What if I told you that all you believe about business is actually a lie?
What if you were chasing a dream that you could never attain?
That was me, for a long time.
I was a huge TechCrunch fan. Back in the day, I loved the Michael Arrington-led TC articles, breathlessly championing the fundings, the user growth. The future itself.
I loved their famous Pirate article. I loved it so hard. I wanted to take my place amongst the people that their great and snarky writers were writing snark about. Except that the reality was this:
That first company I started made a lot of money for the venture capitalists – nearly $30 million – but next to nothing for the founders.
We never believed that that would happen to us. We believed that we’d somehow be immune. We just had to subscribe to the “hustle” worldview. And if it wasn’t working, of course, hustle harder.
The “Hustle” Worldview is this…and you already know it:
- Go (REALLY) Big, or go home: It’s not a worthwhile pursuit to make a nice business for a nice family. The word “service” business is spoken with an epithet. You must be part of a creation myth, making forever companies, being part of the fabric of life itself.
- Hustle, Repeat, Then Hustle Some More It was always about hustle. Making some code, grinding out deals. Whatever your jam is, by all means, hustle. Tech Crunch taught us this, with their stalwarts MG Seigler posting as many as 10 articles in a day at times.
- Funding Is Meaning: You exist to join the three comma club. A billion dollars. Small is a failure. The best way to get there is to accept funding and grind, grind, grind.
- It’s OK To Run At a Loss Indefinitely. Amazon did it. There’s a whole language about it: “burn rate” and “runway.See? We’re building the future. And so running at a loss was acceptable.
- You Gotta Risk It All The AirBNB team made cereal at the 2008 Democratic convention. Founders maxed out credit cards, kited checks and risked EVERYTHING because they believed (and were a little smarter than everyone else, just like you).
Every idea here has a sort of creation myth baked in. We wanted to be part of a chain of dropouts, misfits, and rebels. We wanted to be a crazy ones. That it’s somehow a good thing to do this.
This lie is still repeated everywhere. But it was all sold to us to benefit the truly powerful people that funded these companies. The VCs that were placing big bets on everyone needed the billion dollar exits. You had to be conditioned to accept that kind of risk.
Like some addict.
What (Dumb) Stuff I Did
What this did to my business was allow me to have a revenue-over-reality approach. I was pushing hard to grow my revenue. All the time. To grow. Year over year. Month over month. And we were growing. There were some good parts of our company, we were delivering and working with great people, and for a long time we did a good job.
We grew from $8k a month to $85k a month. We had a product that had a successful exit. Of course I was a genius. Duh?
And yet, it was a disaster in all the ways that really matter. Growth hid that. I was growing, so I couldn’t be failing. But I was nuts. My relationship with my wife (who is amazing) was in the shitter. I was barely home to see my kids. I was trying to line up work for now, for later. I was trying to sell and recruit and deliver. It was all working poorly.
When I wasn’t working, I felt guilty.
How Success Begets Failure
I watched with horror as the business I was building morphed into a lunatic Ponzi scheme. We had to grow revenue, so we sold more. Created package deals. Grew that top line number, consequences be damned. You’ve got a check now? Let’s have it
We were growing. So, we had to hire people. The people we hired technically had the skills. But in reality, they weren’t a good fit. They had the mercenary freelancer approach. Too cool for our company because (like everyone in Portland) they once worked on a Nike or Adidas project. So they couldn’t be bothered to deliver good work for us. Because we were dealing with uncool companies a lot of the times. A bolt-on for SalesForce. An analytics package. That was beneath a man that has once worked on the Swoosh. And I could have easily caught that had I bothered with reference checks. But because we had to get work out the door…we didn’t have time to deal with “trivialities” like screening candidates.
So then I needed new money to meet old commitments. That was terrifying. Especially since I was buying a house and my wife needed me to come through.
This built a cycle where we had to issue some refunds. And then we still had to pay the labor that created that defective work. This double whammy crushed what reserves I had (I was focused on growth, reserves are for fools!)
This was all in service to the lie: build the company into something which can be sold. Using revenue as a metric. Grow into your expenses. Then do it again. Be a serial founder.
During this time, I paid myself a lot less than a commissioned salesperson just selling our work would make. And I justified it to myself, my wife, and especially my ego. “This is just what it takes to grow. Plow your money back in.”
The old joke: sure we’re taking a loss on every unit, but we’re making it up in volume!
I was fragile. Exposed and then we hit a wall. A series of deliveries were unusable right in a row. The team I cobbled together wasn’t a fit. They weren’t bad people, I just didn’t have the talent or time for the kind of leadership we needed.
My standards had capitulated. It even became harder to sell because I couldn’t vouch for the work we were putting out. And I cared too much to pretend. This was a blessing because the best parts of my network stayed intact, but a curse in that I coudln’t use my network for the pickup I needed.
Around this time was when I realized the true precariousness of my position. I was losing $35,000 a month. Selling more wasn’t the answer. Better work, better pricing, better ops would all have solved it. Selling more was just kicking the tire down the road.
And it was harder to sell when you know that at the end of the day you’re doing merely adequate work.
But I’m getting attention!
During this time it’s finally dawning on me that something is rotten in Denmark. I’m realizing, slowly, that the reality is worse. The gut feeling comes more often. A worry that no amount of sales can paper over my errors. Still, my resolve remains. And some part of me buys into the narrative that it’s OK to struggle, that everyone goes through it. That the best companies barely made it.
During this time, I’m getting attention. I appear on big-time podcasts as a good example. I get to talk to high profile founders regularly. I’m invited to sit at the cool kids table and I get some coaching from a high-end sales guy. I’m on panels. I give advice. Some of it was probably even good.
What’s interesting is that they never ask the real questions: are you profitable? Are you sane? Is your life worth living? Have you created value? Are your books in order? Does your team feel good? Are you proud on the inside? How’s your family?
Nobody asked. So I wasn’t lying when I described the processes that led me here.
All Of This For Nothing?
All of this was for a reason. To someday build a legacy. To someday become ultra successful. To eventually have the life I was meant to have.
The downside of the Big Lie is that of failure. Failure? That won’t happen if we hustle. If we find product-market fit. No. Failure happens. Most funded startups lose money. Most companies do shut down.
I was chasing this impossible dream. I paid myself roughly half what I’d make selling my product elsewhere. My family was deprived half of the money that it should have had had I just taken a sales job. The “growth” fantasy was what I told myself to justify not bringing it home. It multiplied by zero the good things we were doing.
I was less free. I didn’t really take a proper vacation. My body was at the point where I literally couldn’t bend over. I had a case of pneumonia that lingered for a month.
Ultimately I paid the freight for my mistakes. My reputation took a hit, but I cleaned up the busienss. All my work was basically used on a “lesson.” Worth it if I learn. I used the grit that I had. And so I landed the business mostly smoothly and decided to move on. We still do some work for our past clients, and we’re doing good work again. But our plans, long-term don’t include that business.
What I’ve Learned Since
Starting a business often creates a “worst of all worlds” situation where you’ve got more responsibility than any employee and more risk than you can imagine. Intertwine that with a paternal instinct (this is my baby) and you’ve got a recipe for an unbalanced life and a litany of excuses.
With all of that said, however, there are many things that I’ve gotten clear on as I graduate towards my next venture.
- The business exists to serve you, not vice versa. You built this business to serve your family. To build value, and store value in the form of wealth. There are times that it makes sense to take outside money. But that money doesn’t mean that you have to take a vow of poverty. You should have as much money outside of the business as inside.
- Delusion Will Kill You I talk to entrepreneurs and they tell me that they don’t work “that much” or their hours aren’t that terrible. Or that they only had one “off” month (when that month was bracketed by two “meh” months). All of this delusion is truly lethal.
- Make Sure it’s Worth It We are all told to worship at the church of hustle. But the best and most sweet moments in my life were times when I laughed with people I love. They were across kitchen tables, and not conference room tables. To spend money on a business that doesn’t properly
- Make Your Numbers Chase You Figure out what you want to earn and what you need to keep and make it into a game. Have your accounting team leverage the automated reporting features of your accounting software. Know when you’re REALLY working, KINDA working and NOT working. Know what you’re earning per hour. Pay attention to clock hours and calendar. (A suggestion: read the 12-Week Year, install RescueTime).
- Profit Must Be Baked Into Every Phase Of Every Project It’s easy to let weeks or months go by and say that you’ll be profitable down the road. Every account must be profitable. Doing deals for influencers or friends or family to become someone someday are mostly a ruse. Don’t do them.
I am giving it another go. I’ll have a business that will take 3-4 clients initially, and then I’ll grow from there. I don’t know what “scale” means in this context. I know that if I run my business with sobriety that growth will be welcomed when it happens. it’ll be about a week before I begin to sell. But I do know that with some discipline and reality in place that I’ll have a better chance than ever.
I’ll need less luck, and we’ll be able to learn a lot about what I’m here to give.
[As a postscript, a lot more detail is in the book Profit First by Mike Michalowicz. That book supplies the detail needed to execute a business system that matters.]