What throwing in the towel looks like (Oversubscribed Weekly #32)

August 1, 2019 by Mike

Mike here. Last week, Max shared his story of when he decided to throw in the towel with Castle. Many of you responded you wanted more in-depth detail about these stories/decisions, so today I’m sharing mine. 

Before I dive into this story, here’s something slightly unrelated y’all should read this week – Paul Graham’s take on how he would start a company today. It’s contrarian compared to VC-backed culture today, and I would approach things similarly if I were starting a company today. 

Now onto my story/therapy session: 

One of the things that both Max and I gained perspective on after gaining some distance from our first startups was that as an entrepreneur, your biggest asset is your time and you need to be deliberate about how you invest your time. Successful entrepreneurial careers are shaped over decades, not 3-year sprints, so it’s important to not waste your time.

After reading Max’s story last week, it got me thinking about my own startup journey. I found myself at Max’s housewarming party last Saturday. Someone asked me about my past startup, and perhaps due to having recently read about Max’s journey, it hurt a bit more to reflect on it than it had in a while, resulting in this text to my former co-founder, Matt. 

So by popular demand, here’s the story of how I decided to liquidate/fire sell my first startup and wind it down.

We started Compass (freelance marketplace for web designers) back in the beginning of 2015. We joined an incubator, got some traction, raised angel funding, and grew the team to 5. With a lean team, we grew the business to $30K/m in sales and quickly raised a seed round in summer 2016. After raising our seed round, we grew the team to 9 and had to slow our growth due to scaling issues. We spent 5 months trying to fix the operational issues we caused by trying to grow too quickly. Once we’d addressed these issues (so I thought), I decided it was time for us to put our foot on the gas again to figure out quickly whether or not we were built to scale. We had our two best months of growth, but then everything started breaking down. 

I ultimately decided that we were not going to figure out our original business model (freelance marketplace), and pushed us to pivot to building software for one side of the market (billing software for freelancers), which resulted in laying off 5 of the 9 team members. For 6 months, we built our new product (called Sail), while getting early traction with beta customers. Our traction was moderate and had some positive indicators, but our traction was not strong enough that it was clear we had found something.

Then the hard conversations started. 

Matt (co-founder) and I had a conversation where we decided that we needed to figure out if we were onto something or wasting our time. We came to an agreement that if we hit certain metrics of active users by the end of January 2018, then we would raise a bridge round and continue building. 

In November, Matt went on a weeklong cruise with his family. In that time, I launched a marketing initiative that resulted in 2K new leads in a week, but resulted in fewer converted users than we hoped. Still, I was encouraged by my marketing breakthrough. 

When Matt came back from his cruise and I gave him an update, he was impressed! But two days later, I could tell something wasn’t right, so I took him out to lunch.

I started talking about the positive indicators from our marketing to see what kind of reaction he would give. I kept pressing, and eventually got him to share what he was thinking. It went something like this: “That’s great that we had a marketing breakthrough, but what does it say that we didn’t see a corresponding uptick in active users? Are we sure that what we’re building is differentiated enough that it’s worth these continued sacrifices? We’ve been working our tails off for three years. My biggest fear is that you’re going to find some way to hit our metrics and raise a bridge round, and we’re going to waste another year of our prime working on something that ultimately isn’t going to go anywhere.”

Now, I was always the positive one who would confront doubters and obstacles with enthusiasm to drive us through the wall, but Matt’s words during this conversation crippled my stubborn enthusiasm. Hearing him say this, I realized that his biggest fear was also my biggest fear, and that the worst possible outcome wasn’t failing, it was spending more of investors’ money, our time, and our employees’ time on something that that wasn’t worth that investment. I felt confident that I could hit the stretch metrics we set, but that wouldn’t change the fact that what we were building was not interesting enough.

I remember this vividly, as it jarred me loose from my drunk, stubborn conviction that we needed to continue the march we were on. It was at El Purepecha (Mexican lunch place) in Philly, and Matt was eating a wet burrito, and I was eating a shrimp burrito. With Matt’s words, I was able to finally think about our careers as entrepreneurs beyond our present endeavor. Later that day, I had a conversation with an advisor and told him about my conversation with Matt. He asked me if I was ready for him to act as my friend and not my startup advisor, to which I said “yup.” He told me bluntly that it was time to wrap things up and that any additional time I spent on building the company would be a disservice to my long-term ambitions.

I asked Matt to have a drink with me that evening. We were a few drinks deep, but for the first time since starting the company, I was sober in my ability to talk about the business. I told him that it was time for us to wrap it up. He agreed, we reflected over a few more drinks, and over the coming months we gave everyone severance and proceeded to sell the product we’d built and the remaining assets of the company, returning all of the money we could to investors. 

I’ll never forget this order of events. I’ll never forget what Matt helped me realize – that knowing when to move on is more courageous and beneficial in the long term than continuing to be resilient for resilience’s sake. Grit is important in startups, but grit is measured over the course of your career as an entrepreneur – not just during your current startup.

Make sure you take time to think about your career as an entrepreneur, not just your current endeavor.

See you next week with a little less sappiness,
Mike (& Max)

Enjoy this? Get Oversubscribed in your inbox every Thursday.