How I Blew Two Million On My First Startup
Romeo and Juliet is not a love story. It is the story of two morons who commit suicide as well as have four other people die in a three day span.
Most people, however, always remember how Romeo fawns over Juliet at the beginning of the play and the incredible speeches from Shakespeare.
This is similar to how I felt when I met Stephen – except it was more of a Bromance sort of thing. Seriously. Do not look at me like that.
Here I am, a raging alcoholic but programmer extraordinaire. When I say this, it is not bragging.
Why is it not bragging?
Because I can back it up. Just look at what Dennis Leary said about Deion Sanders. Sanders was that good.
Anyway, I am sitting in the Apple coding class, and I am crushing it. I am the top student in the class. After all, I am such a brilliant individual (less the small inconvenience of losing two million dollars). But, who is counting?
So, to make a short story longer, Stephen and I ended up working together and, be ready for this, Stephen and I …
Formed a Business Plan
Sorry; I had to do that for dramatic effect.
Well, Stephen had a plan. I have a fetish for starting companies, earning millions and miraculously squandering it all.
This would be a first for me. I have always made my millions by myself. This way I could lose them myself as well. I was ready to rock and roll.
Stephen wanted a nutrition app. Do not worry about the immediate details. Just know two things: 1. I was not into this app in the least; 2. Stephen had a work ethic.
When I say Stephen had a work ethic, I am not kidding. Stephen enters The Zone and stays there. I can hit The Zone hard for about two weeks, and then I have to go and spend money, get hookers, do various drugs and be a general degenerate.
Apple was in the process of hitting television for the first time. The show, Planet of the Apps, was going to need people to be on the show. Stephen and I needed video help, so I hired on my content/video editor, David, at a 20 percent interest in the company.
We made the show.
We needed capital. We needed capital from ‘angel investors.’ Those people who will give money to small startups that have some degree of chance in making it.
It is not easy to land investors. We burned up telephones calling. We got hung up on, cussed out, laughed at and generally told we belonged somewhere either warm or where people who wore white coats and carried butterfly nets chased other people.
Don’t Be A Menace to Society While Drinking Your Juice In the Hood is the title of a film by Keenan Ivory Wayans.
His two younger brothers, think White Chicks, star. Every so often Keenan will make an appearance and say, “Message!” He is trying to make a point about something significant. Check a video clip here.
My point is during this epic about my life, mistakes and successes; I have things I want you to know. This is one such time.
Here is a lesson for you guys. I had an investor for Stephen, and I get a promise of 20k, multiple meetings, drafted up the contracts, and this guy week after week kept promising us.
So of course we believed him, and kept waiting and waiting.
We reached a point. We flat out asked him.
He flaked – naturally.
With my current passion, Gypsee, it has been the same story. 10 people who made huge promises and fail to follow through.
Moral of the story is, NEVER RELY on one angel even if they say yes. KEEP SELLING, until the money is in. your. bank. account.
Thank the Immortals; Stephen started Lyft driving, because my investor flaked on us.
We hit up all of our phone contacts, Facebook, Instagram and one of our mother’s uncle’s sister’s aunt’s brother’s cousin’s kid’s former college roommate for some help. (Okay – I exaggerated a tad on the last one, it was not a brother.)
Like most startups and small businesses trying to get off the ground, we were broke. This was nothing new to me, mind you, but it was a bit different for Stephen.
We dropped all contract work because of the Apple TV spot. We had to concentrate all of our talent on that. Stephen had to do something, so he started driving Lyft.
Lyft is what gave us our lift we needed. Stephen landed an investor while driving, to the tune of $20,000.00. The story goes: Stephen was coding between rides, got a call from someone inquiring about apps and noted Stephen’s work ethic. Stephen got a compliment on his work driving Lyft, coding and supporting a family. I told you before – work ethic.
Every so often, I have to shift gears into business speak or have a story to tell. I do not expect you to understand the jargon, but I do want to give you a heads up. It is going to be similar to what happens here. This is the first.
We sold 20K for five percent, a $400,000.00 pre-money valuation. Considering our current position, this is not bad.
Note: When you sell stock for equity (what we were doing), you are selling shares of the company. The price is determined by the total authorized shares, the amount of equity and total bought. (Fascinating information, I know.)
Ironic you are learning business jargon from a high school dropout, but hey, I know this stuff.
A capitalization table is a breakdown of the total shares a shareholder has in the company. Here was ours:
● Andrew – 1.5 million shares
● Stephen – 1.5 million shares
● David – 600,000 shares
We have 3.6 million total shares. If we give an investor five percent for 20k, we have to sell five percent of those 3.6 million shares. This is 180,000 shares. Take $20,000.00 and divide by 180,000 shares. This yields a price of $0.11 a share.
Now you know how equity is sold in a corporation. Wake up, please. I have more blog for you. I am going to do what I can to let you know boring business speak is coming so you will prepare.
So, what is my point in all of this? Our first stock purchase agreement is “Series A.” Series A is when you are trying to raise over 1.5 million in capital. It would have been better named ‘Pre-seed’ or something like that so it would not seem as bad.
If you are raising capital, find naming conventions for your startup. They are out there, just look.
We were inching closer to going live on Apple T.V. Stephen and I were needing capital now, so we convinced our sole investor to give us another $120,000.00. This time, we had him invest in a convertible note – a promise of equity at the next “real valuation” of our app. Real valuation is when you raise more money, you give the investor hard equity. Just as an example, 10 percent for one million. The note can be converted to one million dollars.
And, in case you are curious, THIS is the best way to raise money as a startup. This way you are not valuing something that does not exist and is the reason for convertible notes and SAFE agreements.
This is very difficult to get investors to buy into. Investors want X percent and often are put off by a promise of future equity.
If you are asking for money from an investor and wanting them on a convertible note, you have to be 1. A decent entrepreneur; 2. Have skills; 3. Be able to sell ice makers to Eskimos.
If you get the chance and are in northern Alaska, ask some of the locals how they like the ice machines I sold them not too long back.
The investor was on level as well. He only met Stephen, but he fast became one of my party boys. It was awesome, but it was not awesome.
One night, our investor wants Stephen and I to drive up and get $120,000.00 in cash from him. It is only an hour’s drive, so we head that way.
We get there, and he wants to party and have a few before handing over the cash.
Now, you know I am not one to turn down a party. Stephen, not so much. The investor pulls out a hefty bag of cocaine.
Stephen has NOT seen this side of me at all. I glance at him. Stephen gives me the all clear, and I go bonzo-gonzo with the investor. Stephen is sitting in the back, being chill and trying to enjoy himself while the investor and I are drunk and coked out.
About one to two hours later, the investor pulls out another bag – this one with $120,000.00 cash in it. Stephen and I leave, driving home with metaphorical crap in our pants (and you would too if you had that much cash in hand from someone you just met). We stash the cash in my safe.
Up until this point this has been at times funny, at times dry and at times a serious What in the hell blog. Now, the blog and the story are going to get dark. What you are about to read is how, I, Andrew, almost managed to destroy myself, a good friend and who knows what else in the process. This is going to be sad in part.
Here we go.
The last thing we want to do is drop $120,000.00 all at one time in the bank.
If you deposit $10,000.00 or more at one time, you have to do a CTR, currency transaction report. Banks can also make you do it if you are depositing large sums on a regular basis. It is a way to halt money laundering.
The last thing Stephen and I want at this point is anyone questioning us or where we are getting this money. We put some in the bank and paid cash along the way. We did this by the book, logging all investments, spending and the like. We have only used approximately $30,000.00 so far.
I was, at this time, dating a stripper. We had an on/off again relationship for about two years and counting. I have her and one of her friends come over one night. Stephen and I wanted to celebrate, and the company of ladies would certainly help the night go well.
The night went exceptionally well – for the ladies. How, you may ask?
Stephen and I have a large amount of cash on hand. I have a raging drinking problem, coupled with a severe case of verbal diarrhea. I will not stop talking. I do not stop talking about the money to my (notice, dear reader, the words I will be using) then girlfriend and her friend.
The four of us hit the town and have a rip roaring good time.
I, being the generous person I am, invite the ladies back to my place.
They willingly come. I pass out.
Sometime the next day, I wake up and look around. Nothing out of the ordinary except the key to the safe is in the door, so everything is okay.
Read that again, please. Slowly. Better yet, let me break it down for you:
The. Key. To. The. Safe. Is. In. The. Door.
The safe. The safe that had $90,000.00 in cash in it. Me. The guy who cannot shut up about having $90,000.00 dollars in his safe at his place.
She left $10,000.00 behind. Strangely, I cannot seem to find her and ask why she so kindly left a portion of the cash I had in the safe behind. How terribly rude of her. You would think she would send a Thank You card or something.
Well, now. What am I ever going to do? I have a few options:
Tell Stephen and possibly be murdered;
Commit ritual hari-kari like a samurai;
Drive off of a cliff like these two;
Curl into a ball and weep.
I told Stephen. He considered doing two and three, did four and shockingly, because you are reading this at a point after the fact, did not do one.
That lasted a day.
The next day, something happened. Happened like when Metropolis needs Superman, and Clark Kent rips off his shirt to reveal the ‘S;’ happened like when Commissioner Gordon fires up the Bat-signal for the Dark Knight to come or Spiderman and his Amazing Friends change.
I remember Stephen basically acting like the world was collapsing, and for him, it was. For me, it was a common thing, and I had shifted into gear. Stephen got off of the phone. I asked what his dad said.
It was something along the lines of, “Son. Did I raise you to be a man or a child? What is done is done; solve the problem.”
Renovatio kicked in.
I started calling. This time I did call the brother from above and a few others in addition. It took two days.
I had $60,000.00 in two days.
In case you have not realized it, I am a natural salesman. On your way to Alaska to check on the refrigerators, stop by and ask anyone on the way how the insurance is working.
The insurance I sold them in case of being trampled to death by bull African elephants. Full payout if it happens. No questions asked.
I can sell anyone anything.
One night, on a binge of liquid courage, I was scrolling through my email contacts. One of them popped out – it was the investor from beModel.
I had not spoken to him in almost eight years. I was drunk. I was inebriated Superman.
I contacted him. I pitched; he listened. We video chatted. Stephen and Dave joined in.
Old feelings were set aside. The investor trusts me. His attorney draws up a contract.
I happen to relate the story of the $80,000.00 stolen. He laughs. He gives the team $600,000.00.
We had another convertible note. This note had a 2.4 million dollar cap. If the team raises more money than the 2.4 million, his $600,000.00 investment still converts like normal. At this level, the investor has hard equity in the form of about 25 percent of the company.
He is not a fool. This was done to protect his interests.
So, suppose we get 10 million in venture capital. The investor would convert at six percent equity, but since he had a cap, he still converts at 25%. The convertible notes are debt with an interest attached to it. These notes will mature like a savings bond. One of three things will happen:
1. the notes convert to stock;
2. the note is extended;
3. the note is repaid.
The agreement was for $50,000.00 a month for 12 months. He did not want us to have all of the money at one time.
We got “bootstrapped.”
This means we are spending the smallest possible amount and are barely making it. This was a wise move on his part as I reflect on that fact now. At the time, it was a pain because there was so much we could have done.
Who would have thought beModel, the trainwreck it was, would turn into something so beautiful? Certainly not I. At least when I am sober.
Speaking of sober …
Take a look at Japan today. Do you know why it is so incredibly technologically advanced?
First; the country was blasted into a parking lot in WWII. Second; they had history on their side.
The rest of the world had gone through the Industrial Revolution. Japan was able to learn what did and did not work when they industrialized. There were no hiccups. The country hit the ground running with technology.
What am I getting to here?
I have done the screwing up for you. I made the big mistakes, and you are going to read about them. What follows here is the first of MANY mistakes I have made. It is a goal you do not do the same.
#1 – I have a real issue telling people, “No.”
We had a lead designer, let’s call him Joe. He agreed on a $3,000.00 a month plus stock options as a salary.
Options are what employees get when they join a startup or a tech company. They have the option to buy stock at a certain price. They are not ‘gifted’ the stocks. The employee has a choice to buy or not.
#2 – Penny wise; dollar foolish
There are some people who will go absolutely bonkers over spending three dollars a gallon on gas but will blow five to six dollars on a cup of coffee and not blink an eye.
It started with the designer.
I can sell refrigerators to Eskimos. Our designer, Joe, could sell beachfront property in Nebraska while pointing at the state on a map. He was smooth and could make anyone feel like a million dollars. He had charisma, chutzpah and moxie all rolled up into a single package.
He talked Stephen and me into paying the main members of the team, five of us, a salary of $8,000.00 a month.
This is a total of $40,000.00 from our $50,000.00 we are getting a month from our investor. We were certain this is what we needed to live, maintain a lifestyle and focus our attention on Evolve.
Stephen and I could have made it on $5,000.00 a month with the remainder of the team earning $3,000.00 a month plus stock options.
The other three may have bolted. There are also plenty of others waiting in line for a chance to ride on our coattails, be on the Apple television show and be a part of something magnificent.
We should have had a ‘burn rate’ of $19,000.00 a month and nothing more.
‘Burn rate’ is the term used when a startup is using investment money until a profit can be made.
We could have been saving $21,000.00 a month – easily.
I was CFO, Chief Financial Officer. I could have said, “No.” I had the final say. I also bought a lovely home right on the beach outside of Monoli, Nebraska, population: One. Two, including me and my lovely beach home. Come visit me; won’t you?
Apple TV launches. It goes over like New Coke. There will be no second season. The show was pitched to be better than Shark Tank. (Note: It was not.)
Here is a brief story on what happened with Planet of the Apps.
We had Jessica Alba as our mentor for Planet of the Apps.
Yes; that Jessica Alba. Close your mouth; you are drooling.
She had a problem with the design. It was too ‘manly.’
Stephen and I immediately looked for a new designer. There was no reason to hire two new employees. This was idiotic on our part, and the first thing I would ultimately change.
If I seem peeved when I think about the disaster that was Planet of the Apps, it is because 1. I am peeved; 2. Apple did poorly for those of us who believed; 3. it went absolutely no where for no benefit.
Hindsight being what it is, I do not fault Alba. The problem was Planet of the Apps. The show was a farce on so many levels from the beginning. It was a farce because it was fake. It was a farce because the mentors did not care about you, the app or much anything else outside of their check. It was a farce because no one could speak to a mentor about their app unless it was a staged meeting. It was a farce because the people there WERE NOT MENTORS.
The entire show was a farce. It was nothing more than a publicity stunt.
Did I mention it was a farce?
I did meet Jessica Alba, which was cool.
Apple said Evolve would make the first page of the App Store. This is huge for a startup app. Approximately 100 million iPhone users in the U.S., and our app is front and center.
We were banking on some serious downloads. We broke maybe 5,000. It is easy to point at Apple, but the largest company in the world would likely take offense to that and send some attorneys down to express said offense in a not nice way.
It could have been the app. It could have been the landing page. It could have been because a butterfly flapped its wings.
The Apple TV show was to be our bread and butter. We got neither bread nor butter.
We, who are spending $40,000.00 a month on salaries for an app that has not done much of anything yet are trying to make profit in eight months time.
I wanted to take the three employees from $5000.00 to $3,000.00 a month in salary without them going postal on me or Stephen.
I was thinking this at the beginning; I knew I errored.
I did not want the team to think I was flaky or wishy-washy. What I should have done is pull a Nike.
Just do it.
MESSAGE: $3,000.00 a month is poor salary when you are working like they were. Such is the nature of the beast in tech. You will take a huge risk on stock options with the hope of getting out of the Rat Race. Everyone is pitching in 100 percent for growth with minimal burn.
No startup with $600,000.00 would use $40,000.00 a month on salaries.
At least, no startup with a CFO who could 1. Say ‘No.’; 2. See through a façade.
#3 – Don’t steal from your own kitty
I make no secret. I am an alcoholic. I have done coke, meth, molly and who knows what else.
Just so you know – drugs and alcohol are not cheap.
Los Angeles. The name should be enough to get the gist of what I am saying, but for argument’s sake, know something about L.A.
It has world class clubs and bars. Those world class clubs and bars command world class payment.
This leads us into the third fuckup I made.
Here I am in L.A. with plenty of cash on hand. I was going out several times a well. Well; every night of the week. I had an $8,000.00 a month salary. One would think I would be wise and budget my money considering previous experiences with me and money, but hey, this is why you are reading. You want to learn what not to do.
Here is the summary – I was going out all of the time, and I would “borrow” from the “kitty” to support my habit of drinking, drugs and women.
I was quite enjoying myself.
It came time to repay the kitty.
Keep in mind, I am in Los Angeles. It is not cheap to live in L.A. and live the sort of life I am living in addition to Sage – my lovely daughter.
I am an alcoholic. I have squandered millions. I am not, nor will ever be, a thief.
I checked to see what I owed myself and the company.
I checked. I double checked. I checked the Czech and his check. What I got was a hockey check.
This would leave me $3,000.00 to survive until the next month. Impossible in L.A., my habits and supporting a child.
I am frantic, trying to figure out what to do. I decide to do nothing.
Yep. Nothing. Somewhat of a first for me.
Stephen decided it would be best, upon discussion with an attorney, to give me the proverbial axe and cut me out of:
If it was company related – I lost access.
Suddenly, I was Jerry Maguire.
I cried; I screamed; I all but fell on my knees before everyone.
After all, who has the right to fire me? Me; the one who scored us $660,000.00; the backbone of Evolve; the MAN incarnate.
MESSAGE: I would have fired me, frankly.
Stephen and I have since made amends. He admitted he should have spoken to me (cue Jerry Maguire scene above) privately. The rest of the team are not founders – he and I were. They did not need to know how much was in the bank. It was a rash decision, made out of anger.
#4 Alcoholics and alcoholics do not mix, unless it is a drink
I met Jason in my apartment complex. He had some decent sense about him, and we bonded.
With one minor issue.
I pale in comparison to Jason and his drinking.
Jason worked his way into Evolve and me with him. I was working from home, which was ideal because Jason and I could drink. We kept it on the down low.
The thing is about an addiction, is there is no such thing as the down low. Eventually, the addiction is going to run rampant. What started on the down low became on the up high. Jason and I were drinking more and more.
Jason had some decent ideas – he cut everyone’s pay, including Stephen and I. This went over exceptionally well, and by exceptionally well, I mean not too well.
Our saving grace was the remaining members of the team had faith in Stephen and me. What I should have done is what Jason did – cut the pay for everyone. They had the option of take it or leave it.
I want you to run a business and realize just how hard it can be to hire and fire people. Yes; some businesses have a revolving door of both. Some do not – especially in the tech field.
I let it go. I was, however, bored and not with it.
#5 – Stephen’s turn
Stephen decided we needed a lady around the office. One that had stunningly good looks as well. She arrived one day, introduced herself as the intern and started to work.
It was all well and good. After a week, hints were dropped.
Specifically, Stephen promised her a job and with that job a salary. You know; getting paid to work sort of thing.
She asked for $8,000.00 a month.
I call your attention, dear reader, back to my #1 mistake – I cannot tell people, ‘No.’
Here we have a fairly attractive lass working with us, whom I knew nothing about and asking for a salary on par with the founders.
Stephen and I were both like, “Sure!”
By this time, Jason had been given his walking papers. You know, coming in to work on a coke binge and in tatters after a fight with your girlfriend is not a good idea. Stephen canned him immediately.
This is important.
All of the other employees, with Jason gone, wanted their old salaries back.
Again, because I cannot say, and I cannot say it now, that word, Stephen and I agreed.
So, we are overhired, overpaying, underworking and basically using the capital cash to make us happy and along the way, develop some app or something like that.
Startups consistently make this mistake. Call it “Fake it ’til you make it.” It is a common strategy in MLM, multilevel marketing (Amway). You spend more than you have because you are going to make it big – tomorrow.
Like most things I reflect back on, this would have been easy for me to do solo without other people. It was not the coding issue. I could not back the app any longer. I had my fill of it. I enjoyed Stephen, his work ethic and his company.
Alcohol and boredom. The epitome of “Hey y’all! Watch this!“
#6 – Sexual harassment
Things were going well at the office. The employees were on par with me. I was trying, seriously, to right my path.
I had a buddy, Damion, in L.A. back when I was in Hollywood the first time around. He came back into my life around the Apple TV time, and we caught up. He was programming, and I was like, “wow.”
STORY STORY BREAK
We were coking it up in some mansion, and he got a tattoo of a penis on his butt from some random girl there.
END STORY STORY BREAK
Damion was good at what he did. His skills ranked alongside my own. We brought him in.
He and Stephen hit it off well. Too well. I got jealous.
Damion turned on me during the firing episode. Damion was my friend.
When there are investors, money, users of an app and the like, business becomes business. Friendships take a backseat. Damion became an employee.
I should have treated him as such.
Damion and Stephen were growing closer and closer. Damion was also asking for equity, to cut me out and other things.
It got weird at the office. Weird like seeing your dad naked weird.
It be like that.
Friends cease to be friends when they are on YOUR payroll. This means no more coking it out, drinking, talking women and the grand plans for the next big thing.
Here is what will happen. That friend will throw you under a bus, steal your idea and make good with your woman if there is money, fame and fortune to be made.
There is an old RPG, Paranoia. Not going to go into details, but there were three rules:
Trust no one;
Keep your laser handy.
This is the business world, minus the lasers. Although, it would be awesome if we had some.
Damion and I had a chat after a time. He apologized with the sincerity of a snake.
The girl Stephen brought in thought it would be a good time to celebrate – something.
Why not? We are only burning through $53,000.00 a month in salary, not counting things like expenses, rent, server fees, insurance, food etc.
She has us all meet at a German beer place for sausage and beer, which turns out a great deal of fun. Some of us are slightly inebriated, but other than that, it was all good.
Our office was actually a loft apartment. We are a health app; we needed a kitchen. Damion was living in the office at the time.
We all decide to go back to the office and play board games.
Can you see where this is going? Can you smell what the Rock is cooking?
So, we all leave. I live a block from the office.
It is 5 a.m., and someone is turning my door into mush beating on it. It is two of the employees.
I have a hangover.
Damion is in trouble.
It makes me happy to know that.
Apparently, the woman Stephen hired claimed Damion tried to rape her. She hauled out of there to her place, next door.
Where she lived with her boyfriend, who did not take lightly to this or Damion.
The boyfriend went to the office to handle the situation in a very personal sense, and Damion called the law.
Damion, our employee, is now embroiled in a sexual harassment lawsuit.
The outcome of which, you ask, or didn’t ask, I was going to tell you anyway.
Two month’s pay at $16,000.00 and another $3,000.00 in attorney fees.
We are now without any capital.
We took out a shark loan at 100 percent interest. Why? We would be able to pay it back in short order with a quick injection from the investor by a month. We were trying to keep this little (read: humongous) hiccup out of his ear.
We did not get the early injection. We owed the shark around $100,000.00 when all was said and done. We paid him back $16,000.00 and nothing more.
How we escaped that with our kneecaps is amazing.
MESSAGE: There are employee handbooks all over the place. Get one; give to your employees; follow it to the letter like your attorney will recommend. While you are at it, do not let employees live at the office. Or take girls there if they are spoken for.
Damion was gone a few months later. Stephen fired him, reluctantly. Stephen tried to fire me for less than this. But $16,000.00 and a sexual harassment charge means I would fire Mother Teresa.
We are down to $37,000.00 now. Another employee gets the axe. We are down to $32,000.00 now.
Things are potentially looking up.
Post drinking binge return to company time, we were having some fun around the office. I mouth off I can reach anyone, any “influencer” (A term for people with a ton of followers on Instagram). Tell me who you want.
Everyone chose Sommer Ray.
The Sommer Ray at the time with 18 million Instagram followers. She now has 22.1 million followers.
I started trying to get in contact with her via any social media I had. I cross referenced friends on platforms and asked any mutual friend or influencer around.
I was in my zone – you know the one where I am hyper-focused on one thing (huge characteristic of ADHD).
A month later, Sommer Ray is our dinner guest.
I told you before – it is not bragging if you can back it up.
MESSAGE: If you are looking for someone, research, and find them. Do not give up. Contact anyone who has a potential connection because I did. It worked with lots of time and dead ends.
It still worked.
#7 – Paying Sommer Ray $100,000.00 without a contract or negotiation
This was the gentleman’s agreement: Five percent equity and $2,500 per diem to shoot her workout program for the app. Four days of work and $10,000.00 plus a cut of what she brought in is not a bad deal.
Sommer Ray is going to be the face of Evolve and not just an influencer who posts for shoutouts. We were looking long term.
Stephen and I are ready to rock and roll.
Then came the phone call.
The manager spoke to her attorney. She was worth a touch more – $100,000.00 down and 10 percent of the company.
We wanted to counter. We should have countered. We cannot say, “No.”
We have three months until the angel investment money is gone – $150,000.00 left. Apple TV went the way of the Dodo bird. The company has to do something.
Sommer Ray promised more influencers and more workouts.
Stephen and I did the hypothetical math – 10,000 subscriptions at $20.00 a month brings $200,000.00 a month guaranteed.
There is a word Stephen and I did not know in addition to the other word we struggled with – negotiation. You know, that thing you do in business?
We were in deep, treading dangerous water. We did not want to lose the face of our company.
MESSAGE – I now know (funny how I know all of this NOW) and could have done $20,000.00 and been serious. They may have taken it, but we shook on $10,000.00. I do NO business at all without negotiation. We deal, or I walk. No questions asked; no hands shaked.
We got the $100,000.00 fronted. This means one month of payroll to go.
The company has to launch – now – and sell subscriptions like it is free water at Woodstock 1999.
#8 – Launching six months after the fact
Building an app is not easy. Building a quality app is more difficult. Building an app that people want to use and spend money on is Herculean.
Consider: Of the many apps you use currently, how many of them do you pay for? I personally, and I am an app developer, pay for Spotify. Period.
We planned on a New Year’s launch and expected to make bank. Why?
Guess what places like Sears put out heavily in January for customers?
We missed New Year’s after we told Sommer Ray it would happen.
So, now what?
Remember what I said about selling refrigerators to Eskimos? I can sell them beach wear too. Let’s go to Kotzebue and see how they look.
Our investor gave us another $600,000.00 because of Sommer Ray. The company is going to clear $200,000.00 a month easy at launch, guaranteed.
So, we are behind a month. Late January is the new target date. Well, maybe February.
It was May.
Sommer was angry; investors were angry; the company was angry; some guy in upper Mongolia taimen fishing was angry. Sommer’s management was wanting a cut of that $200,000.00 a month. The 11 investors wanted a piece as well.
If you are going to launch in January, you make ready for October.
#9 – Hiring a film director at $70,000.00
We needed the best for a commercial. We landed him. The commercial was on point. See for yourself.
And, we had issues.
The smaller influencers we had for the app shot promo videos and the workout program for $20,000.00 per program. A three day shoot, 10 people, locations across California and editing, gads, the editing.
No doubt we could have had a better deal. The director was incredible.
He charged us.
He wanted $70,000.00 for the Sommer Ray shoot.
In case you have not learned, Stephen and I are Jim Carrey’s character in Yes Man.
The content was great.
We could have used our phones and saved $69,000.00.
Look at the apps in the App Store or Play Store. It is nothing special. We are talking a phone screen not Dolby Digital 3-D here. Are 56, yes, that many, lights necessary for a girl doing squats? Even if it is Sommer Ray?
And, we are at the end. The crème de la crème. The piece de resistance. The final curtain. The fat lady has sung.
It is time.
We are live.
We are watching the numbers, traffic, waiting for Sommer Ray to make the grand posts on all of her social media. The views are pouring in on her stories. She is running late posting. No problem; all is well.
YouTube is burning up with comments. Instagram is burning up with comments.
OMG! THIS IS THE BEST VIDEO EVER! YOU GO GIRL!
For about 15 minutes.
Comments suddenly switch.
Why won’t the app load?
Why can’t I download the app?
I really want to link some funny video, skit, gif – something here. I really do. Anything. It is like a red hot needle going under my fingertips to type the following sentence:
The server crashed.
I will leave you a moment to take this in. Take your time; I will wait.
Damion, remember him?, left a script on the server that would run when someone signed up. This slowed the servers to a halt.
One of the cardinal rules of programming – Test your code. One of the most vital tests is a stress test – basically seeing if your server can handle things without a major meltdown.
Well, Evolve had a major meltdown. We corrected the issue by day’s end, but like many things that have lots of hype, it died off and quickly.
Evolve scored 2,000 paid subscriptions in the first 30 minutes of launch.
This is the textbook way to screw up the biggest day of your startup’s life, send everyone involved into a tizzy and make yourself look like Public Enemy Number One to everyone involved.
Math – 2,000 signups at $20.00 a month is $40,000.00. Excellent!
Until you take into account one small, insignificant computer company called Apple.
Apple takes 30 percent off of the top. We are now at $28,000.00.
Sommer. Remember her? The one we negotiated without a contract? She gets, by agreement, 50 percent of sales – $14,000.00.
Woohoo! We are still bringing in $14,000.00 a month. Our monthly burn rate is still almost $40,000.00. There are six months remaining with our investor at $50,000.00 a month.
That means we have six months to fix this.
MESSAGE: We go back to the basics. We hit up influencers for posts. Some of them. This is why influencer contracts have very, very specific language in the contract. Why? Without language on when to post, they will not post.
I have friends who are influencers. They complain about the restrictions in the contract about posting.
Without something in writing, it simply will not get done. Influencers do not want to post unless they want to.
You are wanting to get into influencer posting for advertising? Have a contract with concrete, solid information. Use language like, “The influencer will post [times] on [days] about [topics] for [length] on [media].” This is only a portion of what I would recommend.
To take this one step further, have your contracts written by a contract attorney. Spend the money for authority, experience and legal understandings.
Why do I say this?
I have influencers. Paid influencers. Paid influencers without a contract. Paid influencers without a contract whom I have to vex, annoy, beg, ask, plead, annoy and harass to post one thing.
Get. It. In. Writing. Have. Them. Sign. It.
The influencers posted. When it was convenient for them to do so, and it was, miraculously, a spectacular dud. We expected more from Sommer and her stories.
So, we resigned ourselves to failure. The hype had passed; people lost interest; all the followers are guys, incels and neckbeards who want to fantasize about Sommer and her body.
We ran the tools.
40 percent of her followers are female. We decided to try another program, like hard core exercise programs like P90X except it is an app. This will be bigger and better than P90X.
We did it with a less expensive director, shot a new program, rescheduled a January launch without plans to miss it.
#11 – “Oops, we did it again…”
By now, I am done with Evolve on a fundamental level. The interest is gone, and I am growing bored. I am staying at the bottom of a liquor bottle, spending time at the clubs, having plenty of ladies and their company and deeply depressed.
I am tired of my life. I am tired of the drinking, the partying and the rest of my life. Hangovers are becoming a serious chore to deal with on a daily basis.
I really hate my project. My passion is programming. I feel the need to program like I would breathing. It is my soul.
A few months after Failure to Launch in fact is when I stopped programming.
I regret Stephen and I had poor communication between us. It was never great, but it got much worse after Damion. We were no longer close. We were no longer friends.
I told him how I was feeling about the entire situation.
That took a great deal of testicular fortitude on my part.
Stephen was understanding about it and let me stay on even though I was not doing much with the new app. All I was concerned about was that Sommer’s new BOOTY PROGRAM launched on time.
Annnnd, we missed it.
I had all I could stand. I went Network.
I quit my company that I co-founded.
The investor, I have no clue how or why, dropped another $200,000.00 before I quit just for the launch.
Sales were mediocre.
That 2,000 subscriptions we landed in 30 minutes? Gone. It was six months ago – eons in paid apps, especially in fitness apps.
The average life span of a fitness app is approximately three months.
Sommer and her new launch brought in about 3,500 subscriptions.
Stephen gave everyone their walking papers. There was no money left.
So, if you have ever been curious about how to lose 1.7 million dollars, now you know. Go forth, and do it.
I cannot leave you like this, however. One nagging question remains.
What did I do in all of this that was right and good with the world?
I partnered with Stephen. Stephen made a fundamental error.
Stephen partnered with me, Andrew Thompson, neé, Fashion. World famous for losing millions.
No one is perfect. Stephen made his share of errors. I just did it to the tune of about 10 times as many.
I did set Stephen up with his wife. That is certainly worth more than 1.7 million dollars.
Stephen, if you are reading this, don’t you agree?
We are near the end of this epic fable. Much like Aesop and his fables, I have a point to make.
Well, make that several points to make. If you want the last of the messages, I will get to that in a second.
This is what I learned. This is what I am going to apply. This is how I will become Andrew Fashion – RENOVATIO.
This is not a 12 Step Program where you accomplish one step at a time.
This is a 12 Direction Program where you should be pointed at all times when you are starting a business.
Here we go:
- If you don’t need it, don’t raise it;
- Don’t overhire;
- Don’t overpay;
- Negotiate – always;
- Contracts are to be iron clad, solid, in writing and done by a competent attorney;
- A deadline is there for a reason. Make it happen;
- Stress test servers before a big launch or a small launch;
- If you can video on a cell phone, video on a cell phone;
- Employees need their own place, not the office;
- Employees need to do their hookups at their own place, not the office;
- Fire without prejudice; fire fast; do not allow second chances;
Always Bootstrap and do not overpay.
Now, I am sure that you are wondering if I did anything in the midst of all of this that was right and good for me and the world as a whole.
That brings me to the final question: “What would I do differently this time around?” with the corollary, “What can you to do keep this from happening?”
Actually, the best question is: “What am I doing with Gypsee that is so radically different from before?”
Well, let’s start at the obvious beginning. Chances are you are not 18 and a high school dropout, have bad habits like drugs, alcohol and hookers and are in relative control of your spending habits. If you are not in control of your spending habits – get that done NOW. Not tomorrow, NOW.
So. Here is what I recommend to get started in business. Most of these seem like, “Well, yeah. Duh.”
This needs to be someone you ABSOLUTELY can trust, hands down. This does not have to be a 50/50 business deal unless you are like Stephen and I who were constantly cranking all of the time. If you are the driving force behind the team, then you take the lion’s share and give the partner what is fair. Just remember to maintain at least 51 percent of the business.
This seems like a big important word, and it is. This would have seriously protected our interests – Stephen and I both – had we done this. A vesting schedule basically says all the equity is released in stages.
*DANGER, DANGER WILL ROBINSON! NERD TALK*
Here is how a vesting schedule works: I have 50 percent equity vested over four years. Each month I receive 1.04 percent equity for 48 months. Now, imagine something bad happening, like discovering your partner is an alcoholic and has dipped into the kitty more than once to cover spending habits. You give your partner the pink slip, and he walks away with 6.24 percent of the company instead of 50 percent of the company.
Do yourself a favor, and cut/paste this into Google:
“vesting schedules for startup founders”
This is standard operating procedure for all venture capital firms. It is a strong suggestion you and your new partner do this from the get-go, in writing, signed, notarized, witnessed by your mothers and sworn on a stack of sacred texts – twice.
Suppose you want to raise money from several investors, have grandiose plans of Mongolian level empire or plan on an initial public offering (IPO). You need to register yourself as a C-Corporation with the government. Do not do an S-Corporation and certainly not a Delaware C-Corporation.
Read this to tell you why: https://www.lightercapital.com/blog/why-vcs-only-invest-in-c-corporations/
Who do I recommend? I am glad you didn’t ask. Check out http://launch.gust.com. It is who I have used for Gypsee. They have all sorts of things you have no idea what they are like: convertible notes, SAFE agreements, NDA’s, cap table management and many more things. Seriously; you have come this far listening to me. I HIGHLY recommend them. You can also earn $15,000.00 in AWS credits for cloud services if you are a tech company.
*ALL CLEAR. REPEAT: ALL CLEAR. NERD TALK COMPLETE*
THE MEAT OF THE MATTER
Anyway. You have read a good bit at this point. There are lots of big, fancy words I have dropped and lots of information to take into account. What you are likely wanting to know at this point is:
“How about what you should have done differently at Evolve?”
Let’s discuss each point.
1 – TOO MANY CHIEFS AND NO INDIANS
Stephen and I were programming gods. We mastered Swift and the backend, Nodejs. There was no point of programming we could not do until the MVP, minimum viable product, was complete, and we could show growth.
We hired another programmer. Why? We had the money to do it.
The first investor promised us $600,000.00. That was $50,000.00 a month for 12 months. This is a significant amount of money.
Stephen and I agreed to hire a lead designer. We did, honestly, need a designer. We also agreed on a fair price since we were a startup.
We hired two more employees. They were paid $3,000.00 a month.
All of this was before we landed the big investment. We should have contracted the design at a considerably cheaper cost or, better yet, done the work ourselves.
We thought we needed them.
2 – OVER HIRE AND OVERPAID
Our lead designer was paid $3,000.00 a month. This is reasonable for a startup.
He convinced us (read: me) to pay everyone on staff $8,000.00 a month. There were five of us at this point, and it was payroll time.
I was CFO, chief financial officer and over payroll. I have never been one to rock the boat. I do not like making people angry or telling anyone ‘No.’
The lead designer convinced me that he, the other designer, Stephen, David, the video guy, and I should earn $8,000.00 a month. His reasoning?
“Hey, we are all the founders after all.”
There goes $40,000.00 of startup money directly off of the top for salaries.
Read that again. Slowly. Remember: We are getting $50,000.00 a month.
Here is what should have happened: Stephen and I get $5,000.00 a month. He has a wife and kids, and I have Sage. The other three would get $3,000.00 a month plus stock options. Period. Take it, or leave it.
Had I done what I should have done and not bothered to hire anyone, this would not be an issue. We did not need anyone else. I was not in the zone like I should have been, nor did I care for the project. You could say I was lazy.
The moral of this is simple. Do not hire anyone unless you are 100 percent incapable of meeting deadlines or finishing a project. Do not waste any capital until you are completely exhausted of your personal abilities and limits.
We had a video guy on our team, and he was actually one of the original team trio. I caught him trying to embezzle from the company, and in a move that still surprises me to this day, I fired him.
David was gone. Stephen and I both knew we needed someone to film workouts and video content for the app.
We felt like we needed someone on video full time.
I found someone and paid him $8,500.00 a month plus $10,000.00 signing bonus.
This guy was amazing.
He was not $18,500.00 amazing.
At this point I was thinking we needed the best and finest in video.
We were at the MVP, minimum viable product stage. MVP is concerned with getting the product out and in front of people. There will be bugs, issues, errors and missing parts. This is part of it, and it is a chance to garner feedback from your users to make the app better. Better app gains more users, and you see how it goes from here.
In all seriousness, we could have shot 100 percent of the video on our phones, edited it with basic software and been just fine with the MVP.
Currently, the team is spending $40,500.00 a month on payroll out of $50,000.00 a month capital.
I should have worked for Enron as an accountant. (Google Enron).
3 – GET A WRITTEN, BINDING, LEGAL CONTRACT
We are close to the last thing I would do 100 percent differently now. We scored Sommer Ray for the app. We had a gentleman’s agreement on a handshake with her manager for $2,500.00 a day for three days of filming, five percent or something reasonable for equity and 30 percent of sales.
We should have had a written contract, drawn up by an attorney and signed by everyone involved.
Sommer and her manager returned the next day after our agreement with 10 percent, $100,000.00 down and 50 percent of sales.
We caved and agreed. We should have said, “Not only no, but HELL no,” and walked.
Negotiate. Get it in writing. Walk if you have to. Do not cave because someone is an ‘Influencer.’
4 – SAY NO
As soon as you finish this piece, go to the bathroom. Stand in front of your mirror. Say the word, “No.” Do it until you mean it, can stand behind it and deal with the fallout.
Oh, you will have a fallout at some point.
Stephen hired a project manager.
I should have said, “No.”
We hired a director to shoot Sommer’s promo video. He charged us $25,000.00 for the last ‘Influencer.”
I should have said, “No.”
When it came time for Sommer, he wanted $70,000.00 for the video and workout content.
I should have said, “No.”
I should have told the director to hit the bricks, do the shooting ourselves and be done with it.
I have a real problem hurting feelings and stepping on toes. I do not like to tell anyone, “No.” It is my biggest harmartia (Tragic flaw – fancy Greek word. Look there; you learned a new word today.)
I am constantly trying to overcome this. It is a struggle.
You need to set a limit. A limit where you can say, “No.” A limit where you will turn around, walk away and leave it be. Someone else is out there for you.
Sometimes, you need this philosophy: FIDO. F*ck it; drive on.
I truly believe if I had followed through with these four things that EVOLVE would be different. I would be different. My relationships would be different.
If you go back and look, all of these come down to that damned two letter word I cannot seem to get across my lips.
Each mistake I made, every time, I had a gut feeling it was wrong. There was something fundamentally wrong.
I simply could not bring myself to admit it and say, “No.”
That is EVOLVE, folks. My three year journey to today and my passion, Gypsee.
It is late; I am tired. I am,
P.S. – Do better than I did. I am going to be absolutely sure this time around with Gypsee.
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