Ask HN: When do you know your startup has failed?
Honestly I feel like I'm going to be evicted from the house. My rent is already up, and as of now I have < $1 :).
My partner is fine actually, he has rich parents and doesn't really depend on the startup for income. Which actually gives my friends and family the illusion that we're both killing it.
We have almost 0 chance of raising more money, it's much harder to get money it seems if you're in a poor country.
So, if you've had a failed startup, how did you know? Did you run out of money and call it quits? If you succeeded, did you have a patch so rough that you were evicted?
I'm 25, I feel like I'm losing at life already. It was okay to be broke earlier, because it's expected. It's not anymore, when almost none of your peers are. Also, I'm not in a developed country, where being broke means living on ~$1k a month. I've been living on ~$200 a month.
Anyway, I just want any input from you guys. Like anything, I just wanted to get this off my chest. Not even sure I've really expressed what I wanted to express (English isn't my first language).
178 comments
[ 3.4 ms ] story [ 242 ms ] threadThat's it. If a business cannot sustain itself, it has gone bankrupt. A bankrupt business is donesky.
But in my case it took being fired from the company I founded to face the facts. Not making salary is not cool. Not putting food on the table is even less cool.
Remember, you can't eat equity.
PS: I'm 27 now, the startup failed failed when I was ~23. It feels like a different lifetime. You will move on.
PPS: if you want to talk about stuff at length, email me -> swizec@swizec.com . Even a mini depression can suck :)
"If a business cannot sustain itself, it has gone bankrupt" might work for some more traditional cash-flow businesses, but I don't think that it applies very well to startups.
It really is as simple as that.
*Based on studies I've seen and hundreds of people I've talked to across these industries. Bankruptcy is a legal process that you have to initiate and won't happen if you refuse to initiate it.
And whether those investors wanted anything in return or not, doesn't matter. Said founder/writer/actor/bandmember/mathematician still could not do their work if somebody hadn't put food on the table.
You really do have to stay alive and relatively healthy, if you want any chance at success.
Very few investors will see it as a good sign if the founders pay themselves at or above their market rates, or if they do at or below the market amount of work. Likewise, the competition will punish startups for slacking or blowing money too fast.
Do you mean contemporary tech startups? As you may know, startups are businesses after all and the rules governing their operations are the same. When your business runs out of cash , you need someone to throw you a lifeline (debt or equity), or sell some assets to raise money or unfortunately file for bankruptcy and let nature take its course and creditors to recoup some of their investments.
Imagine that you are swimming. In your hand you carry a heavy stone, you believe it is a diamond, but you can't be sure. Time passes, you are getting tired, you can't see land. What do you do?
Some people get so attached to their stuff that they sink with them. Be happy that you are not like this.
If you give 100 people a 1% of succeeding, but difficult times in the first years, and they all refuse to give up, after it's all said and done 99 will be depressed, estranged from friends & family, in debt, feeling like a failure etc.
And 1 person will be successful, and he'll do a PandoDaily fireside chat and talk about how he lived on a couch, and racked up creditcard debt, and woke up crying, but that he kept on going and is a billionaire now. And he'll command the majority of the media narrative around startups.
Of course I'm exaggerating to make a point, but the notion that most people fail and don't make it, and probably shouldn't continue after some point is completely true.
It's the same line of thinking that says 'well Bill Gates was a drop out, and so was Zuckerberg etc'. It may say that dropping out is not the end of the world. (similar to how being at a low point in a startup is not the end of said startup).
But it also carries the implication that dropping out is somehow not an issue, or that being at a low point in a startup is just a phase. For the majority of people, dropping out carries consequences, and being at a point where all hope seems lost, is usually rightly so the beginning of the end of your startup.
Expecting endless perseverance by looking at the tiny percentage of hugely successful startups that went through difficult times, ignoring the much bigger number of completely unsuccessful startups that went through difficult times, is probably why people downvote your post.
As the OP doesn't appear to have traction, have any semblance of salary, shifted to do freelance work and didn't provide ideas on how to pivot, I think it's probably time for him or her to put this one in the freezer and try something else.
edit -- weird thought you mentioned getting downvotes. Might be going crazy :)
If your strategy involves doing something that eliminates your upside potential, while leaving downside potential, then the strategy has negative expected value and is a bad strategy.
If nearly 100% of non-consulting startups go through bad times, but you've chosen the strategy of cutting your losses as soon as you run into bad times, it's fair to estimate that the eliminating the upside potential may have lowered the expected value for that strategy to below 0. Might as well go gamble or just do a fun hobby in that case.
Non-consulting tech startups are particularly rigged against using this strategy of cutting out as soon as things turn bad, because it's typical that founders are forced to take a big loss relative to their alternatives until the very end when the exit happens. The norm is for it to always be financially worse than the more stable alternatives, until eventually maybe it turns good at the end.
It's also important to mention he got in at 73, and left late 75 with 2-3 years of education, and that he chose his major (applied math) because there was a rule that you could get into any class with the angle of applying math to it. So he was known then to go to many classes, as he still is to this day (he spends a huge chunk of his time on education, mostly books but also courses).
So yeah not a drop-out in a technical or figurative sense.
Rich people can start companies, companies may run at a loss for years before making good money. I think this is normal.
Re: hard to get money in a poor country - well. They have less money. But it's hard to get money in any country, rich countries have more competition -- see how hard it is to get into Ycombinator.
There are some comments about inheritance tax, but we'll leave those for another day.
1) Physical Proximity - nearly all investors will only consider you if you can pitch them physically in-person. This is the source of the great inefficiency in equal access to capital for everyone in the world. Note: you'll have to physically be there long enough to become friends with the introducers, since most investors don't allow you to approach them directly.
> But it's hard to get money in any country, rich countries have more competition
Absolutely not true. I wish Europeans would stop spreading this myth to each other. Disclaimer: I'm currently living in Europe for the past 3 years, and several other places before this. I hear this myth here constantly.
Some cities are FAR easier to get money in than others. The "more competition" idea that it balances out equally everywhere is complete nonsense.
Some have written about this in far better detail than I will here, but consider:
1) Some cities have the convention of making early stage investments in 1 DAY, after 1 pitch meeting. Not 3 to 6 months and dozens of meetings for every single investor, as is often the convention in EU. Competition for speed between investors is hugely beneficial to the entrepreneur, in this case.
2) Almost no cities in the world, except for a couple, have tons of rich, active angel investors who themselves got rich by starting tech startups.
3) The incredible density of founders and investors within certain places is 1000x greater than the lesser cities. This speed and efficiency of being able to see dozens of investors per week with nearly zero overhead helps enormously. The density of each investor being able to immediately introduce you to several more has an exponential compounding effect.
I found these to be a good intro as to why not all cities are created equally. EU and SV are enormously different in key ways that few outsiders realize:
http://www.paulgraham.com/siliconvalley.html
http://www.paulgraham.com/america.html
Find a job, recover for a while (or if your partner is really wealthy kick back for a week or two and do absolutely nothing until you can't wait to get back to work, if you are from such different backgrounds it would not be outrageous to ask for a bit of support from that direction) and then try again, the start-up world does not care as much about your failures as it cares about your experience and you'll do much better the next time around, I guarantee it. Been there, done that, have several t-shirts, failure is absolutely ok and simply the expected outcome so don't sweat it. Best of luck and if I can help you or if you have concrete questions drop me a line, email in profile.
Apropos different backgrounds financially: that's a bad combination to start with, it means you will have a hard time keeping your respective goals aligned in the longer term.
If your partner does want to continue the business without you then that's fine, simply hold on to your portion of the business even if you don't work there any longer (your obligation to work stopped when you stopped receiving payment) or sell it to him (he can afford it after all...). And don't sell too cheap, keep in mind the company owes you at least several months back-pay!
I don't want to get you down, but want to encourage you to look for the option that is best for you (the OP suggested starting another startup, if you can as well). It may be hard right now, given your emotional state, but if you are the type of person that has always been able to find creative solutions to problems (or ways to do things better) no matter what you are working on, then have confidence in yourself that you can add value by doing this in whatever you decide to do next.
As far as what to do next then, start small. Look for the easiest/lowest risk way to make $1. If it's manual labor - mowing lawns, cleaning houses, whatever, then go do it. You'll rebuild your confidence in doing this, and if you believe you are a creative problem solver (most founders are), you will see new ways to do your work as you go about it. You will also figure out new ways to scale, and build a business. It won't be an easy path, but you will start to feel better about yourself almost immediately, and that's what's most important.
I was the technical founder in the startup and finding a technical job afterward became harder. However, I did get a job in VC and then PE because of my failed experience.
May not be the same experience as coding, but the pay is outrageously good + you get to know awesome people. In the end, you broaden your network to find even more opportunites to found ventures.
Thanks for your insight.
If you wanna be an senior/lead/head engineer, many assume you weren't competent enough to manage the development of a product, even if it wasn't the reason the startup failed.
After the startup I was working at failed I thought I wanted to work at a big corp that was stable because I felt disillusioned by the failure of the startup. But after a couple weeks of talking to different companies and interviewing I realized that I wouldn't be happy working for a big corp even if it was risk free.
I ended up turning down a nice offer from a big corp and jumping on board another startup (a much more successful one though).
Very well said!
If you're 1) unable to raise money, 2) need money to scale and 3) don't have any money then I suggest taking care of your needs first and foremost. There are lots of glamorized stories of people barely scraping by and beating all odds. It doesn't have to be that way and it's healthier if you're wise about the risks you're taking.
I'd like to give more optimistic advice but the truth is that you're young. For many it's an opportune time to do a start-up but you're in a position which makes something that's already difficult even more difficult.
If you truly believe in the your idea and partner then you can take up some consulting work and do the start-up part time.
I also question the working relationship if you and your partner aren't feeling the same level of stress. It's critical that either you're both in the trenches or neither of you are.
Get your shit together and then reassess, you need a roof over your head first if you wanna keep at it.
good luck.
If I were you I would borrow money from family to pay the rent, get a job, save up money, and try again in a couple of years if you still want to.
Yes, that's exactly it. Even better when you know it when you determine that X months before you actually run out of money
Close shop and get a job. This is not the end of the world, so don't sweat it.
It does sound like you've reached a point where the best course of action is to call it quits and start something new - contrary to popular opinion, startup companies are just _one_ instance of the many things you can do with your life.
what I recommend is this: discuss the situation with your partner. you need to find investors - it is as simple as this. if you cannot find one, ask for your partner to invest in the company some money if you both still believe in your business model. it doesn't make sense to to forgo your salary when you don't have any money in the bank - what will you eat ? grass ? if you can't raise money or not willing to invest your own it means that your expectation for a viable business is gone. if that is the situation call it quits asap. it doesn't make sense to try to go another few months and lose more resources and acquire debt - find a job and try your hand again in future when you're financially more stable...
Don't count on being the next big miracle.
My best advice is to talk to your partner. They are suppose to be as close as a spouse if not more. You need to make sure that they understand your circumstance. This will help you make a better decision going forward.
What we decided was to take time off and make money and come back after we've fixed financials. We believe in our partnership but felt maybe we did not execute fast enough or the business model wasn't strong enough at the time.
You should remember that not all the ideas work and that you can always try again unless you're dead.
From someone who previously earned a lot of money and now had a family to support, this was incredibly hard. I almost gave up a few times. Actually, I try give up once or twice by finding a job, but circumstances conspired to make me keep going.
7 years on, and things are much better now, and the business is actually doing quite well, and is a nice lifestyle business.
Seriously, 25 is young. You have loads of time to fail. Better to do it now, then when you have family obligations. That's when things are very different.
25 is more like the end of the childhood, really :)
Absolutely. Our individual lives aren't even a blip on the radar of life as a whole on our planet, let alone our universe. We get a very short amount of time to live, even shorter to live well (health, mobility, etc.). The idea of going to do something you dislike every day for 30-40 years of that very short time is just about the anti-thesis of what we should be doing with our time here.
Please get some perspective, and stop caring caring what others think. It's liberating to drop something that isn't working. It sounds like you might be in a culture where failure is shameful, but who cares. Hold your head high and say 'yeah, that didn't work out, learnt a lot, doing something new now'.
It's only a failure at that age if you didn't absorb any of the lessons. At least you didn't waste the time doing a useless college degree in a field nobody cares about.
Just remember that, and you will forever be fine, my friend.
Some of my projects have been getting a beating lately. One of my sales reps. just went missing. Just gone. For 4 weeks now. Together will a kinds of random stuff that makes me feel like this house of cards is coming apart. But I still believe in the product. We have clients and there are still ways to go.
I've put it all on hold for 3 months to do some contracting and cash-up, than it's back to trade shows and sales.
But I also think that having a startup is a luxery and (more and more) a marketing term that comes from the investent people. "Do a startup" and you can ask people to work 60 hour weeks. "Build me this product" and that same amount of work will cost you way more money and time.
I have been so blindly running my own products ("Startups") for 6 years, until 2 weeks ago I realized that contracting myself as a developer makes me 21k a month. I had no idea it was like that, I hadn't checked what all my newly gained knowledge has meant for my rates.
So what does it mean to you? If it is making you depressed, maybe don't do it? With SO MANY startups right now, it's very unlikely that you will make more money from it than from contracting. So are you in it because of your passion? Or to make money? Ask yourself these questions.
You can plug in whatever numbers you like into any formula you like, but it doesn't help most developers earn more.
The reality is that most devs can't charge those rates and get significant amounts of work, because they don't have the required skills / experience / reputation, etc needed to distinguish themselves from the competition and attract clients that are willing to pay those rates. Obviously in some geographies it's easier than others because of supply/demand forces, but the vast majority of developers can't do this easily.
I think the real question being asked in most cases when people ask how it's possible to earn incomes like that, is what can they do to be ABLE to earn those types of rates. More helpful answers would be advice on what niches pay well and are in high demand, how to market themselves, etc.
That's a good question, maybe not the right one. I'd rephrase it as "When should you decide to stop working on your startup project?".
You should decide when to stop pushing the startup, when you realistically see no path to revenue, and your savings get low. Try to take this decision early enough.
As you write you don't have any cash anymore and can't pay your rent anymore, it's probably urgent that you seek revenue asap.
> I'm currently going through a mini depression
Don't worry, it's normal, you know, entrepreneurship is an emotional rollercoaster. We all go through this. Let's try to focus on what can and should be done at this stage.
What have you learned from the startup experience? You can probably make a big list of things to do, and things not to do.
Let's forget about your startup idea, product/service for a minute. What skills do you have, how can you help people with them? In your network, are there people to whom you could benefit from your help, either as a freelancer or as an employee?
I've been in your feet recently. After much hesitation, I've decided to kill my startup last January, after working on it for 2.5+ years. Taking this decision has been difficult, uncomfortable. However, after taking it, I was much relieved, and had this sweet feeling of freedom.
Fast-forward four Months, I have now lots of revenue from consulting on interesting projects, and lots of people keep trying to recruit me. I didn't need to make much effort to launch this, just create an attractive offer, where my skills can solve a common problem. It's very surprising to me that this is happening so easily, after facing so much difficulties to sell a product at my startup previously.
> I'm not in a developed country
This probably doesnt' matter. People do business, you can find clients anywhere. Just decide to leave the startup now, and move on fast. Good luck :)
I've run one startup that failed outright after 18 months with 10 grand still left in the bank, and I've run one that scraped through to become a success after 4~5 months of having nothing in the bank - I was sleeping on couches because I couldn't afford rent and my girlfriend bought me most of my meals - I got very close to packing it in. The difference between the two was that nobody wanted what we'd built the first time, the second time we were losing money, but people were paying us good money to use the product.
If somebody wants what you're selling - keep selling it, tell your partner that if he wants it to work he needs to put some cash in your pocket to keep your lights on and focus on the money, do whatever you need to do to get your customers to give you more. From where you are, the time for focusing on perfect product is over - you need to cash in what you've built. If you haven't built anything that anybody wants to pay for yet, forget about it, it's not going to happen this time - take a break, get an easy job, get some money and start again when you're ready. It'll be sooner than you think.
I feel there needs to be a closure. The "experience" that @jacquesm refers to is an understanding of what worked and what didn't. Solely based on your the comment above, I think you may need to spend some time learning why the cash flow stopped. Look into what lead to that situation and what could have been done different. Perhaps this may (as it's fresh in your memory) or may not (due to your emotional state) be the right time to do the analysis. People with more experience can chime in here.
Anywho, I don't think people who set out to do things of this nature can be failures. The experience and knowledge gained will easily put you above the median. Replenish & repeat.
Personally (and forgive my language), when I look into what lead to the situation and what could have been done differently, my perspective on what happened changes as time goes on.
For me, stage one is "I'm a fucking failure whose head is so completely full of shit that I could make a fortune selling manure". Stage one is great fun because it is when I look at every single choice that I made and find the negative in it. This stage is completely irrational and is likely a symptom of mental illness. My brain usually just lies to me during stage one, so I usually prefer to get the most mindless job imaginable (delivering pizza is amazing) and spend my days listening to vinyl, reading books and lifting weights. I am in my late 30s, so this is a little too close to the plot of American Beauty for even my comfort, but so it goes.
Stage two is where the real growth starts. It is the "I'm a fucking failure because" stage. My startup post-mortems tend to come out of this stage - they are a point where I begin to focus on the particular choices that killed off my startup. All of the noise and ambiguity of stage one is gone, the emotional pain is still there, but it has been dulled by the knowledge that nobody can screw up 100% of the time.
Stage three is the "I learned..." stage and is the place where I feel ready to (as you eloquently say) rise 'above the median'. This is the stage where I realize that I actually did something...it didn't work out, but most crazy ventures fail. I did something, I earned my skin, and nobody can ever take that away from me. Strangely, in stage three, I usually laugh at how naive my startup post-mortem was.
The OP likely can't stop analyzing what went wrong, but at this point, it is just as likely that his/her brain isn't telling him/her the truth. This sounds like his/her first business and, I know that this is hard to believe, but it will get better. This feeling of failure will turn into a profound learning experience that will propel him/her above the median.
Once again though, excellent comment and huge respect for focusing on the positive!!
First of all I want to congratulate you and your partner for taking the huge step of starting a business - something that very few people will ever attempt (although many will think about attempting). In my opinion it's a great thing to take hold of your destiny in that way but it's a very difficult thing to get right and for every success story there are dozens or hundreds of "failures" - I use quote marks because that word gets a bad press generally; many people seem to forget that they "failed" at many things in their life on the way to learning how to succeed at them. If you're not failing then you're not learning and life would be much less interesting that way (although of course much easier).
About ten years ago I went self-employed (you wouldn't call it a start-up as such, I was just a freelance software developer), and for me, the point where I had obviously "failed" was when a) I was deeply in debt and could no longer afford to sustain my personal basic requirements, that is, a place to live, food to eat, a car to get around in, and b) there was no prospect of improvement in the business. I think if you're on the point of losing your house but the business is looking very promising then it's probably worth the risk - spending your last dollar to win the $1million contract, as it were - but if the business looks like it has no future then why make sacrifices to keep it going? Perhaps the reason is...
>I'm 25, I feel like I'm losing at life already. It was okay to be broke earlier, because it's expected. It's not anymore, when almost none of your peers are.
You're not losing at life, you're learning about life, and instead of making safe choices that suit everyone else, you're making difficult choices that suit you. Bravo! Sometimes those choices don't work out well but that's life, unfortunately; if you don't take risks, you won't get rewards - if you do take risks, sometimes you still won't get rewards, but other times you will, and those rewards may be far greater than you would get from an easy life. Try not to worry about your peers - they are living the life that suits them, you are living the life that suits you.
So I would say: make an honest assessment of the future of the business. If it still has good potential, then suffering hardship now could lead to great reward later. If you're keeping it alive because you don't want to feel like a failure, then recognise that, as I said, "failure" is really just learning, and don't be ashamed to make mistakes along the way. In that case, get a paid job for a while, take a break and recharge your batteries. Then you can start your next great adventure when you're ready :-)
Best of luck to you!
But that's what you need to do to run a start up.
For the other 98% of people on this forum, a corporate job that pays the bills is all we're going to get.
But if you wanted to start a one-person construction business, with a goal to employing a few people by the end of the year, no, it wouldn't really be that hard.
In any business, you're going to spend 80% of your time talking to people (and persuading them to give you money), 10% of your time building some fancy new product, and 10% of your time changing the product based on the 80% conversation time.
Not hard, just different. I guess, though, to the technically inclined, that makes it seem really challenging.