October 24, 2013 at 16:21Error story: how we built and lost a business with a turnover of $ 500,000 a year
In 2009, I talked about how we build our small family business with a turnover of $ 1,500 per month . Four years have passed. The business grew to a turnover of $ 500,000 a year, and we lost it. It's time to talk about the mistakes made.
The publication on a habr allowed us to get to know different people, many liked our business. So in 2010 we sold 50% of the company to private investors. After a successful three-year life together in September 2013, our partners squeezed out the business. We are left with nothing.
As Franklin said, “Experience is a wonderful ability to recognize the mistake you make again.” Perhaps for someone, everything written below is familiar and understandable. This was the first time for us and, looking back, I see a lot of mistakes that led to this situation. I will be glad to share them with you.
Initially, the flowerbed was written in Parser. This is what happens when an English teacher and designer by profession chooses which programming language to learn for his startup.
For those who are not in the topic - it's like Esperanto in programming languages. I turned out to be a hostage of my own choice. The flower bed grew rapidly, she needed development. I realized that I could not write it further alone. Finding a Parser programmer who would definitely stay with us was unrealistic. Copying to php is expensive, Klumba hasn’t earned so much. Therefore, when investors appeared who were able to solve the development problem, we gladly agreed to sell ourselves.
When choosing a platform for your business, think about the future. Support and development are much more expensive and more important than the initial development.
By the time investors appeared, Klumba had no problems except the problem of technical growth. We did not need money for marketing or anything else. The project grew rapidly, it initially had an excellent monetization model. Then we did not understand that it would be cheaper and less risky to take a loan for development than to attract investors to the project.
In many situations, it is better to risk your property and take a loan from a bank than to attract an investor and risk your future business.
We were frivolous about the deal. When signing the documents, we did not think what we would go to court with in case of conflict. We did not think about possible conflicts, because everyone liked everything.
So we had 2 documents on hand. One is the essence of our relationship, but not bearing any legal force.
The second is the charter of the LLC, with which it makes no sense to go to court, because there is nothing but the domain on the LLC, the charter is standard and you can argue on it, especially with the 50/50 scheme, for years.
We lacked the advice of a person who is familiar not only with local laws, but also with local reality.
Look for a lawyer who not only knows the laws, but also understands how they are applied. Consulting such a person will save you a lot of energy in the future.
When we sold half of the company, there was nothing to divide. The profit was small and the question of what to do with it did not arise.
When the company grew, a money management strategy was needed. It turned out that we look differently at the strategy of the product itself, so we also want to spend money on the company in different ways.
We were not satisfied with their spending plan, they were not satisfied with our product development plan, but they did not want to offer their own. We wanted to bring profit. They resisted. In such matters it is very difficult to find a compromise.
Share the skin of an unkilled bear. Most conflicts happen because of profit sharing. And the bigger it is, the greater the problem.
I came across a rare case. The flowerbeds began to be developed by programmers of partners who were in another city. On the one hand, they all the time devoted only to Klumba and were mine. On the other hand, I didn’t hire them and could not fire them without quarreling with partners, so they were not mine. Not to mention that I myself managed to do everything faster and the pace of development was killing me.
Among other things, partners made claims to me about the demotivation of the team, which I did not hire, did not encourage, and did not consider mine.
You can outsource some of the work, but never lose control of people and processes. Even if you think you are being covered.
My friends and I were friends. I could not admit that they would violate the agreement on any pretext. Therefore, he calmly trusted them all: servers, databases, software. It seemed to me that I know them and can agree in any situation.
Therefore, they managed to capture the company ridiculously easily.
At a critical moment, I did not have access to the servers and the technical part of the project. They quickly changed the payment details on the site, passwords on everything, including domain management, servers, databases, statistics.
People get divorced after 30 years of marriage. What to say about business? Do not trust anyone.
Before the capture, our conflict lasted 6 months. All this time it seemed to us that to take dirty linen out of the hut is dishonorable in relation to partners. We were wrong. In a stalemate, a third party is needed that can act as an intermediary. Obviously, this third party must be neutral. Therefore, you can find it only by telling someone outsider about the problem.
We began to make a fuss when it was too late to do anything. Therefore, they could only sympathize with us, but they could not help.
Recognize your weakness in time and seek help. Sometimes an agreement within the company simply does not work out.
All this happened, of course, due to a lack of experience. Not only with us, but also with our partners.
The experience is not universal. There is no book or list of articles that you can read to avoid all problems. In some other company, there may be a chain of errors that leads to collapse.
I wrote this note primarily for young startups who are willing to take investor money. There, at the very beginning, it seems that the investor and his money will solve all the problems. But it can happen that by solving not so significant problems of starting a business, you will encounter much more serious problems further.
Try to think about it in advance.
What happened?
The publication on a habr allowed us to get to know different people, many liked our business. So in 2010 we sold 50% of the company to private investors. After a successful three-year life together in September 2013, our partners squeezed out the business. We are left with nothing.
As Franklin said, “Experience is a wonderful ability to recognize the mistake you make again.” Perhaps for someone, everything written below is familiar and understandable. This was the first time for us and, looking back, I see a lot of mistakes that led to this situation. I will be glad to share them with you.
Incorrect choice
Initially, the flowerbed was written in Parser. This is what happens when an English teacher and designer by profession chooses which programming language to learn for his startup.
For those who are not in the topic - it's like Esperanto in programming languages. I turned out to be a hostage of my own choice. The flower bed grew rapidly, she needed development. I realized that I could not write it further alone. Finding a Parser programmer who would definitely stay with us was unrealistic. Copying to php is expensive, Klumba hasn’t earned so much. Therefore, when investors appeared who were able to solve the development problem, we gladly agreed to sell ourselves.
When choosing a platform for your business, think about the future. Support and development are much more expensive and more important than the initial development.
Sometimes a loan is better
By the time investors appeared, Klumba had no problems except the problem of technical growth. We did not need money for marketing or anything else. The project grew rapidly, it initially had an excellent monetization model. Then we did not understand that it would be cheaper and less risky to take a loan for development than to attract investors to the project.
In many situations, it is better to risk your property and take a loan from a bank than to attract an investor and risk your future business.
Hire a pragmatic lawyer
We were frivolous about the deal. When signing the documents, we did not think what we would go to court with in case of conflict. We did not think about possible conflicts, because everyone liked everything.
So we had 2 documents on hand. One is the essence of our relationship, but not bearing any legal force.
The second is the charter of the LLC, with which it makes no sense to go to court, because there is nothing but the domain on the LLC, the charter is standard and you can argue on it, especially with the 50/50 scheme, for years.
We lacked the advice of a person who is familiar not only with local laws, but also with local reality.
Look for a lawyer who not only knows the laws, but also understands how they are applied. Consulting such a person will save you a lot of energy in the future.
Share the skin of an unkilled bear
When we sold half of the company, there was nothing to divide. The profit was small and the question of what to do with it did not arise.
When the company grew, a money management strategy was needed. It turned out that we look differently at the strategy of the product itself, so we also want to spend money on the company in different ways.
We were not satisfied with their spending plan, they were not satisfied with our product development plan, but they did not want to offer their own. We wanted to bring profit. They resisted. In such matters it is very difficult to find a compromise.
Share the skin of an unkilled bear. Most conflicts happen because of profit sharing. And the bigger it is, the greater the problem.
Keep your team with you
I came across a rare case. The flowerbeds began to be developed by programmers of partners who were in another city. On the one hand, they all the time devoted only to Klumba and were mine. On the other hand, I didn’t hire them and could not fire them without quarreling with partners, so they were not mine. Not to mention that I myself managed to do everything faster and the pace of development was killing me.
Among other things, partners made claims to me about the demotivation of the team, which I did not hire, did not encourage, and did not consider mine.
You can outsource some of the work, but never lose control of people and processes. Even if you think you are being covered.
Do not trust
My friends and I were friends. I could not admit that they would violate the agreement on any pretext. Therefore, he calmly trusted them all: servers, databases, software. It seemed to me that I know them and can agree in any situation.
Therefore, they managed to capture the company ridiculously easily.
At a critical moment, I did not have access to the servers and the technical part of the project. They quickly changed the payment details on the site, passwords on everything, including domain management, servers, databases, statistics.
People get divorced after 30 years of marriage. What to say about business? Do not trust anyone.
Seek help before it's too late
Before the capture, our conflict lasted 6 months. All this time it seemed to us that to take dirty linen out of the hut is dishonorable in relation to partners. We were wrong. In a stalemate, a third party is needed that can act as an intermediary. Obviously, this third party must be neutral. Therefore, you can find it only by telling someone outsider about the problem.
We began to make a fuss when it was too late to do anything. Therefore, they could only sympathize with us, but they could not help.
Recognize your weakness in time and seek help. Sometimes an agreement within the company simply does not work out.
Total
All this happened, of course, due to a lack of experience. Not only with us, but also with our partners.
The experience is not universal. There is no book or list of articles that you can read to avoid all problems. In some other company, there may be a chain of errors that leads to collapse.
I wrote this note primarily for young startups who are willing to take investor money. There, at the very beginning, it seems that the investor and his money will solve all the problems. But it can happen that by solving not so significant problems of starting a business, you will encounter much more serious problems further.
Try to think about it in advance.