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Failure is life’s greatest teacher. And god knows, it’s been a year full of them.
So with 2021 just weeks away, as we all struggle to understand what went wrong and what comes next, we thought — why not give in? Instead of pushing all the bad stuff away, what if we reveled in it instead?
Afterall, what could be better than a long list of other people’s mistakes to remind us that the bad stuff passes? It always does.
This week, we got back through the archives to tell some of The Startup Stack’s greatest stories of failure. F***-ups to learn from, stories to inspire.
So enjoy this special episode of The Startup Stack and we’ll see you in the new year — older and wiser and with loads of mistakes still ahead.
The Startup Stack’s Host
CEO, Co-Founder of Rocketplace
Rocketplace is a curated marketplace of high quality professional service providers. A 3x founder, investor, and board member, Louis began his tech career as a partner at Andreessen Horowitz. When he’s not working or podcasting, Louis enjoys cooking for his family. His pizza, he’d like you to know, is incredible.
Full Episode Transcript
[00:00:00] Louis Beryl: [00:00:00] Hello, it’s me again. Louis Beryl, CEO of Rocketplace and host of The Startup Stack. We’re back this week with a little Hanukkah / early Christmas / winter solstice, holiday of your choice treat! [Happy holidays song]. If you listened to the show, you know that I talk a lot about the fun parts of running a business, but I also talk about the less fun parts, The Big Whoopsies, the mistakes we’ve made, the ones we’ve learned from the hard way. We’ve heard some pretty great ones on The Startup Stack, and we thought. What better way to end the year than a string them all together. A celebration of mistakes made. A Festivus of sorts just in time for the new year. So we picked five big woopsies here they are in no particular order. Whoopsie number one is courtesy of Jessica Bronto Davidoff, of business production and consulting company. Sprezzatura. Here we go.
Cher: [00:00:49] If I could turn back time.
Jessica Brondo Davidoff: [00:00:53] So oh God. I mean the, the biggest challenge for me is I am like [00:01:00] by nature of problem solver. And so when I’m working with founders and clients and they come to me with a problem that doesn’t necessarily fit within the scope of what we had agreed upon, I’m so inclined to just like dive in and help. And so. I had to do a lot of work in the early days of really focusing in on what we do and what we don’t do. Um, and being really mindful of running this like a business instead of kind of running it in the way of just like, I want to solve all the problems. I don’t care what was in the scope of our agreement. I just want to help because you get to be so close with your clients when they’re in those early days and you have this incredible bond. So it was very unnatural for me to say like, okay, well, I can definitely do that or my team can help with that, but we would just need to kind of add an additional scope. So I would say it was really defining what we do, what we don’t do, and then also, um, being mindful of not allowing [00:02:00] for, you know, scope creep.
Louis Beryl: [00:02:02] Whoopsie #2 is from Mike Stone of software development agency. The Gnar.
Mike Stone: [00:02:06] It wasn’t a huge deal. But within the first year we had one where we had to, uh, loan back the company, some money in order to make payroll, which was pretty nerve wracking. It was really tough because we had so much money in like accounts receivable that clients owed us. But we weren’t maybe like getting paid on time or the terms were too far out. Our payroll was draining our bank account. So it’s like, man, we should have all this money, but we still have to pay our engineers know on the cadence that we have. So, uh, ended up having to loan it back. It ended up as no big deal because we just got refunded when the cash came in. But, uh, it was a big like eyeopening experience of like, oh, this can happen and we should make sure we do whatever we can so it doesn’t.
Louis Beryl: [00:02:51] That brings us to whoopsie #3 from Daria Gonzales of design agency, Wunderdogz.
Daria Gonzalez: [00:02:55] We started as a very non-traditional creative agency because [00:03:00] neither me nor Olga, my co-founder had kind of a pure, you know, designer or brand strategist experience. And, uh, we had, we struggled a bunch because we didn’t have it, but we also um, managed to leverage our difference. And, uh, I think what really works for us as a Wunderdogz is our additional experience. We’re not only designers. We’re also former investors, former founders, you know, operations and so on. And I think a lot of times, if, you know, if we talk exclusively about designers and design world, a lot of times designers stay designers, so they can be very keen and adept in terms of design principles and new trends and tools. But if you want to really launch an agency and you want to be a solo, or do you want to be solo, who serves clients, you have to be more than that. Um, you have [00:04:00] to really educate yourself on the type of industry the clients work in and on the type of, you know, just kind of where the world goes, where their business goes, because what’s important, especially nowadays, at least with the clients that we work with is that you’re not just providing design, you’re helping them solve their business problems. By means of design and creativity.
Louis Beryl: [00:04:24] This is true, whether you’re building a design agency or an accounting firm.
Daria Gonzalez: [00:04:28] Exactly. Exactly. You have to understand what are their pressing needs, how to address them and think kind of beyond, you know, as I mentioned before, what’s cool or trendy, um, and more into what actually is the solution. What can help them? What can impact with.
Louis Beryl: [00:04:46] Whoopsie #4. Here’s Ilya Brotzky of global recruiting agency. VanHack.
Ilya Brotzky: [00:04:51] Yeah. Um, early days, actually, most people don’t know this, but VanHack we in the beginning had ah me and three other co-founders. Um, and, [00:05:00] uh, that, that was, it was really, really difficult. Actually. I started as a side project and really didn’t like, because what you said, the second question was like, when you noticed it was going to be successful at first, I totally did not think it was going to be successful at all. I just said, because I had done all of these different projects that never worked out, like in Brazil, the startup I worked at didn’t work out, uh, um, just a bunch of stuff. We’re kind of a bunch of failure after failure. I felt like three years of things not working, you know? Uh, and so when I started VanHack, it was just, uh, it wasn’t even starting it, it was just kind of like, okay, I’m going to. Try this project and I remember having like a Facebook messenger group with me and three other people. And we’re just like, this project sounds cool. Let’s start it. And, um, I actually started off, um, giving everyone the same amount of equity, which is like a big learning, less lesson. With, without vesting or anything like that. It’s like, okay, we all get 25%, uh, for, for four or five co-founders. Um, and that caused a lot of headaches. Because even in like the first two weeks we had to let the first person go because she just went on vacation and like, didn’t tell us. And it was just miscommunication. We actually didn’t even meet in person. It was, uh, we had one person, two people in Brazil, two people in Canada and the people in they’re all living in different cities. So [00:06:00] anyway, I can go on and on about that, but a long story short there was, um, ended up getting rid of all those, like the three co-founders one, one harder, more stressful than the other. Um, and now it’s, it’s my, my, my wife and I are kind of working together in the business, but people and hiring was just super hard and also on the tech side, like I’m not a technical, co-founder like, I’m not technical at all. I can make a WordPress site. And that’s what the heck was the beginning. Actually, it was a landing page in the beginning using Unbounce, but yeah, it was like, it was all just off the self’s off, off the shelf software. Right. Um, and building our first actual product was a huge pain because one of the co-founders who was like, um, uh, the early, early stage, I, I don’t know if you’ve come across that. One of the people early days who started the company with me, um, he, he was like in charge of tech and he took three months off and he just, he, he also, he moved to Dublin and, uh, he has a friend was doing the coding. It was just was a mess. And so like that feeling of not being able to have confidence in my product being built, because I’m not technical. Um, and having to rely on [00:07:00] others and others, not delivering and just like scratching, like, like just, um, pulling my hair out of, I don’t know what to do to make this happen, um, was really, really hard at the beginning. Um, and, uh, yeah, now we use VanHack to, to hire developers and, um, one of our, um, kind of first employees is now our CTO and he’s, he’s amazing. We built a really great team.
Louis Beryl: [00:07:17] We’re at the finish line folks. Here’s our final whoopsie of 2020, and it comes from Jessica Mah of accounting firm, inDinero.
Jess Mah: [00:07:25] Our first big challenge when we first started the business. And this is, you know, widely shared about, uh, if you just do a search for an a now it’s that we our first business model just didn’t work out. We were building a software that was a finance dashboard, really targeted for sole proprietors. And a lot of them just weren’t willing to pay for our solution. So we ran out of all the funding. We had raised about a million dollars and change and started completely from scratch and bootstrapped the inDinero that [00:08:00] we have today, which is full-service accounting and tax solution for businesses. And it looks like it’s been up until the right ever since, but that’s also not the case a few years into doing that. So probably 2015, 2016, we just scaled out way too quickly. I mean, I hired dozens and dozens of extra sales reps and accountants and people who, uh, you know, just weren’t cost-effective we were just burning cash and we were getting good top line growth, but it was just so unprofitable, the type of growth we were getting. And my thought was all right. If we just grow like this, we could go out. Raise money to cover up those problems. I didn’t consciously think about it that way, but I thought we’ll just optimize the model and you do a better job over time. And, and then, you know, it kind of dawned on me that I didn’t want to run a business that way. So, uh, we had to do a decent sized layoff. I mean, we probably laid off 40 [00:09:00] 50 people. Um, at that point, um, got to profitability almost immediately. And, um, and it kind of taught me this lesson of really understanding the underlying, you know, not just, uh, long-term profitability of hiring salespeople, but also what’s the cashflow, right? Like I got to eat my own dog food within inDinero here where everyone talks about, um, this concept of a CAC to LTV ratio. And so for those who don’t know, it’s the cost of acquisition, how much does it cost you to acquire a customer rel, relative to what’s the lifetime value of a customer. Um, and people say, Oh, my CAT to LTV ratio is whatever, 5x or 10x, meaning over the lifespan of a customer, you’re going to make 5x more or 10x more than what you’re paying an advertising or sales to get that customer. The problem is what if that uh, what if the [00:10:00] return, the payback period, just to offset your cost of acquisition, take you a year to get there two years to get there three years to get there. Sure you might have a good ratio, but you’re just burning so much cash along the way. And that’s what was happening to us. We thought we had a great, a great CAT to LTV ratio and it wa., it was just didn’t work on a reasonable timeframe.
Louis Beryl: [00:10:20] And there you go. All the whoopsies.
Hannah Levy: [00:10:24] Louis you’re not going to share your whoopsie?
Louis Beryl: [00:10:26] Oh, come on.
Hannah Levy: [00:10:27] Come on Louis you have to share your own big whoopsie. Whoopsie! Whoopsie!
Louis Beryl: [00:10:34] [Laughing] Okay. Okay. Okay. So maybe that’s not all the whoopsies. So those are my producers by the way. And I guess they’re right. I have plenty of whoopsies of my own. So I’ll do whoopsie number six and share one of my many big whoopsies. Okay. So one that I talk a lot about with other entrepreneurs is, is scaling your team. And one of the things that you have to watch [00:11:00] out for when scaling your team is, is what I like to call management debt. And so, you know, we’re all familiar with technical debt, but what, what about management debt? I think the whoopsie for me was at, at my last company, um, as we really started to grow the business, um, we always felt behind because we had, you know, we had customers coming in all the time. Revenue’s growing, everything’s growing. We thought that the solution in order to catch up was to go on a massive hiring spree. I think the ambition for the team and where we probably ultimately hit was something like we 4x the team in a year and the thing. That happened while we were doing that was that instead of speeding up, we actually slowed down and you know, that might be a little bit counterintuitive, but what was happening was the entire focus of the company became around interviewing the processes. Hadn’t [00:12:00] really been set up to really make sure that we were monitoring how we were, how we were building. The company, building product and executing on our engineering tasks, et cetera, while also doing our interviewing efficiently. And so you could imagine all of the sourcing of candidates, the review of resumes, the actual interviewing the discussions that happen. Yeah. Post interviewing with the team, maybe the re interviews, the, you know, the phone calls with the candidates, the selling after actually the candidates start, you have to onboard them. Now they need managers and training. They need feedback and accountability as the team is growing, especially when it starts growing by multiples. There’s a ton of cultural elements that are changing because actually, you know, if you just double in size, it’s like you brought on a whole new company. But what happens if you triple or quadruple in size? My mistake was really just doing [00:13:00] all of that too quickly. And I think that, you know, um, now I’m on the board of a couple of companies and I advise many, as I see in those companies, I’m really starting to scale and grow more quickly. And they start talking about these hiring plans where, you know, Hey, we’re four engineers today, but we’re hoping by the next year we’re going to be 16 engineers. I’m always like, well, you know, these are the things you need to watch out for, because if you really want to move quickly, you have to find that balance between bringing on more people to the team where you can get more stuff done while at the same time actually doing the work to get the stuff done. So yeah, for me, the big whoopsie was hiring way too fast, bloating the team. And ultimately what that resulted in was that it was probably about 18 months later. We probably ended up letting, mm, maybe 15%-20% of that team go with the way we looked at that was that might’ve been [00:14:00] maybe the low, lower performing bit of the team when we did let those people go. I, I still think that, that it was totally our fault as a company, because by not setting up the process, right. By not having the right managers, but not having the right training. And maybe not even having the right interview process, we didn’t really set either those individuals or the company up for success to bring on that level of team. Um, and what ended up happening, it kind of, we all just ground to a halt and then we’re like, well, we kind of have to cut some of this to get more efficient again. So it wasn’t necessary for the company sure. But I still view that as our fault. And certainly one of my, my biggest whoopsies. All right that’s it folks. That’s a wrap on The Startup Stack for 2020 we’re off next week for the holidays, but we’ll be back in the new year with lots of great new episodes. Happy Holidays. Talk to you then
[00:15:00] Leah Jackson: [00:15:07] The Startup Stack. Written and edited by Hannah Levy, produced by Leah Jackson.