I lost $209,640 of my own money trying to start a business.
I lost $209,640 of my own money trying to start a business. Writing about failure sucks. But here's the real story:
Context: Me and my wife started a marketplace for last-minute tours and activities. Think of it as Hotel Tonight x OpenTable x ClassPass. The idea was to bring live connectivity to an industry where 80% of bookings were still done using pen and paper, months ahead of time.
We worked on it for 3 years while holding down full-time jobs. The initial money came from wedding gifts, the rest from our house fund and paychecks. We moved out of a fancy high-rise and into my parents basement to plow our "rent" money into the third-party development.
During the tail end of COVID, we packed up the truck and moved our lives from the East Coast to Florida, where we could market to year round tourism.
Lesson #1: Differentiate technical risk from execution risk. There's a reason everyone has a clever idea for a marketplace - they don't require you to actually build a standalone, unique product. And the technical barriers to entry are lower than high tech (eg, cybersecurity).
It appears simpler to play middle man, connecting supply / demand more efficiently. However, it's a long road to aggregate both sides & drive network effects. There are massive execution risks. And you have to solve for 2 sides, not 1.
Lesson #2: Don't be 100% dependent on someone else's data. Partnering with store management systems made it easier to hack the supply side, but dictated our development efforts and unit economics. We had massive platform risk. If any of our partners cut us off, we were screwed.
Lesson #3: You don't need to build everything at once. Building a website, android app, and ios app before proving product market fit was like burning money. It took us over a year to get to market, sell something, and get real feedback.
You should start small and get one platform right. Especially if you are paying someone else to do the coding. Some international developers are great value and true biz partners, while others are chop shops who will pump and dump Speaking of that...
Lesson #4: Don't make everything reliant on code if you can't code There were 1,000 times I felt absolutely helpless, knowing what needed to be done, but not being able to jump in and fix it myself.
I'll never depend on a 3rd party dev as the main means of production again. We would have been better off finding a technical co founder rather than outsourcing flexibility and control
Lesson #5: No one is going to invest in your business if you aren't willing to quit your day job. If you aren't crazy enough to take the plunge, why should they be?
Lesson #6: Adding more features is an expensive distraction. If it isn't improving your "core job to be done" don't spend time on it. Especially if you've yet to prove product market fit.
Lesson #7: As a marketplace, you can be either low frequency or low price, but you can't be both. Our avg purchase was $60 per ticket x 3 tickets = $180. However, people go on vacation infrequently. And they'd have to remember us again each time.
We were in a deadzone. And had what they call low LTV to CAC.
Lesson #8: Constraints drive focus. We tried to launch tours in +20 states, but quickly found we didn't have the time or budget to market everywhere at once. In addition, each market was different on the ground.
We honed in multiple times. USA --> Southern USA --> FL --> Sout West FL --> Tampa Nail it at the hyperlocal level and build a playbook.
Lesson #9: A founder's #1 job is sales. I hated cold calling. I hated walking into a scuba shop and nervously asking for the owner. I hated getting rejected. But I couldn't hide behind a screen and work on strategy. I had to sell.
Lesson #10: Killing your baby is really hard. It took us longer than it should have to call it quits. Even now, it physically pains me to use the word "quit". I haven't written or said it until this point.
Does losing $200K hurt? Yes. Absolutely. But I also look at it as my "real world MBA". So what did I get out of it?
This led me to start a newsletter (https://www.mostlymetrics.com/), since I was learning so many business concepts. And I never would have had the guts to put myself out there if I hadn't been shot down by hundreds of tour operators, tourists, hotels (and even family members).
I also learned the level of commitment it takes to bring something from 0 to 1. It's really, really hard to build something from scratch. And it takes an insane amount of irrational confidence.
And finally, I ended up landing my first CFO role at a venture backed tech marketplace. Talk about unexpected outcomes... I finally found somewhere to apply my marketplace knowledge. And if I didn't have this previous experience, this wouldn't have been possible.
So that's the story of how I lost $200K, but came out on the other side smarter and happier. If something doesn't scare you, it's probably not worth doing.
If this story resonated with you, I send out a short email 1x per week for free. It covers business metrics and concepts. You can get on the list here https://www.mostlymetrics.com/
After 19,314 lines of code, i'm shutting down my project
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What doesn't kill u makes u stronger. Way to go buddy
Thank you. In the moment it felt like the end of the world. Now I feel more capable
Tough luck. Tough story. Tough situation. But you've come out of a tough situation sounding stronger and bolder and wiser. Thanks so much for sharing, because we too, reading this story, will come out stronger and bolder and wiser.
It's been about 6 six years for me --- although most of my expense has been in time, not money.
My business partner has been at it for 10 years (he had the idea and "launched" an early version), and talks about his $100K+ he spent before I showed up, paying a developer to "execute" on his ideas - many of which were just money down the drain. The developer never said "are your sure?", he just took the money.
I loved the idea, but knew having a developer was going to continue being a money pit. So, I finally convinced him to burn it all down and start over. We did. This time on AWS, and them found our own backend guy to come on board (but that was a journey also).
My lesson around all this ... stay focused. Key in on that "one thing" you do differently. Don't start expanding the product until there is some level of market acceptance. Don't take "money" unless you like having another boss in the mix. You don't have to first, but you do have to be better.
Ultimately - it's the product - stay focused on that.
NOTE: you mentioned you believe you got your job because of your experience with the startup. Along that same not, my co-founder has used the product over and over to (a) provide a proof point about his experience and (b) leverage the experience to get several jobs over the past 10 years. Nothing works better than saying "I have a product, go check it out".
Great perspective
90% of all businesses fail, this is normal. My first one cost me $30,000. Not as much as yours, of course. But still, you can’t lose heart, this is an invaluable experience that is very useful in the future. This lesson taught you a lot, and thank you for sharing them, they are really very important!
I have def not lost heart. There were moments of sadness but I feel I’m better for it now I have some distance and perspective
Thanks for sharing your experience! Me and my co-founder also lost 20k but we "wrote it off" as an learning budget hahah.
What you said about selling is 100% true, one lesson I also had to learn from my co-founder, he is the sales expert and we wouldn't have come so far without his selling skills.
I love the term learning budget. If you are not willing to invest in yourself to lose and learn then no one else will
You are right, it will take you more time to grow without doing that.
Great story, no bs and that's what every founder should potentially expect while starting their own project.
Thanks for sharing, gives some reality check that everything is not that smooth.
Hope you are ok and take care.
Thank you for sharing this. The lessons you learned are valuable to us all.
You saw the positive side of losing that amount of money. You even landed a new role and more importantly, you became happier.
Lessons noted.
Amazing insights. Thank you for sharing. Subscribed.
Great story. Lesson 5 is a fine line, especially when you have dependents.
Totally agree
Awesome story. Sorry it didn't work out but many people fail because they give up too early. Sounds like you learnt a lot from your experiences and it will help you succeed in what you do next.
Good article on grit vs quit btw: https://review.firstround.com/grit-or-quit-tactical-advice-for-founders-facing-tough-company-building-decisions
This is helpful - thank you
"tackle the hard part first, because everything else is just going to create an illusion of progress"
I feel like I am constantly battling this decision, so having a framework for quitting is useful
Really sorry you went through that. But it's inspiring how you bounced back after that. Rooting for you :)
Sorry for your lost i totally agree some dev agencies just sucks , its really hard to find a trustful company to deal with . I just started my dev agency and ill try to stay in contact with my clients whenever a problem pops up those kind of articles always gives me pain points that i can work on thank you fo sharing
Thanks for sharing the story - Lesson #4 resonated so deeply with me. Several years ago I run a startup while all developers are funded out of my pocket. It was a disaster.
It's not that they're bad or anything, it's that you can't fix the problem immediately.
After the experience I learned how to code and whenever I do a venture I make sure I can build the product myself. Founder-product fit is so critical.
I agree. It’s not like they are inherently evil. In fact, they aren’t even getting paid that high of a rate compared to what they could be at a tech company. It just sucks when you can’t fix it yourself
Sorry about your outcome but thanks for sharing this that will certainly help so many others!
Cheers up and come up even stronger from this experience. You’ll smash next one!
For the next one I feel like I’ll start on second base with my knowledge from striking out here
Thanks for sharing. It's quite an expensive experience, I believe it's worth it what you gained during this period. Also, I agree with you on "It's really, really hard to build something from scratch". Currently, I do the same. As a tech guy, I have a chance to handle all the development stuff, at least for the beginning. Of course, it's not possible to manage everything without a team. Congratulations for your courage and good luck on your new journey!
Thanks for the encouragement and good luck in your project
Thank you!
Some really good gold in here...most of it gets uncovered by people experiencing these things first hand (that's how I work at least)
Great lessons there! I really like the way you wrote this, straight to the point. Sorry to hear you had such a tough experience. Good luck with the future, I'm sure you'll be nail it next time around.
Thank you!
great insight
Live and learn but never give up. This also shows the value of hiring a technical co-founder. I myself can't code and can't afford to hire a developer so I'm trying to learn no-code tools so I can build my product from the ground up. My cost is about $5k so far and hopefully become profitable soon.
Thanks for sharing this. Sounds like a tough one. Quick question:
What exactly didn't work with outsourced devs? What did or didn't you like?
In my experience they push you to keep adding features
Each feature is an additional fixed or variable rate cost you pay them
Their interest is not aligned to yours. They want the project to keep going so there’s at least an ongoing maintenance cost
Wow, what a story. Hard lesson learned but next time you'll definitely think more critically when vetting ideas.
I checked out your newsletter landing page and immediately thought to myself, "I don't need to subscribe to another business newsletter right now."
Have you thought about niching down your business metrics and insights content to something more narrow, like... tourism?
Lol I’m out of the tourism game. I write about business models and concepts now. It’s what I’m better at