It’s become an annual tradition: the Denver Founders crew gets together at the end of October, has a few drinks, and share startup horror stories. As host Chris Franks is so wont to remind us, the overwhelming majority of startups fail. As a community we’re great at sharing our successes, but the same isn’t true of our failures. Yet, both can be invaluable to others. You know, that whole standing on the shoulders of giants thing?
Like an episode of Dragnet, the names have been changed to protect everyone involved, but the stories are true.
Life Imitating Art
One of our guests shared an interesting story that was like something straight out of the HBO show Silicon Valley. This founder put everything into building her company, and raised her first million dollars in a mere 18 months. One of her co-founders was in charge of the company’s financials. Within four months of going to market their burn rate was into six figures per month. At the same time, having not been on a vacation in years, our guest went on a three-week vacation in Southeast Asia. While half a world away it was a mere 24 hours until she received a message saying that her board of directors was trying to fire her – from her own company. It turns out that her co-founder thought that he should have been CEO instead and tried to oust her. Luckily she controlled the majority of the votes within the board of directors and was able to put a stop to this plot.
Always, Always Backup
Back in the late 1990s, one of our guests had a number of web properties that they were dragging through the dot-com bust. On a fateful day in September 2001, his company was scheduled to have a conference call with a company whose investment would save them from going belly-up. Unfortunately, the investing company housed their data center in the World Trade Center. When the planes hit the WTC the company, and their data center, literally blew up. After scrambling to make sure everyone was ok, they were fortuitous that a backup existed because this was before “the cloud” was a thing. Ultimately, our guest was able to survive the bubble and sell his company.
No Deed Goes Unpunished
Another one of our startup guests got into her company as a favor to a childhood friend. That friend, denoted as the “good co-founder” brought her on to do the marketing at a tech startup. In hindsight, she realized that there were a lot of red flags that went unnoticed because the honeymoon phase was in full effect. So as the head of marketing, she worked to get the co-founders to identify the company’s value proposition. Unfortunately, her other co-founder, “the bad one,” couldn’t come up with anything and really had no direction. Basically, her co-founders had different, and very divergent views of what the company was about. Despite this, they ended winning some big clients, but that’s where the trouble started. They made one solid developer hire, but struck out with subsequent hires. What ended up happening was they started to over-promise what they could deliver to their biggest client at the same time that that customer kept changing the scope of the project. As the company went into freefall, the “good” co-founder essentially had a breakdown and was out of commission for a while. The “bad” co-founder, whose was in charge of day-to-day operations, didn’t bother to do any of that work. The company ended up hemorrhaging money and she got out. After this experience she advised founders to make sure they have a grasp of their company’s operating agreement, to understand what you’re getting into, to make sure you’re aligned with any co-founders, and to ensure that you have good contracts with customers.
Like Something Out Of A Movie
Perhaps the craziest story of the evening came from a young entrepreneur who had a condom delivery startup and a drone company. He worked out an equity agreement with a web developer to put together a website for the condom company. While working on the site, the developer asked to borrow one of his drones for a separate project. Several months passed and when the developer delivered the website it was a total piece of junk that didn’t even work. When our guest went to sever the relationship, the developer demanded payment, even though they had an agreement for equity. He also refused to return the drone. Well that’s just plain theft, so our guest founder called the police. When he informed the developer about this they arranged an exchange that sounded like something straight out of a movie. One of those, “come alone, don’t bring the cops” type of situations. Well, fool me once and all, he brought the police with him to the exchange, and the developer returned the drone, albeit damaged. Not one to let things go so easily, apparently the developer then hacked all of his business accounts, locking him out of all of his own stuff. He told those assembled that he had actually spent the past 48 hours regaining control of everything and creating a new website for his businesses. It’s not often that we get a horror story that was still in the process of unfolding, but there’s a first time for everything.