The Worst That Can Happen Is Actually Pretty Bad

<DownerAlert>
If you’re looking for inspiration, skip this post.  It’s incredibly long and the startup dies in the end.
</DownerAlert>

Founding a startup requires facing, and overcoming self-doubt.  Toward that end,  people in the startup-advice business often take their audience through a face-your-fears exercise.  They’ll say:

“… after all, what’s the worst that could happen?  Your startup could fail, so what?”

and they’ll shrug their shoulders as if that were the emotional equivalent of losing your glasses.  See here, here and here. It didn’t really click with me how much I hate that bit of advice until I heard the estimable **Fred Destin (@fdestin) give it yesterday at the wonderful “Built in Boston” meetup.  And Fred’s not alone.  Here’s the equally estimable Dharmesh Shah saying basically the same thing.

Maybe it was the coincidence of this tragedy only weeks before, but I pictured the bright young things behind me all imagining their own particular future failure as an Instagram slide show.

  • Slide 1: <black and white>The lights fading over the foosball table
  • Slide 2: <black and white> The door, with company logo, closing for the last time
  • Slide 3:<sepia tone>The team, beaten but unbowed, sitting round the table at the local bar for the final post-mortem

All very romantic in a first world, 21st century sort of way.  A bit sad, but in the end you buy a new pair of glasses and move on.  Nobody gets hurt.

ImageWell take it from me, I’ve been at 3 failed startups, and I’ve lost dozens of pairs of eyeglasses and as Samuel L. Jackson might say

they’re not the same ballpark, they’re not even the same fucking sport  

Here’s how a startup fails:

Halfway through your seed round money, you get a really clear idea of when it’s going to run out.  You were supposed to know that before you took the seed, but it doesn’t really hit home until now.  Now there’s a clear date and you are closer to the end of the runway than the beginning.  Spending is accelerating, so rather than being halfway through, you’re closer to two thirds of the way through.  You’ve been out trying to raise Series A – if you’re not on a plane, you’re on the phone, sometimes both – but VCs don’t ‘get’ the business and the low-hanging fruit is all gone.  You’re working the edges of your network now, cold calling.  

You have a dozen people on the team now, probably have a working space, and your little family is starting to take shape.  People know each other’s strengths and quirks.  They’re “your guys”.  Trouble is, almost all of “your guys” actually need this job.  Two weeks, a month, two months of unemployment will have real-world consequences for them.  The experienced ones are starting to worry.  Pro Tip: This is why you don’t hire experienced people – they know too much.

wherein you divorce the board …

Your angels are aggravated with you, but you’re aggravated with them too so that’s kind of a draw.  They were never exactly on the same page with you anyway.  They keep harping on that pitch meeting with Bessemer where you blew your nose on your coat sleeve and forgot your CTO’s last name.  Now they’re cranking up the pressure, criticizing the pitch, the product, your team, your haircut, drilling in on your business in a way they never did before, when it might have helped.  The only thing they’re not doing is forking over more money.  You need a money commitment soon and the board and management team know this.  You call back every investor who’s already said no so they can humiliate you again.

… and the team …

You’re in the office less and less, out raising money.  Without an authority figure present there are suddenly soap operas going on all over the place.  There’s some product issue and two people aren’t talking to each other.  The dev you couldn’t afford but hired anyway just adopted a cat and needs two weeks off.  Your CTO is “working from home” and nobody can reach him.  Everybody is upset about something.  The team that looked like a well-oiled machine a month ago now acts like a middle school class on a museum outing.  You stop going out with them and start really disliking them.

… and become a deadbeat …

You start outright stiffing vendors to stretch payroll.  Truth be told, you’ve always been a problem account for at least half your vendors.  Now relations with the half-dozen vendors that still like you start to go south.  You try to trade (more) equity for services and maybe one of them bites but the others start talking about shutting you off.  Even your lawyer, awaiting payment, stops returning your calls.  You tell yourself that stiffing vendors is not really unethical, it’s just the way the game is played.  You stop answering the phone and spend every waking hour dreading the call from someone at the office saying the electricity, phone, internet service is out.

That network consultant who put your data center together?  You put him off too.  The signed contract says “net-15”?  That really means “net-forever”.  After all, consultants aren’t people, they’re just vendors and stiffing vendors isn’t unethical.  Well, at least it’s not illegal.

Your CFO resigns to spend more time with his family.

… and a liar …

bluesbrothers4You start lying to people.  Maybe they’re small, noble lies like “everything’s fine”.  Maybe they’re big lies like “we have six months of money in the bank”.  Maybe they’re casual business lies like “check’s in the mail” or “we’re about to ship V2 and expect a big bump in all our KPIs” or “the Board is fully behind our current strategy”.  They’re not really lies they’re … bullshit.  But, even with a strong rationalization in hand, you find yourself avoiding people so you won’t have to bullshit them.  You start disliking yourself.

… and possibly a crook …

Maybe you crack.  A friend of mine tells of an unnamed founder who took his last payroll to a casino and came back with an extra month of runway (it didn’t help).  Or you stop paying payroll or sales tax.  Or you use the same asset as collateral for two different loans.  Maybe you won’t do that, you don’t trust your luck that much, but you will start trying to trade your increasingly worthless equity for salary, or worse, force people to take a straight salary cut.  Everyone does this.  This is when the troops clearly see the fence at the end of the runway.  One of them will inevitably say with a completely straight face “We should bring in another round of funding.”  You’ll resist the urge to strangle him.  You’ll also resist the urge to tell the team the whole ugly truth.  Most of them took less salary than they could really afford just to work here.  Now you’re asking them to take less.

… and finally a joke …

Most of the team feels the heat and works harder.  You certainly do.  You discover that mythical twenty-fifth hour in the day.  But somewhere along the way you made the mistake of telling the whole team the whole truth and suddenly strange things start to happen.  People who’ve marched to your orders religiously start questioning your decisions.  Ideas for crazy, unrelated pivots start popping up at meetings.  Your management team starts bringing in their own potential investors.  None of them actually has any potential but they all eat up your time and rejecting them strains relations even further.  Team lunches (without you because you’re never available) take longer and longer and guess what?  The discussions there invariably revolve around your personal shortcomings.  People come back from lunch a little drunk, giggling irrationally and productivity suffers.   You find people working on stuff that you don’t understand and don’t want but you don’t have the time to straighten it out.  It’s clear that some people are ignoring you.  You feel it coming apart.  These are the longest three months of your life.

… and after all that, you pull the plug anyway …

Pull_PlugAnd then after weeks or months of that bullshit, the day finally comes.  Someone – the board, a vendor, you, your wife – has pulled the plug.  You need to write a check (or two or ten) and there’s not enough money in the account.  Your credit card is maxed, you’ve tapped every possible source of money – maybe the bank is about to own your house.  You gather the management team, probably including people who used to be your best friends.  Maybe voices are raised, but probably not.   Those guys knew it was coming.  You go over some mechanics, rehash some bad decisions and when there’s nothing left to say, you call the all-hands and do it all again.  Half the room stares daggers at you.

Everyone packs up.  Some of them steal stuff, but most don’t.  Inevitably, the intern cries.

… which leads to more pointless thrashing …

But wait! There’s a guy who likes what we’re doing, wants to put some money in, he just needs to talk to his legal/partners and he’ll put three months of runway in our account for only a quarter of the company.  We just need to keep it together for a few weeks.  It’ll all work out if we can just keep it together.  But we can’t make payroll.  Maybe this is the point where you’ll crack and say something stupid like “you can file for unemployment and still keep working on the product, nothing has to change”.  Maybe you’ll just beg, but your people hate you personally by this point, don’t kid yourself on that.  If you run your startup into the ground the people who work there will end up not liking you.  But they love the product – hate the visionary, not the vision.  This sort of denial happens to devs all the time, so some of them go for it.  They keep working on it, but the energy is gone.  They’re looking for other jobs at the same time, and they know in their heart of hearts that it’s over.  Suddenly, watching entire seasons of Battlestar Galactica on Netflix is more important to them than working on the product.  But for weeks you all continue the fiction.

… that continues long after the team has put you in the rearview mirror …

The guy with The Money keeps negotiating worse and worse terms, keeps telling balder and balder lies about why The Money isn’t forthcoming.  You realize he’s either a vulture or a psycho and stop talking to him.  Crazy schemes circulate amongst the crew but they go nowhere.  Vulture investors kick the tires but your cap table’s an irredeemable mess and the code has started to rot such that you can’t even build it anymore.  Your significant other has become significantly cool.  The people you’ve sweated and bled with every day for the past two years are gone, a hole in your life.  You and the investors squabble over the intellectual property.  This goes on for months, if not years.  You slowly realize that having a failed startup on your resume is actually the least important result in all this.  The most important?  That you let everyone down.

… but that’s really all that can happen, so don’t worry.

What’s the worst that can happen?  You can spend years on a project that benefits no one, wrack up huge debt, do things you will not be proud of, and end up with a bunch of people who know you really well and don’t respect you.  You can find out once and for all that you suck.  So don’t kid yourself.  The worst that can happen is actually pretty bad.

** It’s hugely unfair to use Fred Destin as the example here. Lots of VCs use the “what’s the worst that can happen” imagery. I love Fred’s blog and his tweet stream and he does tremendous work in the Boston eco-system.  He’s one of maybe 10 people I read every day.  And at some point soon I’ll be looking for money …

About JR
Software guy, startup guy, non-fiction glutton, south shore inhabitant

3 Responses to The Worst That Can Happen Is Actually Pretty Bad

  1. JR says:

    Before you ask, yes, I’ve seen all this stuff happen. Most of the time I wasn’t a founder (both my co-founder gigs have exited), but even in a successful startup, bad things happen and some of those are included here as well.

  2. Pingback: Methuselah@startupinc.com | Pointy-Haired Startup

  3. Pingback: The Harry Project or Yet Another Modest Proposal | Pointy-Haired Startup

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