Founders beware – the following commentary may be too much to bear.
Late in 2013 I had an idea. A simple solution to a vexing problem. I whipped out the old battered HP Laptop, wrote up a draft business plan, and pitched to a friend who had some money. Fast forward a few months, and he decided to invest, later bringing in some other investors. A business was born.
To many founders, the seed capital for an idea is the hard part – in my case, and the way my memory serves me now, the seed capital was not the hardest part. That comes later in my story, but for now, a short summary is in order.
With the first few Rands in the bank, a prototype knocked out in a few weeks and some basic software, I did my first demo, and it worked! The investor was happy to go ahead and the plan was to build a few units, then launch. NPV’s were drafted, valuations agreed and the second round of funding secured (a million Rand). We were set to take over the world, and then life happened.
Lesson #1 – it ain’t a deal, until the signature is on the contract!
We set out to secure a contract with a leading e-commerce player. Mr A (the new guy appointed to head up the division at the e-commerce company) was excited, happy with the initial pilot, easy to work with and excited to drive the project from his company perspective. Draft contracts were sent back and forth, and within a few days we had a working contract, with solid financial backing that supported both parties vision of the future. The deal was so to speak done. We all relaxed a little. And that was the first mistake I made – not chasing that contract harder. Not getting it signed, sealed and delivered! One email not replied to quickly enough, one weekend. I called Mr A after not getting a reply. He had lost his job, moved out, moved on. And no replacement person at the e-commerce company. Days of trying to find out what was happening. Nothing. All cold. Despair set in. But there was another plan.
Lesson #2 – don’t take your eye off the ball – be part of the talks – all of them!
My co-founder was close friends with the new co-CEO of the e-commerce company. They shared wine together, and other mutual business interests. I counted on this friendship, and my co-founder promised to follow it up. I was not part of the talks, I had second hand info about what they were talking about. The project was on again, Mr CO-CEO would be driving the project! We had a new champion. All was good again. Except, it wasn’t! Over dinner, Mr CO-CEO dropped the bomb – the decision to go with us was not his, but that of the other CEO, a well know hard ass and tough negotiator. We were back to square one. This time, I was shocked, but determined to find another way.
Lesson #3 – no contract means you don’t have a business. Period.
Make another plan. A change in thinking, the biggest bomb came from my fellow investors. Understandably, without a contract, the business was going to struggle, but there were some other options. Or were there? With investors edgy, the next round of funding would not emerge, as defined the deliverable had not been met – A signed contract with ”e-commerce” company A.
Lesson #4 – know when to cut your losses, and move on – quickly!!
The writing was on the wall when the Investors made a call to not fund the business further. This entailed letting all staff go, and that included me not taking a salary. I was to continue ”working” the business to try and save whatever shareholder value I could. Dumb move. I should have asked for the shut down of the company immediately, and moved on – either with new investment from other sources, or gone and done something else. This is hard.
Lesson #5 – The business you created stopped being ”your” business when you took on investors and shareholders. Its their company now, and you are simply another shareholder
Separation of the self and the business identity is hard. I poured everything into making it work. The personal cost of starting a business is high – personal relationships suffer and some end. The ongoing stress kills enthusiasm, and once you have agreed to bring on shareholders, the game changes. Reporting, deliverables, milestones, targets – all become a reality. Turning an idea into real business is hard work and requires a change in thinking, something loads of founders simply cannot do. Equity? Can you eat it?
These are just some of the lessons I learned along the way. Would I do it again? Yes! Would I apply the lessons? Most definitely. Was it worth? Hmmm…the jury is out on that one.