Ask HN: My Startup is Going to Die Because I Messed Up
We started working hard at creating our brand. Logos, webdesign, website copy, flyers, and SEO. We divided our time equally between these tasks and selling the product. We were headed to profitability in short order.
I quickly learned my cofounder was over his head in personal debt, and could no longer work full time. Some of our borrowed money went to him to try to keep him around for a couple of extra months ($1,200). It didn't work and he had to get a job.
We've been floundering back and forth, spent the majority of our money, I invested another $1,000 to help us make one more sales surge to allow us to dedicate more time. We planned to see if this startup would work, setting a sales and spending goal in under 60 days. Success and we continue, failure and we cut our losses.
We planned to make it happen starting next week.
Friday afternoon I got a call from a business owner in another state, telling me that our business name infringes on his trademark for his business name. Our name would be mycompanyname to his companyname. We had only checked and seen that companyname.com didn't exist, we did not check the trademark database.
At this point, discouraged, unable to afford new marketing materials and a complete redo of everything we've done so far, we're left with little money and a threat of a lawsuit if we don't change everything.
Here are the mistakes that I made, and will learn from:
1) Learn about the financial position of any cofounder. A cofounder's personal situation will hugely impact his/her ability to grow the business.
2) Investigate any trademarks or copyrights on any of your branding or naming. Wasting time in a bootstrapped business will ruin you.
3) Have a plan. Not just a mental plan, but an actual written plan. Decide what is required of the cofounders, decide where money will go, decide your failure point.
4) Be prepared to drop the project, or go it alone. Putting all of your eggs in a basket carried by your cofounder can lead to disaster if you aren't prepared to run with the project yourself.
What other lessons can I learn from this? Where can I improve so that my next project doesn't fail in similar fashion?
tldr: My business failed because I made mistakes in timing, my cofounder, and business branding. What else can I learn from my experience?
EDIT: After a few comments, and an e-mail, I should clarify that this is not necessarily a web-startup or app. It's a business targeting seniors (hence the flyers, which were placed in senior centers and used at senior health conferences). My cofounder came into the picture as the one with more experience working with the senior market. We had suppliers for our product, so our main focus was to sell, sell, sell. So, to add another lesson:
5) Cash in a small bootstrapped company should be spent on client acquisition. Not on whiteboards, office refrigerators, business cards, or flyers.
93 comments
[ 4.4 ms ] story [ 160 ms ] threadIt would sound like your mistakes point to a lack of research. It sounds like your co-founder isn't a friend, so you didn't know enough about him to get started with.
Finally, this isn't legal advice, but don't give up on the trademark situation yet. Especially if you haven't launched. I'm not so sure the other party would be willing to pay lawyers for a lawsuit, especially onsidering there isn't much to get out of small bootstrapped startup. Also, if you haven't launched, then you dont have very much to lose. You haven't established a brand yet, so perhaps this might be the best time to tweak with this. And of course, you'd want to improve on your branding research this time.
If nobody knows your brand, why can't you re-brand? Did you buy a bunch of useless merchandise, or can you personally tweak some logos in Photoshop to a new name.
What is your partner's role? Sounds like he must be the coder / designer.
More than a plan, it sounds like you need a great mentor.
(I assumed this was a web startup, but you made flyers, so now I'm not so sure.)
My partner's role is that he was the one with the experience in the market. He had the connections to suppliers, resellers, etc.
I edited the post above to explain a bit more of the business, and the reasoning behind flyers and some other merchandise. Beyond that, I could tweak some logos and start over. I've replied with a couple of concerns I have with that in other posts.
Thanks for your feedback, I do appreciate it.
Not saying that you should or should not give up, that's your call. Only that it sounds like a challenge that's no different from the one many other startups faced.
Thank you for the encouragement.
$5,000 is less that the price of tuition, and I've definitely learned more than I ever did in a semester of college.
There are tests that are applied. Also, simply having a similar domain name may not be a problem unless you're directly competing with the guy or you're passing off. There are many limitations to trademark.
One lawyer has said that we are definitely infringing, while another said that there may be some leeway. However, the trademark holder is in the exact same market as us. So many of the limitations you mentioned don't affect his ability to defend against us.
If I were to take on the project myself, I would be willing to put in more cash for that purpose. But I worry about my cofounders claim to half of the business, and risking more of my own money when he technically has the right to half of the reward.
The bright line standard for trademark lawsuits is essentially "would a reasonable person mistake your brand for your competitors?". In this case, based on what you have said here, you have taken your competitors name, and added "my" in front of it. So most reasonable people would conclude that it is highly likely someone will mistake your competitors brand for yours.
If you were in a completely different industry than the similarly named company, then there would be some wiggle room, because you could argue that even if someone was initially confused about the two companies, there is no possibility for them to buy your product thinking it was the competitors. However, you are in the exact same industry, so the likely conclusion is that the customer will be confused and likely to buy your product thinking its your competitors.
Unfortunately, the domain name issue is irrelevant in the face of trademark law. In fact, as has happened with many other infringement suits, it is likely that if you lost the lawsuit, you would be forced to transfer the domain to your competitor.
For the record, we didn't know anything about his business when we chose our name. We merely saw that 'companyname.com' was taken but not used. We assumed (you know what they say about assumptions) that meant we could go with 'mycompanyname.com' and be fine. Had we known about his trademarked business beforehand, we wouldn't have done so.
Thank you for shedding more light on the trademark situation.
This is not legal advice, just common sense: be careful what you admit online! In some cases, willful use of someone's trademark may entitle them to punitive damages or lost profits.
In the future, don't say things like this in writing. Not trying to be hard on you, or to encourage you to be dishonest.
It's just that statements like this can really come back to bite you when they come up out of context in a legal context.
-snip-
In deciding whether consumers are likely to be confused, the courts will typically look to a number of factors, including:
(1) the strength of the mark [DCT note: See http://en.wikipedia.org/wiki/Trademark_distinctiveness];
(2) the proximity of the goods;
(3) the similarity of the marks;
(4) evidence of actual confusion; [DCT note: Proof of actual confusion is not required, but can be powerful evidence of a likelihood of confusion]
(5) the similarity of marketing channels used;
(6) the degree of caution exercised by the typical purchaser [DCT note: Confusion is more likely for an impulse purchase than one in which the buyer pays careful attention to what s/he's getting];
(7) the defendant's intent. [DCT note: Willful copying of another's mark is often taken as circumstantial evidence that consumer confusion is indeed likely, otherwise presumably the copier wouldn't have bothered.]
-snip-
Our company went completely under (Chapter 11 stuff), we lost all staff and had legal threats from all sides.
After a few weeks of misery we decided that we don't feel like dying. We went all-in and turned it around on a shoe-string budget in a matter of months.
Keep refusing to die, and you'll be fine - it just won't be easy!
The other business owner has said they've pursued other trademark suits in the past. He said they've found that approaching by phone first has been a more pleasant way for them to solve problems than first sending a C&D (I'm sure, if for no other reason, than to save on lawyer fees).
So you're saying I should wait for an official C&D? I have little doubt that he'll send one. But I should wait until I actually receive it.
That's not to say you don't need to change your name/logo, if it really is confusingly similar to someone else in the same industry (if they're not in the same industry, trademark doesn't apply). If there is a problem there, you'd want to remedy it. But, trademarks are pretty specific. If the guy is claiming a trademark on a generic word, you can probably safely ignore him (i.e. if I claim "Joe's Soda", and someone else makes "Sam's Soda", I don't have a case against them...but if someone made "Joe's Cola" I probably would). Also, if you both do business regionally rather than nationally, and he is not in your region, he probably doesn't have a case (though if he has a USPTO trademark and has more than one location, he might, anyway).
As you've learned, it's much better to figure this stuff out before you invest in printing and logos and such.
IIRC the way trademarks work is that they are issued for use in specific application area. A business that is using Xyz for a bakery does not violate an Xyz trademark of, say, a welding shop.
The other thing is that there were even two Apples in the world, just doing different businesses.
Edit: US Registered Trademark search: http://www.uspto.gov/trademarks/index.jsp
If you don't care or mis-interpret my "being friendly" as "I don't really care", well then its your own fault (and cost).
But claiming that anybody serious would immediately run for a lawyer is... well, a really pessimistic view on society.
>> "We will take such steps as the law requires."
Yikes! How about "thanks for telling me, I'll check and get back to you, maybe we can find some level of agreement."
Have u launched yet? You said you were headed to profitability. What about the original idea as others have mentioned here?
Here's another one:
Plan to dedicate more than 7 months to said startup.
I haven't decided to throw in the towel, but I've nearly run out of cash and my cofounder is not around to help.
You're right though, I should continue fighting to make it happen. Spend a few weeks to change our name, forget about the printed materials, and keep working to see if there are legs.
If I were to succeed, how would you (or other HNers) approach the issue with a cofounder, given that he will have not been involved in the additional push?
Utterly ruthless but this is business. You're already in a precarious position. Don't carry dead weight.
That way you could use the remaining cash for a customer push and replenish your cash reserve at the same time. Prepare your rebranding peacefully and if you actually run out of cash, you won't have to rebrand (in some countries, this is costly).
Another thing: contact the domain squatter of the other brand. Ask him how much he wants for the domain. If you run out of Cash, consider selling your domain to the other business owner for half the price. Heck, you could even sell your website and design.
And, hell, it requires ... a phone call. No harm trying.
http://tess2.uspto.gov/bin/showfield?f=doc&state=4010:8n...
for "Life Response" owned by Midwest Medical Alert Systems, Inc. CORPORATION ILLINOIS 269 Winding Creek Drive Naperville ILLINOIS 60565.
The weird thing is, the business using the http://www.liferesponseusa.com domain is "Life Response USA" and they're a division of CTR Alarm Systems Inc. --- a Pennsylvania Corporation. So that's odd: not the same company as the trademark holder?
More research is needed.
I would make the guess that liferesponseusa.com is not the same business, based on the different addresses you brought up. I wonder if they're looking at a similar situation with the trademark holder.
There's no way anyone can make that choice but yourself. Many people will say "don't give up" but there is little to be gained if the business is going under and you start throwing more money - or other people's money - down the drain.
On the other hand the business shows promise but needs more time and funds, none of which you have right now.
There is another option - suspend business operations, if possible, and rebuild your funds through a "normal" job or consulting. If the business is viable you should be able to relaunch at a later date in a stronger position, perhaps with better partners. If it isn't, you can try again with a new idea.
Knowing when you stand and fight and when to retreat to fight again another day is essential.
I've considered suspending the business as you mentioned. Which would be quite easy to do, our burn rate is negligible (could be near free). While earning funds to continue operations, I could spend personal time rebuilding the brand materials.
My concern is not knowing how to approach a business cofounder who would be entirely uninvolved in such effort. Can I make a clean break and take over that portion? Or, essentially, start a new company on my own? Our partnership agreement is very basic, and does not cover this situation.
So I would be unaware of what would be right both ethically and legally. Thoughts?
Is your business a company with two owners or a partnership? If it's the former, I think you'll have to buy out your cofounder's shares. To determine their valuation, I think you'll have to talk to an accountant. If it's a partnership, I think you'll either have to get a new partner, or start a new business.
And I might be wrong, as always.
If I decide to pick up and run the project solo, I'll definitely work with him to a mutually-agreed decision. Thanks for your comment.
Then I would wait for the C&D too, like patio11 said. Most people that have been in business have sent and received both, and many are in a position like me where I can just have my lawyer buddy change the name from the last notice he sent for me, and he does it for nothing (or a beer). So a C&D is really not that expensive either - and if he won't do that he probably doesn't think he has much of a case.
You can do a quick search at USPTO.gov for federal trademarks, but don't forget to do it at the state level too. This guy may only have a trademark at that level and thus have no case against you. If he has a non-ambiguous federal trademark for your industry, then you should bail out of the name immediately. I once spent $3000 on lawyers fees because I bought an $8 domain name with somebody's trademark on it. I had to give it to them of course, in forgiveness for them not suing me for damage. Oops. If you have to give the domain over, you may find middle ground by convincing him to let you redirect it to your site for a while so your print advertising doesn't go to waste.
One more solution comes to mind if the other company is in the exact same business as you. Team up. Figure out how you can mutually benefit from each other. It might help your business get going better, and may handle business he can't reach because of distance.
Ethically...I think as long as you are above board and honest with all parties, explain the situation and what needs to happen, then you're probably OK. Running a business involves making hard decisions such as firing employees and dumping cofounders. If you can't face doing these things then you're not cut out for running a business (I've had to do it, and hated it). However it's important that even when you have to do these things that you are honest and as decent as possible at all times.
Lesson #2: at the age of 24, if you don't have even $5,000 worth of savings that you can afford to blow and need to borrow that amount from family, you should probably take a step back and think long and hard about your financial priorities. Depending on your location and your education and/or skills, you can probably earn $5,000/month, if not substantially more, working for someone else. Yeah, that's not as cool as starting a business, but opportunity costs are greatest at your age. What's really not cool: wasting away your twenties and having nothing to show for your efforts once you hit 30. Sure, everybody in StartupVille is always one venture away from a big exit or a $100,000/month business, but when you go to conferences and meetups and see thirty-somethings who have no net worth because they've been swinging for the fences since they were 20, it isn't pretty. Bottom line: at your age, in the absence of substantial existing savings or alternate sources of income (a trust fund, etc.), working on anything that requires you to "work for free" for any length of time is likely to be really, really harmful to your finances in the long run.
The ad network idea started when my cofounder here first got his other job.
You're definitely right though. I appreciate your insight in both of your posts re: the opportunity cost of running a startup at my age. I have a degree and could get a decent job. Sometimes it's good to see reminders of that option, since I've always leaned towards starting my own business.
I went to college from 20-24 (I had worked for a gap year before then), took about 6 months off to finish a volunteer project I'd started in college, worked for another 2 years, took another 18 months off to work on a startup (that never made any money), and then have been working since then. I just hit 30. My social security statement looks like $money, $0, $0, $0, $0, $money, $money, $0, $money, $money, $money. Except that each time I hit $money again, the amount is double what it was before. My net worth is doing fine - if I didn't live in the Bay Area, I could probably buy a house free and clear in most parts of the country.
Your 20s are the best time to take financial risks. After you get kids and a mortgage, you have responsibilities that really do make it difficult to spend any length of time without an income. But in your 20s, you can live cheaply, you don't have anyone depending on you, and you're still figuring out what you want to do with your life. Taking some time off from the corporate meatgrinder can pay some big dividends in increased skills and self-knowledge that make it more than worthwhile later.
Just be smart about it. Don't throw good money after bad, know when to call it quits, keep in mind what you want to gain from the experience, and remember that there's nothing shameful about getting a job.
Good luck! -Richard
The legal nonsense aside, I'd have started your company while you both still had jobs and worked on it during your off hours. If things began to pick up and you got some user traction, I would have then spent the $5,000 where it was needed. For one thing, if you had done it this way you'd have come across your co-founder's money problems earlier.
I faced the same problem as you ten years ago. I received a cease and desist letter from a large multinational. I handed over the domain name, rebranded the business and I'm still here. So it doesn't have to mean the end of your business.
An hour might be a bit much to ask, but 5 or 10 minutes, definitely.
As was suggested some day ago here, and as I did when I created my social web company (that had a successful exit), a good thing to do is to create an adsense based site, SEO optimized, in order to live out of adsense.
Here's your next written business plan:
1. Build something you can show off - a product, a demonstration of your service, whatever. 2. Show it to anyone who will sit still. 3. If 2 out of 10 people are not trying to buy your stuff or hire you by the end of the demo, pick one from a,b,c below:
a) show it to different kinds of people b) revise it and show it to more people c) take whatever you've learned and can recycle (code, art) and go back to #1 above.
Explain to the other company that you agree and will change your name shortly. Start thinking of a new name and get some more clients to get some cash. If you have a good business, than it can also work without a name.
It is sad to have wasted so much money just because of the name. But look for marketing solutions where you don't need to pay anything. If you already had some clients, propose some advantages if they get you more clients. etc.