how much we actually deployed to gain visibility and acquire users?
None. Unless you count the branded PopSockets I bought a few months before the whole thing would implode. I guess you could call that marketing — the laziest, least-effective, least-targeted method of marketing a digital product, considering that branded PopSocket would remain within the confines of my studio apartment 90% of the time, on display for my furry roommate. Despite her support, I don’t think my rabbit, Flumpster, was going to bring in too many new users…
The PopSocket was just another excuse to do something other than pound the pavement marketing the product. In truth, we didn’t have to fail. We didn’t have to give up before testing the public reception. I made a strategic decision to do so, and given the constraints of our ill-equipped team and limited funding, I have no regrets.
That said, a bolder founder with a higher level of conviction could have moved forward. We could have held contests, handed out flyers in highly-trafficked promenades and malls, run ads with incentives, partnered with microinfluencers, and so much more. But we didn’t. We focused on technology, bug-testing, and enhanced functionality — because we were, after all, a “tech company”.
Here’s what we forgot: Without users or customers, you aren’t really a company at all.
8. I pulled the plug because I knew we were the wrong team
We didn’t fail the traditional way. We didn’t launch to a massive public flop, suffer a costly legal blunder, or get bulldozed by a better-funded competitor. We didn’t even run out of money entirely — though continuing would have meant edging dangerously close.
Our failure was a decision — but a strategic, calculated one. I made the call to pack it in because, after 18 months of an uphill battle that wasn’t getting any easier (or cheaper), I had excess time to confront and grapple with our shortcomings.
I asked myself:
If I were an investor, would I have bet on our team to take this idea to the moon?
The answer was an immediate no — zero hesitation.
That isn’t because I lacked the skills or tools or knowledge to build a business. On the contrary, it’s because I knew what was entailed and just how important the right team and industry expertise is. We lacked both.
9. I should have quit sooner
As much as I hate to admit it, I saw the looming, near-insurmountable challenges we faced many months earlier. Somewhere between spending $40k and $60k, I knew we had bitten off more than we could chew. The more I learned about our related industries, the more certain I became that my 6-figure savings and our piece-mealed team of part-time, mediocre talent was far from what success in this venture would require.
Instead of fessing up to the team, my partner, or my friends-and-family advisor and partial backer, I kept moving forward, throwing more money at technology that would barely see the light of day. I hid my deep concerns for fear of letting down everyone involved, but in reality, there was no escaping the inevitable truth. Failure was imminent — at least on the path we were headed.
I should have been brave enough to shine a light on the problems when I first noticed them. We probably should have quit sooner — or at the least, regrouped and found a cheaper, faster way. Instead, I did what I thought would appease everyone around me: kept building something “awesome”, while avoiding the very problematic elephant lurking in my corner.
The best thing about losing six figures
The sting of my first startup failure didn’t dissipate overnight — or even years later. To this day — despite building, co-founding, consulting for, and currently running multiple profitable companies — thinking back on that first startup failure still puts a knot in my stomach.
When you risk and lose someone else’s money or experience a failure due to an unexpected market upset outside your control, you may take things less personally. In risking my own money, and being the majority equity holder and the only full-time team member, I took full responsibility for this failure. I confronted every flaw and shortcoming as my own and vowed never to make those same mistakes again.
Losing six figures in my first startup was a giant wake-up call — but I think it was the one I needed. I learned the most important lesson early on: No, you can’t simply pay all your problems away.