by Frank Gruber
(I also grew a startup beard while writing this book and didn't shave it until a full draft was done. Seemed to work—if you're male, maybe you should try it. For more on the startup beard, check out http://tech.co/book).
Final Thoughts
Raising outside funding is not the right move for every company. Some companies can bootstrap to profitability and are never inclined to take on additional funds. For those that do raise funding, it can be a distracting, long, and lonely road. But you will learn a lot along the way, and hopefully this chapter helped lay some initial groundwork to get you started—we can't all raise funding in six days like Postling.
After raising funding at SXSW, Postling didn't go out and celebrate. The team kept improving the product and gained additional traction, which helped them raise another $350,000 the following year thanks again (in part) to AngelList. Two years later, they were acquired by LocalVox Media for an undisclosed amount—and hopefully they celebrated then.
Part 6
Growth and Change
Chapter 16
Failure
You build on failure. You use it as a stepping-stone. Close the door on the past. You don't try to forget the mistakes, but you don't dwell on it. You don't let it have any of your energy, or any of your time, or any of your space.
—Johnny Cash
After three years and $325,000 in funding from angels, friends, and family, Tara Hunt knew it was time. She had dreamed of building Buyosphere into the destination to find fashion from real people, but her dream hadn't taken flight. She and her team had to get new jobs.
“My dream was dashed. I was broke. I felt like a joke. I disappointed the friends and family who had invested in me. I didn't know what I wanted to do with my life anymore. I hadn't made a fallback plan,” she writes.
Hunt had lost her identity. She became somewhat of a recluse, because all her old friends and old haunts reminded her of her pain and failure.
“I felt numb. I was in a state of numb for six months. I tuned out everything. I didn't want to hear about struggle or success or anything that was going on in the startup world or tech community. I unsubscribed from everything—every group, every list, every newsletter. I stopped talking to people who mattered in my life during my startup/tech days,” she recalls.
And her new job didn't help. She picked up a low-paying one that she ended up hating, and they fired her after the trial period—as if her self-confidence weren't low enough already.
Hunt's failure is the kind of real, brave, honest story that you don't hear that often. That's ironic, because the startup world actually celebrates failure. Maxims such as fail fast, fail forward, and fail often have become gospel. Silicon Valley's FailCon is an annual conference to learn from other entrepreneurs' failures, and it also hosts informal FailChat meetups. Graphicly chief executive officer (CEO) Micah Baldwin says, “Failure is something that in America we love…the [startup] process is a series of consistent and constant failure.”
This chapter is about both kinds of failure—those failures along the way that we routinely talk about and those more lasting failures that we don't. The goals are to tell it like it is so you know what to expect and offer a few thoughts on how to weather the storm.
Divya Nag's failure story has a more positive outcome. After dropping out of Stanford her sophomore year, she started a company called Stem Cell Theranostics. She and her team had developed a technology to take stem cells; turn them into other types of cells, such as actual beating heart cells; and test drugs on them (without harming humans).
“I was so bright-eyed, I thought we were going to change the world,” she recalls. “I figured if I can take skin and turn it into a heart cell, how hard could it be to commercialize this? Well, very famous last words. We decided to start the company, and that's when shit hit the fan.”
Her first big lesson was that scientists are not cut out to be startup founders—not if they follow the traditional culture of the scientific community anyway. As a scientist, she says, you don't really share your failures or your methodologies. To gain recognition, you have to be the first one to publish positive results. The ones who keep their secrets the best are the ones who get published in top publications and get top research grants, further building a culture of secrecy.
One year after starting up, Stem Cell Theranostics had made no progress and hadn't had any commercial success. They were failing. Yet Nag noticed that her peers in the tech industry were succeeding—they had users and money. Why?
The answer was culture. Tech startups embraced failure and shared with each other openly, and that inspired Nag. She knew the medical industry—and Stem Cell Theranostics—had to change if they were going to succeed.
So Nag started StartX Med, part of the Stanford accelerator program StartX, to help medical entrepreneurs deal with all the challenges they face. The first thing she did was sit the medical entrepreneurs down next to the consumer information technology (IT) and hardware entrepreneurs, not allowing any two medical companies to sit next to each other. As techies complained about their bugs and problems, medical founders noticed, and they eventually opened up about their own.
That's when Stem Cell Theranostics turned around. They raised more than $20 million in funding (from grants) without giving up any equity, signed on three revenue-generating customers, got an exclusive license to their technology, and are now raising a $6.5 million seed round. And they have a viable product even though they're less than two years old—which might be nothing for a tech startup but is impressive in the medical industry. When they learned to embrace failure, they found success.
When Do You Shut Down?
Nag could have shut down Stem Cell Theranostics when the team ran into trouble, but she didn't. How do you know when to persist and when to give up?
Sean Percival was the cofounder and CEO of Wittlebee, which offered subscription boxes of kid's clothes. He eventually stepped down because they had a cash flow issue (they were on track for $3 million in sales but weren't yet profitable) and he was starting to lose his drive and passion.
In the last quarter of 2012, Percival had tried to push through a Series A round. But investors just weren't interested: Wittlebee was in the unpopular industry of subscription commerce for families. It was running low on cash and had cut staff, and things looked bleak.
Percival created a parody Twitter account called @SeriesACrunch to vent, with tweets such as “Andreessen passed on us but they did invest in a message board for rap lyrics. Now I've got 99 problems and apparently a pitch is one.” That was one of his coping strategies, but the burden was just too much.
“My personal spirit and energy took a massive hit, from which I frankly never fully recovered,” he says in a post called “How to Survive the Series A Crunch—From Someone Who Didn't.” “It was the stressful on-again, off-again nature of our fund-raising that took a huge toll. The ups and downs can become so extreme in some cases that [it] quickly becomes unhealthy.”
Percival was self-aware enough to realize that it was time to move on. But it's not always easy. The entrepreneurial instinct is to persist past obstacles and be optimistic, and it takes a lot of guts to admit that you've reached the end.
“It's great to be on a journey to make your career with your startup, but it's not always worth it,” says Simon Lightstone, who shut down a microblogging tool called Snipia that he cofounded with his cousin. “Often, it's not just the founder who is making sacrifices. It's the founder's family, the employees who often need to slave away during hard times, and often others.”
The Harsh Reality
You might think this whole chapter should be called “The Harsh Reality”—failure is the ultimate harsh reality of startup life. Hunt's experience gives you a hint about what it's like, but you won't know until you experience it.
When you fail, you have to admit it to your team and go about the process of firing your friends. You have to face family and friends, shut down your website, close your ba
nk account and write an e-mail to your customers. You have to deal with all the credit card debt you've collected.
The list goes on. And you know you should do a postmortem so you can work through your thoughts and questions. Neal Cabage went so far as to write a book called The Smarter Startup as an exercise in reflection.
“After my second startup failed to get the traction I expected, I promised myself that I would not try another startup until I understood what went wrong and knew how to address it the next time,” he recalls.
Those are the actions you take. But the feelings can be even more difficult. You wonder why you spent so much time on your startup; you regret the time you didn't spend with family and friends. You lose weight and sleep. You feel sad and probably angry, too.
“When CrowdRules folded, I was mad. I blamed my partner. I blamed customers and the market. I eventually got smart enough to blame myself. It was classic grieving—anger, denial, bargaining, depression, and finally acceptance and self-forgiveness. Self-forgiveness was really hard,” says Tom Cox, cofounder of GrowthMaps.
People try to sympathize, as Hunt knows, but you aren't looking for sympathy. You don't want to keep telling the story over and over, trying to seem positive about it. You just want to be left alone with your feelings of stupidity, naivete, and low self-esteem.
“I dealt with some concerns that maybe I wasn't up to this kind of challenge, typical fears of inadequacy or incompetence,” says Troy Davis, chief technology officer (CTO) of CoupSmart.
“I have personally had two startups fail; it hurts like nothing else. Without sounding disrespectful, I feel you can compare it with losing a loved one, and I feel comfortable making that comparison since I have experienced both myself. It's terrible. It makes you feel like a complete failure, and it can take months to process,” says Robert Hoddenbagh, cofounder of MesaSix.
And finally, there's the cynicism. Your startup heart has been broken, and you can no longer go into another startup relationship with that bright-eyed, anything-is-possible mentality that only first-timers have. Words like hustle and stories of the latest million-dollar fundings will fall flat on your ears.
Ultimately, you'll have to decide if you want to do it again and risk another failure. And that may be the hardest decision of all.
How to Stay Positive
Learning how to stay positive despite failures along the way is the first step to learning how to deal with total startup failure.
According to behavioral scientist Matt Wallaert, who works at the search engine Bing, many entrepreneurs suffer from something called founder's disease. They don't talk to others enough about their failures, and that is emotionally draining and bad for business (after all, no one can offer support, connections, or advice if they don't know you're struggling). The solution, as Nag learned with Stem Cell Theranostics, is to start by being open about your troubles.
We can also look to psychology for some insight on dealing with setbacks, where we'll find support for the practice of self-compassion. One study showed that being compassionate toward yourself—rather than blaming yourself—makes you happy and less angry at the end of the day. And self-compassionate people actually take more responsibility than the self-blamers because they can admit their mistakes without feeling like an utter failure. If you're not naturally self-compassionate, you can induce self-compassion by writing a letter to yourself as if you were your friend.
Steve Corona, former CTO at TwitPic and author of Scaling PHP, stumbled upon a similar idea when he realized the importance of taking responsibility. “When you accept the blame, failure is easy. You aren't left with excuses, anger, and questions—the feelings are simple and the answer is obvious. It was all my fault. You can't blame anyone but yourself, and how can you possibly hold a grudge at you? It's easier to forgive yourself than it is to forgive others,” he says.
Another psychological trick is positive reframing, or being able to see the benefits even in bad circumstances. It's a trait associated with self-esteem, optimism, and hardiness. And it's particularly useful for those who suffer from the doubts and worries of perfectionism. For example, you might try to focus on the lesson learned when your marketing flops or the helpful advice you got from a venture capitalist who rejected you.
One of the positive sides of failure is that it's a learning experience, a stepping-stone to success. A famous Nike commercial features basketball player Michael Jordan saying that all his failures—losing almost 300 games and missing more than 9,000 shots, 26 of which could have won the game for his team—are the reason he succeeds.
Twitter grew out of the failure of Odeo, a podcasting service. Groupon grew out of the failure of The Point, a site that allowed groups to organize and fund-raise for causes. In March 2012, Seesmic laid off half its staff and completely changed course, leading to an acquisition by HootSuite in September. These companies were able to succeed because they analyzed what was going on, salvaged what they could of their past work, and moved on.
Matt Galligan, a serial entrepreneur and now cofounder of Circa, says, “Accept failure. I think that we try so hard to sideline failure and just skip past it and be better than that, but the reality is you fail and you fail a lot and you have to just learn from those failures.” At his early company SimpleGeo, their failure was trying to be too mainstream, which they wasted a year on. Once the company found its niche—powering the location features for app developers—things turned around.
Finally, for setbacks that can't be changed or remedied, acceptance is the right attitude. If you don't accept something—the flaws in your product or how late the release will be—you're basically in denial. And denying reality certainly won't equip you to handle it.
How to Stay Positive When Your Startup Fails
As you've grown your startup, maybe you've learned to not be too hard on yourself, look on the bright side, and accept reality. But if you're forced to shut down, all that will be put to the test.
Ellie Cachette was the founder of ConsumerBell, a startup that was improving consumer information related to recalls. At one point, she joked that they were like a cockroach that wouldn't die: despite their blog going down, having their credit line cut in half, and going through two suicides (their lead customer and their CTO's wife), the company was still alive. But in December 2013, Cachette and her team finally had to shut down.
Her response was one of gratitude and looking forward. “Of course I am sad, but I also know a ton of information and have ideas around areas that need my help, too,” she wrote on the ConsumerBell blog. On her personal blog, she added, “After pouring hours of blood and tears and airport layovers and tough decisions, I can actually breathe for a minute and execute on other ideas and do it well…it's nice to know that I now have the time to do so. What a blessing.” Now, Cachette is the vice president of product marketing at Koombea, a Web design and development agency.
Lightstone and his cousin, who had spent a year and a half and $35,000 on Snipia, finally gave up but managed to focus on what was even more important: their relationship. “After we officially decided not to pursue Snipia, my cousin and cofounder, then living in Israel, sent over a gift basket of beer and snacks to my place in Toronto. It was great. We loved each other anyways, but it was a sign that our connection was not hampered by the situation, and that life goes on,” he says.
Brad Feld even recommends that startup communities hold wakes for failed entrepreneurs. This could be a dinner or a quiet evening out—anything to show them that failure is okay and their efforts didn't go unnoticed.
Feld knows something that you can come to realize after you go through a process of grieving. When your startup fails, your startup fails. You do not fail. That's true even if you decide that you won't try again—because you tried, and you made something, imperfect as it was. You tried, and you learned. You tried, and it's over, and there's nothing to do but be grateful for the opportunity and for all those who helped you. There's nothing to do but continue making your
self and your world better, because even if you don't have a startup anymore, you are an entrepreneur.
Final Thoughts
As for Hunt, she got through the failure by first finding a distraction: a job on a political campaign. Her candidate actually won, kickstarting the process of rebuilding her confidence.
“Slowly I had ideas. Inspiration. Drive. A desire to do something again. I slowly stopped feeling afraid. I slowly stopped feeling dread. I slowly regained confidence. I slowly stopped asking, ‘Why would anyone want me?’ and started believing in myself again,” she says.
As of mid-2013, Hunt still wasn't back to her old self, but she felt “okay.” She believes that you have to mourn, get some distance, and find your identity again when your startup fails. Now she's working with a partner on Lime Foundry, a social strategy agency, and Buyosphere is still running on the side.
“I can honestly say that I'm a much stronger, smarter, more interesting person for going through all of this,” she writes. “And my next venture? It's going to be better for it.”
Your self-worth has nothing to do with your craft or calling and everything to do with how you treat yourself.
—Kris Carr, Best-Selling Author and Wellness Activist
Chapter 17
Success
Growth is a spiral process, doubling back on itself, reassessing and regrouping.