As I write this, I’m looking over the charred remains of what used to be my startup. As a technology company, we’d taken all the steps we knew to run and scale a company. However, one thing they don’t teach you in “The Lean Startup” is what to do when you start burning cash so hard it ignites a fire.
Like any other founder, I launched my company with a dream in my heart and a glimmer in my eye. Or, at least I launched it with an MVP in the cloud and a sales deck on my laptop.
Investors were intrigued by the idea. I can’t confirm that’s because it was any good — after all, haven’t you heard about this vending machine company that just raised $2.5 million? — but after a few pitches and conversations, I got them to buy into my vision.
If I’m being perfectly honest, I could have bootstrapped my company to greatness over the course of ten years. But I ain’t got time for that shit. I convinced these investors to give me more money than my parents earned in their entire lifetimes combined so I could build a tool I sold on the premise, “Like Facebook, but better.”
Many people will tell you to take only as much money as you need, because investors’ expectations increase based on the amount of money you spend. But I was like, “Daddy wants a new Cadillac and DOESN’T want to wait until the company’s acquired, so open up your checkbooks, jerks!” And somehow these investors still gave me money, even though those are the words I literally said out loud in our final meeting.
I figured that as a small company, we didn’t need a CFO. Numbers? Who gives a damn about numbers when you have $4 million in cold hard cash to spend on vintage arcade machines and state-of-the-art Japanese toilets?
Our product was doing great! We were attracting 10,000 users a month with our obscenely large marketing budget. I mean, some of them only ever logged in once just so they could get the free Olive Garden coupon we were offering them, but… 10,000 users! And 10,000 Olive Garden appetizers, all on us! We were on fire! Almost literally, by that point!
Retention was difficult, but instead of testing and building out the functions that might have kept people using our product, I instead decided to instruct the team to build out a feature that would allow my friend DJ Coke Nose to sync the colors of his iPhone notifications to the new Macklemore album. He loved the feature, at least until he had to give up his phone to pay off some of his gambling debts.
I was also tasked with hiring out our team, so I personally recruited a friend from college who demanded a $500,000 salary and the title of “Chief Awesomeness Officer.” And he was awesome! At everything EXCEPT his job. In retrospect, I never really understood what I’d hired him to do in the first place.
Once we realized our product was tanking and that no one was willing to pay $40 a month for color-syncing iPhone notifications, we were already feeling the heat. We asked our CAO to help, but he was away taking one of his ever-important weekly “strategy” meetings on a sailboat in the Bahamas. Little did we know that heat was going to ignite, and our once-promising startup was going to go down in a blaze of glory. And by glory, I mean agonizing defeat and devastating failure.
By the end we were quite literally pushing together stacks of dollar bills and lighting them on fire. But that was only because we’d burned through so much money that we couldn’t pay the heating bill, so we had to keep ourselves warm.
I know it’s hard to believe that I burned through so much money the NYPD had to send over four fire trucks when I caused a 4-alarm blaze. But, believe me when I say we needed that $20,000 espresso machine. Especially when we realized how quickly our cash was burning and poured espresso shots all over it to try to put it out.
Once I realized our startup was going to explode, I instructed people to run for cover. Except, we didn’t have much cover because we’d spent all our money on augmented reality desks that didn’t actually exist in the real world but look really cool when you view them through our app. With that, Sheena from IT dialed 911 and we got out of there, unscathed, while our investors stood by and watched their money go up in smoke.
So, let this be a lesson to you: If you get funding for your startup, be strategic. Don’t let yourself get carried away spending on things you don’t need. Keep your headcount low until it’s absolutely necessary to grow. Focus on improving your product. If you hire a Chief Awesomeness Officer, make sure you know what that person does.
And, if you find you do need to spend some of that investor money, make sure you spend some of it on a good sprinkler system, too.