The 4 red flags I missed as the startup imploded around me
My first startup experience began with a job interview in a coffee shop. It ended in a high-speed motorcycle chase at a place called Rattlesnake Bar.
It shouldn’t have gotten that far. I should have bailed out at the coffee shop. Since I didn’t, I learned a lot that I’m now able to share.
Come with me if you want your startup to live.
Refinishing the garage
We were operating out of a garage. It didn’t seem abnormal.
I had recently attended an elite Silicon Valley university where starting a garage business was the norm.
Google had been founded in another garage a few years prior and it seemed like it was on the way up. It was following in the footsteps of tech giant Hewlett-Packard.
So when the founder emailed me that he was operating out of a garage, and asked to interview me at a coffee shop instead, it seemed fine.
He rolled up in his customized imported sports coupe, which was fully wrapped in his company’s livery. The only time I’d seen this before was on so-dorky-they’re-cool purple “Do You Yahoo?” cars tooling around the Bay Area. Another auspicious sign!
He would have interviewed me in the garage, he explained, and I would end up working there, but he was currently re-finishing it in the Scandinavian design style to bring more feng shui and boost productivity.
The Taoist influence on Scandinavian interior design is well-known.
After I accepted the job offer, he mentioned in passing that I’d have to bring my own chair. For ergonomic reasons. And it wasn’t quite his garage, but actually his in-law’s garage.
Which, it turned out, was not as much a garage as it was a small shed on his in-law’s farm; he did not volunteer this information, instead leaving it for me to find out on my first day.
The red flags are all obvious to me in hindsight. You may not have seen them if you had lived the situation yourself — I certainly didn’t at the time.
But if you’re thinking about founding a company, or already have started off on your own, I encourage you to heed my tale of woe and learn by reading these mistakes instead of repeating them.
🚩 First Red Flag: You’re bleeding cash
You are aesthetically re-finishing your “temporary” work space; your priorities include a surround sound system, but not buying chairs for your staff.
Every expenditure in the early days of your startup should be absolutely essential to your survival. Each investment should build toward your enterprise’s permanent future. Just because you are your own boss doesn’t mean the boss should be out to lunch.
Putting prospects before product
Our first customer was a reputable multi-national high-technology manufacturer with its U.S. headquarters in the Silicon Valley.
Our second customer was a nation-wide service chain with a local headquarters just outside the Valley, across the bay in Fremont.
Our third customer was a state-wide retailer based a few hours east of the Bay Area, in Sacramento.
Our fourth customer was some guy’s part-time side hustle based a couple hours northeast of Sacramento in a modest hamlet with a population of 12,000.
Are you sensing a pattern yet? A spiral pattern, a circling-the-drain kind of pattern?
With each less consequential customer the founder spent more time chasing bigger fish and less time improving the product, less time guiding my efforts, and less time running the company overall. He became ever harder to find as he tried to strong-arm more prospects into becoming leads and leads into becoming customers.
Instead of — radical thought here — making a product that more people wanted to buy. Landing a new customer gave him a thrill of victory far beyond what could be gleaned by an incremental product improvement.
Incidentally — and I wouldn’t find this out until much later — we were bleeding old customers as fast as we were gaining new ones. Perhaps we could have survived this trend if each new contract wasn’t successively smaller. Perhaps we wouldn’t have lost existing customers if he’d invested in keeping them.
🚩🚩 Second Red Flag: Ignoring your customers
You are running prospects to ground instead of listening to the customers you already have to build a better product. This leads to increasing work required but yields decreasing results.
This puts your startup in, to coin a phrase, a “death spiral.” It’s hard to admit to yourself that your efforts are futile when you’re always working harder and longer hours, but that’s exactly the situation you create when you’re blindly scaling out instead of building up.
The fine line between “scrappy” and “desperate”
On the clock, I stood in the drywall tools section of the Home Depot in Pleasanton weighing the relative merits of $3 and $8 taping knives.
Something was amiss.
Pleasanton was not the location of any of our customers. It was, however, where the CEO of our biggest remaining client had recently bought a small mansion.
He wanted solid WiFi everywhere and didn’t want any cables running outside the walls. My boss had pissed him off and so dispatched me to handle this problem as a goodwill gesture because hey, I’m a tech guy, right? Go set up the man’s WiFi!
So I rolled up my sleeves, bought some spackle, and routed network cabling through the man’s walls so that he could have good WiFi coverage all over his mansion.
The CEO was placated by the work I did mounting the wireless routers. He was so happy with it, in fact, that he asked me to stay and upgrade the hard drive on his home PC. I called my boss to see if he wanted me to go buy this guy a new hard disk.
“Listen, man, just do whatever he asks. I don’t know what’s going to happen if we lose his business. Just give me the receipts afterwards.”
I did as he asked.
This required sitting in front of the CEO’s computer for several hours as it pumped a truly prodigious stash of X-rated movies over the wire. I pondered what exactly it was worth to be employee #3 while running corruption checks on files like “Sex Trek: The Next Penetration.avi” so that we wouldn’t lose the only customer keeping us afloat.
🚩🚩🚩 Third Red Flag: No Contingency Plan
The whole company will sink if any you fail at any single task. You’re pushing yourself and your team into increasingly ridiculous territory because you’re running in “survival mode.”
This can be hard to spot if you’re treading water every minute of every day in order to stay afloat.
You need to have contingency plans. If losing one particular customer will kill your business, sit down right now and workshop a solution.
Pro tip: the solution isn’t blindly “moar customers plz,” see red flag #2. What about secondary income streams, or a rainy day fund? Point is, flying without any net at all is a bad idea.
Is there a Ralph’s around here?
The weeks dragged by. I was working tremendous overtime on house calls for random home improvement services, either to calm irate clients or to bring in extra cash for the business.
The scientific term for this phase of an organization’s lifecycle is “dumpster fire.”
My paycheck bounced, and then my next paycheck bounced.
The founder explained that this was an issue with his payroll processor and that it would be cleared up soon. If I kept up with the side gigs, though, he could pay me directly out of the expense account.
When you’re 20, you still believe your boss when he says things like this.
I was running out of gas. Literally. I burned through my savings and no longer could afford to fill the gas tank. This crippled my ability to shuttle between our various customer sites, much less visit my then-girlfriend in southern California.
A family event was coming up for her and I needed to get down there, so I called my boss and asked if the payroll issue had been cleared up yet.
It hadn’t.
So how was I to get to Los Angeles with the low-gas indicator lit and six dollars in my pocket?
He asked me to meet him at the loading dock of a Ralph’s near his house that had an ATM from his bank. He said he’d be there in thirty minutes. I was there in ten. I waited in the front parking lot.
An hour later he roared into the parking lot, this time astride his sporty motorcycle. He swung off the saddle, ran into the Ralph’s, and came out a few minutes later shaking and drenched in an angry sweat.
He had three hundred dollars in his hand and a wild mania in his eyes. He offered me forty; enough, he said, to get me to Los Angeles.
I would also need to get back. Food would be nice too. I asked for the full three hundred since he owed me about four thousand dollars in back pay.
“Shit, man, why do you have such a hard-on about this? I gotta feed my family too, and I just maxed out my ATM limit. You want my kids to go hungry?”
I had not come prepared to argue for a tenth of my back pay, so I didn’t have a game plan for this conversation.
Eventually we negotiated an even split: he gave me one-fifty and kept the rest for himself. I made it down to LA and back with a few dollars to spare.
🚩🚩🚩🚩 Fourth red flag: you can’t make payroll
You’re bouncing paychecks. Your personal daily ATM limit becomes a relevant factor in your day-to-day business operations.
Forget death spiral. You’re not even on life support here. You’re flat-lining on the table, praying for an angel investor to pick up the paddles and shock some life back into your company, all the while knowing that it’s not going to happen.
At this point you have to make some really tough choices. More than likely you’re going to have to let your whole team go. You may have to scale your dream business all the way back to side hustle.
It’s all fine and good to hope for that medevac, but don’t count on it. Don’t risk the eviction of everyone who’s helped you so far — for the sake of your conscience if nothing else. And don’t keep them in the dark, stringing them along, hoping that you’ll be able to make it up to them later.
To Rattlesnake Bar
I was getting fed up with paycheck after paycheck bouncing but was naive enough to keep working, chasing the vain hope that it would eventually get better. That this was all normal growing pains for the business.
It wasn’t. Of course it wasn’t.
Finally, one day, I woke up to the cold, hard facts.
- I may never get paid all I had earned. Working more was not going to change that, so I may have to walk away from my back pay.
- My boss wasn’t only cheating me. He was also cheating our customers. Sticking around to try and make good on his promises would never succeed, and ultimately, I would become complicit in his scheme.
- Everything we were doing was making the fundamental problems with the business worse. Nothing we were doing was making the business more sustainable, much less profitable.
- The founder had terrible judgment. This looked like it wasn’t going to turn around any time soon. How right I was.
I called him and told him I was through. We arranged for me to pick up my final paycheck, and I headed over to his in-law’s property to meet him.
As I pulled in I saw him rip down the road the other way, straddling his motorcycle, long hair streaming behind him in the wind, toward Rattlesnake Bar. His helmet spun in the driveway where it had fallen off the bike.
I didn’t chase him.
But the police did.
As the roar of his motorcycle dwindled in the distance, the wind carried the faint wail of a police siren warming up and the screech of tires out of a speed trap.
His wife (and business manager) was waiting for me at the door to the shed, my final paycheck in hand.
She gave me very explicit instructions to make sure I got paid. She was a good and honest person. They involved a complicated scenario whereby I would cash — not deposit — the check at a particular time on a particular day. She would call me when she was ready.
I did as she instructed. She stayed on the line with me to make sure I got my full back pay. After I did, she mentioned to me that her husband had been arrested on Rattlesnake Bar for riding his motorcycle over 100 miles per hour in a 35-mph zone and for not wearing a helmet.
The police probably saved his life.
I don’t know what he was running from that day. Was he running from his failed obligation to me? From the renewed confrontation I would bring? Was he running from his failed business, or was this whole train wreck a manifestation of him running from something else?
Above all else I believe that he had two great fears. His first fear was of living a mediocre life. His other fear, his much greater fear, was other people knowing about it. He was driven by his own runaway ego which vastly outpaced his judgment.
This is why he drove a flashy sports car he couldn’t afford instead of investing into his business. It’s why he refinished a tiny shed into a post-modern office with a sound system that could wake the neighbors.
It’s why he trumpeted every new customer like the Second Coming of Christ Almighty but forgot to tell us when other customers dropped us. It’s why he sent me to do the side gigs to keep the company running instead of rolling up his own sleeves. It’s why he not only wrote bad checks, but lied about it.
It’s why he wanted to meet me anonymously behind a grocery store instead of at his home or office where people could see that he was failing.
I never saw him again.
Epilogue
There is, as they say, a lot to unpack here.
After I extricated myself from this train wreck I learned a lot about business and about boundaries. I also steered clear of startups and have since been building an old-fashioned career.
Earning my keep while perfecting my craft through well-paced, gradual career progression sure beats begging for gas money in the loading dock of a Ralph’s and hoping for that big payday.
Someday I may venture back into that world. When I’m ready. When I do, the lessons I learned in my first startup experience will guide me clear of a few minefields I may otherwise have strayed into.
If you’re already on that particular road: I hope it doesn’t turn into your Rattlesnake Bar. Maybe some of these same lessons will help you steer clear of trouble, too. Try not to let your ego outrun your judgment. If you can’t, well, at least try to pop a wheelie before you crash and burn.
Please remember to 👏 if you enjoyed this story or found it useful! If you hated it, go ahead and 👏 anyway. Random acts of kindness are good for your health!
This is based on a true story from my first venture into the world of high-tech startups and high-speed motorcycle chases.
Some details have been changed or obscured to protect the identities of those involved, and some parts of the story have been streamlined to make it easier to tell. Each event did occur and the lessons I learned are real.
If you’re thinking about your own career, check out my article on how to transform your career with the answers to 5 interview questions.
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