Startup Therapy Podcast

Episode #6


Ryan Rutan: yeah, perseverance grit, toughness. We all know a story about someone who stuck it out against all odds and triumphed, but what happens when we crossed that line where we've burned through every form of capital, not just money, when we're more focused on not losing than on winning. When the passion is gone today on the startup therapy podcast, we'll explore when it's time to pack up camp, fold the tents and move on. I'm Ryan Drew Tan from startups dot com here with my partner Wil Schroder to bring you another episode of the startup therapy podcast. Well, we've picked another pretty heavy topic for today. It seems to be par for the course, but today we're gonna dig into what happens when you really do need to pack it up. Old tents, call it quits at home.

Wil Schroter: It's a real topic, right? I mean like we love to talk about how exciting it is to build something, but we don't have a lot of conversations about when it's time to end something, right? I've done a lot of startups and unfortunately I've ended a lot of startups in every single time. No one just sat across from me and said, dude, time to fold the tents. Everyone was like, everyone knew it, but no one ever said it and I thought it would be really helpful to start to look for really clear signs. Like we'd be the one cool friend that was actually honest with you, that you know of when you, it's, it's time to fold the tents and shut it down and there is a time, right?

Ryan Rutan: It's such a hard discussion to have because it can be a really hard point to discern for the entrepreneur who is going through it for people who are looking in from the outside, because as I said in the intro, we do have a lot of these stories where you know, it was just that one more push, you know, I, I just did this gargantuan effort and I overcame and now I'm successful, but for every one of those there's 100 where it was like, they just kept going for far too long, wore themselves out and it still ended up in in flames at the end, But it can be really, really hard to see either from the inside or the outside. And so I know I've sat across the table from people who are telling me something, I'm thinking like, well we're definitely near that point where the right advice is probably did just shut it down. And on the other hand, it can be really hard to deliver that to somebody because you don't want to be the one that fires that, you know, the shot that goes through the bottom of the boat that ultimately ends up sinking the thing?

Wil Schroter: Yeah, yeah. Where do you draw the line between shifting focus and giving up? Did she just shift focus to something else? And then you work on something more productive or did she really just give up or did she do both? Did she give up and shift to something else? And I think when most of us are in this place, which again, you and I have been there before our ego gets to us, right? We're not really always combating with the situation itself with the, the status of the startup. Were often combating with our own damn ego of not being willing to admit it's kind of game over.

Ryan Rutan: Yeah. And there's and there's a lot of things that feed into that, right? It's not just your own ego, it's the expectations of the people around you, people that you that are relying on you for the success of the business or just people that you've told you're going to be successful with this, I think that the stage which you've taken it too has a lot to do with it. And this, you know, feeds into the sunk cost fallacy, um, whereby the more time we put into something, the less likely we are to be able to be willing to shut it down, right? Because we've gone so far with it, right? We've invested in our ego in this case, right? We've built it up and like we've we've come this far, it can only be a little bit further, Well, it turns out that's not always true

Wil Schroter: and it gets exponentially worse because every single time we have more people attached to this and those people could be employees of course, but they could be investors, they could be loved ones who, you know, we burned through a lot of capital with them in order to, to get this far? It could be the media, you know, the media wrote these great stories about us in the back of our mind, we're thinking we'll ship now. They're going to write horrible stories about us, right? You've got all of these pieces and parts attached to this thing and now you're like, dude, how do I wanna unwind from this thing? Right? And, and do I just stay with it? Because the perception of unwinding is so painful.

Ryan Rutan: Yeah, sometimes, you know, and that's, it's an interesting point and sometimes it's actually easier to keep doing the wrong thing than to do the right and the hard thing, right. It's like, we know it's not gonna go anywhere. We may have even convinced ourselves, not gonna go anywhere, but we can't take that final bit of pain that is winding it down. But I want to back up for a second. You said something interesting and that was, you know, we've, we've burned through capital with our family. And I think that, you know, it's an important point. There's lots of different types of capital, Lots of different types of capital that we burn through when we, when we start these companies and it's not just money. So let's let's talk about that a bit. What, what are some other types of capital that you have motored your way through, spent and and not gotten a return on,

Wil Schroter: Oh man, literally shaving years off my life in the important years because they're on the front end where I'm still living on right. People don't, we don't talk about a lot of these forms of capital and that that freaks me out because everybody thinks of actual capital capital, that we think of how much money is left in the startups, bank account, it's all gone. And so I guess we're done and that's, you know, that's, that's just a part of it. There's another piece to which it's not just the startups money. You know, maybe you raised money or borrowed money, it's also your own money. There's a point where you don't even have any of your own cash left. You, you're so maxed out a neighbor credit card, your head's about to explode

Ryan Rutan: and you're also not making anymore, right? Not only have you burned through what you had until you stop doing this thing, you're not going to make any more,

Wil Schroter: Oh, it's so bad. And in that time as that's happening, you know, we've got that one binary meter that is cash, but man, that's not really what we're talking about. There's all kinds of capital, right? You know, one of the ones we talk about is relationship capital whereby you basically burned your relationships that I don't just mean with the investors could be or the employers could be, I'm talking with people who care about us, right? This is a painful place to be. And at which point You've about out on your kid's soccer game for like the 11th time at some point, you know, there ain't no more left in the bank.

Ryan Rutan: Yeah, you're into the second season at that point

Wil Schroter: I'm saying, and like, and you get to a point with with your relationship capital where your loved ones, either they haven't seen you or they have seen you and you're just the most miserable version of yourself, right?

Ryan Rutan: And that starts to rub off in a big way.

Wil Schroter: Yeah. And you're burning through those relationships and you get to a point where if you keep going down this path with this business with this startup at this rate, those people won't be around for you in quite the same way or you'll create true lasting damage in those relationships. Like kind of how your kids remember you, right?

Ryan Rutan: Yes. It's absolutely

Wil Schroter: true when we think about all the types of capital that we have relationship capital is a big one and I think it's, it's easy to overlook. But again, there's more than that, right? We, we've got the emotional capital, you know, how many times Ryan have you tried to go to the bank for yourself, trying to psych yourself up going into a job that you knew was going to fail.

Ryan Rutan: Do I have to answer this honestly, a lot?

Wil Schroter: Yeah, it's a

Ryan Rutan: lot, you know, more more than I more than I'd care to care to admit. Uh another there's a, there's a real pattern there in the entrepreneurial space where we end up doing this over and over and over again at some point, you're like, this is literally all I have left, right? And because we're talking about emotional capital now, right? And, and sometimes that's all you've got, and you're like, alright, we have spent some relationships, we have spent the actual money. All I've got left is my passion for this thing, which is a finite resource, believe it or not. And yeah, you go to that bank and at some point you'll find out that that too is gone right. You can only psych yourself up so many times and get the same result, the the wrong result and keep doing that right, and

Wil Schroter: where's the out? Yeah, look, it's like getting yourself psyched up to do an olympic run, but never actually going on the run. I mean, if you're getting yourself psyched up for actually no positive outcome over and over and over

Ryan Rutan: lacing yourself up into concrete blocks to

Wil Schroter: start exactly it, right. Your health meter there is, you know, we use video game terminology all the time, but your health bar is blinking on that one too, right. And then of course, if we're going to talk about health, your actual health capital, right? I've seen so many entrepreneurs ourselves included age by the minute trying to run through this game. Right. It's gross.

Ryan Rutan: Yeah, it is. It was just a couple of weeks ago, we pulled out some photos of 2013. God, uh well, here's the good news though. Some of that was reversible. We all look 10 years younger than we did in 2013, you know, 67 years later. Dude,

Wil Schroter: We don't look 10 years younger. We looked 20 years older in

Ryan Rutan: those other photos,

Wil Schroter: Right? Oh God, it was so bad. I mean, I look at when we were in the heart of it, you know, when we were building startups, Ryan, this had to be six or seven years ago. I think of all the life events we had going on at that time, right? All of them. Oh my God, so many like, and just our health deteriorated by the minute. Like we both just had our first Children. I just got married, You got married recently before that we've moved into new houses. We started a new business. I mean, anything you could do that was new. We did it all they're doing.

Ryan Rutan: Yeah, let's just do it all at once and see what happens

Wil Schroter: before

Ryan Rutan: And after photo on that one is not good.

Wil Schroter: Oh my gosh, and to look at that Cretan that came up and I've got some famous pictures that I always show whenever we talk about like where things were and people would say, hey, it must be nice. Like, dude, take a look at this photo and tell me anything where a caption is, it must be nice like, right? I haven't shambles,

Ryan Rutan: tell me how nice this looks. You can see exactly the state of things just from just from that. But I think we're in the in the show notes today. We may need to include some before the during and now the very much way, way after photos, just so people can understand what we're talking about. But it was, it was real. We looked near death at one point,

Wil Schroter: it was bad. And you know what's funny about that too is that's when things were kind of going well and to the extent that you know, we're still trying to build and kind of run into the abyss. But but that's not what we're talking about today. Today we're talking about when things have all gone to hell, right? And there is no coming back, right? And I think when we look at ourselves, we look in the mirror and like who is this haggard ghoul like feature, right? It's gross. And I think in the article I mentioned ironically it's what happens when whenever I turn on the camera to my phone and I accidentally start with a selfie cam. It's always the most ghoulish version of myself as an adjust that I haven't gotten the perfect, you know, three quarter type picture. It's horrible. But that's what I look like every day. I mean that just touches me in bad light. That's just what I look like in daylight is bad. But regardless at which point we have just burned through every form of capital again. Health capital, emotional capital relationship, capital, capital, capital, right? All of it. I mean at some point we've got to say this is no longer a healthy way for me to work, right? And consider shutting it down.

Ryan Rutan: Yeah. At that point it's no longer about winning. It's about not losing, right? You've exhausted your resources that would potentially allow you to win. And now it's just the end of a horrible war of attrition that ends with you on the wrong side.

Wil Schroter: Yeah. And look and people think about this all the time. They say, you know, I don't want to be the guy or gal that gave up. So I'm gonna just soldier through this and I'm going to, you know, make this work no matter what? And that's noble, right? And there's a time and a place for that. But there's also a time and a place to say, look man, you're no longer trying to win your focus on just not losing. You just you're not willing to let this go. And that's a dangerous place to be right. Yeah.

Ryan Rutan: Now at the point where the honest answer to, so what does your company do? It bails water. That's what we do here. We bail water. Uh we're just trying not to sink, right. That's that's legitimately and, and we see startups in this condition all the time. We see founders in this condition all the time. They get so busy bailing water. They forget that's not actually their job.

Wil Schroter: Yeah. And and look again, there's a time and a place to kind of batten down the hatches and really try to push through. However, at which point when you're doing that, you're not really improving anything. I'll give you just like, uh, off the cuff example. But although I see this a lot, let's say you've got a business that you started, it doesn't matter what type of business it was and you're super excited. Like we all are about the business and you get the business start to generate a little bit of cash, right? And I'll use some numbers. Although your mileage may vary, it doesn't really matter what the numbers are. Let's say the business is generating 7 to $10,000 a month. Not all the money in the world, but you take some of it, you pay a couple contractors, what have you. But from that point on it never really gets beyond that point. You took on some investors because they saw a little bit of cash coming in. Initially they thought that would mean more cash and now you've got called 102 $100,000 worth of investor debt. You get the business up to 7, 10, maybe $20,000. It's doing okay, but it's never really going to get anywhere and you're constantly trying to like you said Ryan bail water in order to just keep it alive because now you can't admit that's that's not a winner.

Ryan Rutan: Yeah, you can't win any kind of a game by playing defense, right? You have to be on the offense that you have to be proactively trying to grow the business and look, don't get me wrong. There are times where you will have to weather storms, we know this better than than maybe anybody out there. These things take a long time to build. We've talked about this before too, you know 7, 10 years. However there's a difference between weathering a storm and just permanently existing in one. Alright, correct. There is no line of sight on how I can stop playing defense and take this on the offensive look for help if you can't find it, that's a good sign right? This is one of those binary moments. If you cannot figure out how to move past what you're doing right now, you're just gonna keep doing the same thing and hoping for different results. I don't even want to say good luck. I just like change your mind. Please don't do that. Alright, so there there has to come a point where you change that behavior and if you can't or won't then pack up those tents.

Wil Schroter: Well I gotta tell you businesses startups tend to have a cadence and I feel like we could do a whole show on this and maybe we should where your one is shitty. You're too is shitty. Your three is a little less shitty. And then things start to pick up a little if they're going to pick up. However, if they're not going to pick up by year three year four, it usually means this ain't gonna work right? And I think that's what folks, because you know, they've never done this before, Why would you have, they don't see that? They're like, well, I guess I just have to keep persevering because startups take a long time. And again, I heard this fantastical story of this brian Chesky doing it at Airbnb and what that became and it's like, well, no, not necessarily, you could stick with this forever, but it could be too, that you're just you just bet on a losing hand and you're not willing to let it go

Ryan Rutan: sleeping on couches for several years wasn't the important part of the story. It wasn't the suffering that ultimately led to success. It was part of it in his case. But yeah, for sure.

Wil Schroter: Well, but but the whole the whole point there is a startup that's working or is going to work typically has some basic growth cadence. There's some metric where every quarter or every half year or year over year, there is growth there's meaningful growth and I'm not talking about stratospheric growth I'm talking about the business is growing 2030 40% year over year, that's usually an indicator that things are moving. But if you're doing $10,000 in year 1, 15,000 in year two and 17,000 in year three, I'm sorry. You've probably run out of gas. That's probably just something that isn't going to take off. And at some point, if you keep trying to fight and raise money to try to get it to be something that's not, you just have to realize like that bet just didn't work. And by the way, it's probably okay. That's kind of the way this business works.

Ryan Rutan: So let's talk about what happens when your passion for this thing runs out, right? Because I think this is often one of the leading indicators is all of a sudden the founder themselves is going shit. I don't even want to talk about this thing anymore. I'm not for whatever reason, not ready to shut it down yet, but I'm, you know, I've lost my spark for it. I don't want this to be the center of my universe anymore. When and why does that happen? And, and do you see that as being an indicator? I do, uh for, you know, potentially need to, to pack things up.

Wil Schroter: Well, let's talk about like how it tends to play out, right? I actually went through this a couple of times in startups that I did, I'll give you two examples of of where it happened to me, one was with a company called Unsubscribe dot com that I put together and I'll go to the store and a half second. And the other one is a company called afford it dot com. That even I don't think domains around anymore with unsubscribe dot com. That was a business that we launched. Me and my co founder Jamie Simonov, who I mentioned in a previous show, went on to go start ring, which he sold to amazon when we started the business. I was super fired up about it. It was a pretty good, maybe not that great of an idea that I had to be able to get everybody off of email and everyone that would listen, I would talk about how big the problem was, as far as the total addressable market, everyone's got email, I would get super excited about it. I was so pumped to get people off of email for like a minute, right? Like for turns out in retrospect and give this a lot of thought. I wasn't necessarily excited about getting people off of email. I was excited that I had an idea that was novel, right? And it happened to have an addressable market etcetera. We raised a bunch of money for it and we started kind of running with it. I then, as I always do, got distracted with other things and went to go start another business, which would become startups dot com. Jamie stuck with it for a while and eventually the business sold me a couple of years later, not for much, it wasn't a big deal and I remember talking to Jamie about it and this is right before he started writing and he said, you know, well I'm never going to start a business again that I'm not genuinely passionate about, right, not passionate about the novelty of the idea, but what the actual business was, and I thought to myself at the time, like sort of, what does it matter? You know, so long as that, the business is growing etcetera, you can get passionate about that. But since then I don't feel that way anymore, right? I feel like if you're not genuinely passionate about what you're building, it's gonna show in so many different ways, Your employees, your customers in the product etcetera, and it's

Ryan Rutan: bullshit. Yeah, and you said something else that's really important there, which is that you'll never do that again. Jamie said he'd never do that again and you decided not to do that anymore. I think this is one of those lessons that's extremely hard to just hear about for a lot of reasons because I think that passion and excitement are so easily conflated and I would never think I was really excited about it and and and it's, it can be so easily confused, I was talking to somebody just two or three weeks ago who was really excited about an idea and I started to dig in about the passion because this person is talking about leaving a a long term career, quite successful with what they're doing to follow this other thing. And you know, I might be the last person you expect to say not to do that, but I don't like this idea for this person because they're not they're truly not passionate about the underlying principles, the fundamentals of the business. He's excited about the opportunity. He sees a big tam. He sees a novel idea and he thinks he can be successful financially with it. And I'm I'm saying, yeah, but are you passionate? Oh yeah, I'm so excited. I'm so wound up about this, I can't wait to see this happen. And I'm saying, okay, why he's like, well imagine, you know, even if we just get this percentage of the market, it's this many dollars or even if I I can tap, right? And I'm like, you're not talking about Yeah, right. I know, I love I love the application of arbitrary percentage to arbitrary tam. That's not even validated And now we're rich hip hip hooray year five, we're done. So I think this is a really, really important point. But I also think it's when it's really hard to catch Until you've been through it. My my first go around with this goes a long way back, we go back to like 97 98 when I built my little digital agency and after it was about, I guess year three when I decided to sell it because I realized I didn't give a sh it about the business anymore. I didn't care at all. I was just building web designs for people that just like they had no idea why they needed it or what, what it was going to be good for and it just lacked the fun. It was exciting in the beginning, it was very wild west time for web design development and I was excited about that. But then I looked at the product that we were building, the stuff that I was doing and how I was spending my days, which was really just trying to keep the development team and the design team from killing each other and the sales team from, from burying us in bad work and I was like, this just sucks, I don't wanna do this anymore. And luckily I was in, you know, I I didn't have to shut it down. I I was able to wind it down with a with a sale to a larger company that could take my client portfolio and do more with them. But it I

Wil Schroter: sort of felt like a failure,

Ryan Rutan: right? So I still had the same resistance even though I knew I could sell it, I was still like, you know, I don't know that I really want to do this is I was supposed to grow this thing to be something bigger. I just really don't care about it anymore. And the passion was absolutely gone, the money was still there, but the passion was absolutely gone.

Wil Schroter: You get the passion for the novelty right? Initially we all get like, kind of the freebie, right? You get people tied to it because they're excited that the idea hasn't been done before, it sounds like a novel application and everybody's pumped. But once the novelty wears off And the business is just the business, some of these businesses just suck. They're just businesses you just don't want to be in. I dealt with that first hand, you know, I had started a business called afford it.com and the concept, I thought was genius, right, this is a circuit 2007. The concept was, would allow anybody to buy anything using weekly payments. Now. Since then actually, a whole bunch of companies have arisen, you know, long, long thereafter, but I had this, this great novel idea that I could create this, this new pricing mechanism for just about anything, so people could buy TVs xboxes, what have you for tens of dollars per week.

Ryan Rutan: The timing on that one was unfortunate because of all the stuff that was going on with Subprime lending. So vigilance for Xboxes was probably not the thing

Wil Schroter: worst time ever to be able to start that business, given the financial climate, but but but I had this, this really specific vision for what that could be. And the vision was novel, the addressable market was huge and I was super excited about it. I raised money from a, from a number of, of angel and venture investors. He

Ryan Rutan: had some big names in the cap table. Yeah, you, so it was not, not, not only you thought this was novel and interesting that there were a lot of people who did,

Wil Schroter: Yeah, we had, we had founders funding the deal. We had um, Mark Suster who was just becoming a VC, has become very prominent and great VC since then. But mark came in with his personal money, this is right before he had started with what's now upfront and Dave McClure before he started 500 startups. I mean, people were really invested in this thing and we're really excited about it. But here's the funny thing about that About a year or so into it after having given the pitch like 10,000 times, it occurred to me that I didn't give a ship about the business. Like I didn't jump out of bed in the morning and I can't wait to sell xboxes for $10 a week. Like, I just, I didn't care, I cared about the novelty that I'd come up with something that no one else had thought of And I didn't want to let that go. The novelty. But then I realized one day that I am I really gonna want to sell xboxes for $10 a week, is that the guy that I am for the rest of my life. And the answer was no,

Ryan Rutan: there's my dent in the universe,

Wil Schroter: man. And I'm gonna tell you, uh, at that point, all of a sudden this black cloud comes over me and I'm like, shit, I just convinced all of these people to get behind me for this great idea that I was genuinely excited about. But I had no passion for.

Ryan Rutan: But that's so, that's, that's the power of this, of this confusion, right between excitement and, and, and passion. And these were experienced and, and you know, successful people in their own right, and they fell into the same trap and, and it's, it can be very dangerous. But yeah, novelty is a really shitty building block for a business. Um, just talking about novelty, it reminded me of something uh, this is probably the first time that I can go back in time and remember about being excited about something novel and then realizing how quickly it wore off I wanted. I was at the airport with my dad and they had, there was somebody out in the, like, in the concourse selling those, remember the little cars that would drive to the wall and then when it hit the wall it would flip over backwards and the driver. Yeah, I did too. And I was like, I wanted this thing so bad. I was, it was so novel, so interesting, so cool. I was, I was, I was passionate about right at

Wil Schroter: Age 5 1/2

Ryan Rutan: and I just kept bugging my dad to get this thing for me and he was like, what are you gonna do with it? He, he was making all the right logical arguments against it and I just wouldn't hear it. I finally got it and it was fun for about 12 minutes right. And then the novelty of watching a car run into a wall turn around and drive the other way was, was sadly done. I think I traded it to a neighbor for some baseball

Wil Schroter: cards. Well, like I always say the value of anything is the fact that you don't have it right as soon as you get it, it's useless. Um, you know, but Ryan interesting in that story, the afforded story, once I realized I woke up and realized that that passion was gone. We're also at a point where we needed voluminous amounts of capital. Like we needed tens of millions minimum to get going to scale this thing because we're basically carrying debt every time we sent out an Xbox, what have you?

Ryan Rutan: Yeah, I'd also be curious to know the underwriting profile of somebody who's buying an Xbox on payments. So my guess is there was a lot of risk in the deal.

Wil Schroter: Funny, you should, you should say that part of what killed me was the first christmas that, that we launched this. Well actually like in november christmas time as a test with the first roughly million dollars of seed capital that these folks had thrown in. Uh it went crazy, we sold $500,000 worth of xboxes and PlayStations within like three weeks. I mean dead cold from, from a an Adwords campaign, it was amazing, right? Demand was off the charts. Now the question would of course would be, do we get paid back because we're shipping the product and then charging the client weekly in hopes that we would get paid back a ton of

Ryan Rutan: risk. Hope sounds like a big part of that equation, Oh my

Wil Schroter: God, do you know who the number one client for us was, we thought it would be college kids, right? You know they want xboxes etcetera, It was single moms trying to buy an xbox for their kids. I just got depressed 60% of our customer base didn't see that coming man, I grew up with a single mom, right? You know what it feels like to be able to call someone and say that they owe you $10 when you know they don't have it. I was like the hell with this, this is not the business, I want to be in what you

Ryan Rutan: have to actually run out of passion. Somebody came and sucked

Wil Schroter: so heartbreaking in. So the next thing happens, we're trying to raise more money, the whole part of this passion was gone. But then the business was running out of money because it was a wildly capital intensive business. And so I'm on Sand Hill Road at the time. This is circa 2000 and eight ish pitching to every VC there is and we got so many 2nd 3rd in partner meetings. I mean we did 80 VC pitches in the course of a year. In that time, I'm sitting up there giving the pitch and I can just feel my soul withering right as I'm giving the pitch because I don't believe in the product per se. I believe like how it could be a huge business, right? I just don't wanna be the guy running it right? Necessarily. No, I wanna be the guy who created it. But at that point I was no longer passionless. I was just trying to save the investors. Yeah, because

Ryan Rutan: that's a huge piece,

Wil Schroter: right man. And guys like Mark, you know, guys like founders fund McClure, what have you had all put money into my deal And they believed in me and man, this idea that I'd have to turn to them and say, hey, I lost your money, right? You know, Mark put personal money into this. That's how much he believed in it, right? And the idea of having to come back to him and say, hey man, like, you know, I'm just not feeling it anymore. You know, sorry about your luck crushed me. Yeah.

Ryan Rutan: Oh, for sure, right? Because it's, it's hard to say like, hey, I lost my passion, You lost your money, high five. See you next time, Right? That's not a conversation anybody wants to have. And it's a huge set of blinders that gets put onto founders when it is, in fact time to wind things down and either they can't see it because they're still trying so hard to save the investors were they do know that they should and they just won't just like, I just, I'm not gonna do it. I just want to hang on a little bit longer, at least delay the pain of having that conversation. And you and I both know people that have been through this firsthand what you've been through it firsthand. But we've watched people go through this. There's not a sadder face on the planet. I don't think that somebody who's just waiting to have that conversation with their investors.

Wil Schroter: Well, so let me give you some some epilogue to this story. So I am, I'm killing myself trying to get this money raised, doing everything that I can, you know, constantly on a plane constantly pitching and the business at this point is well out of money, right? Like I'm working with no compensation myself. Everyone's working with like a shoestring budget for everything. This thing is on life support at best.

Ryan Rutan: Please tell me there's a really meta part of the story where you actually buy an Xbox on payments

Wil Schroter: just to distract yourself from this. Exactly. So it could be the only paying customer. And so I had never raised money before and I, I, I was laying in bed at night staring at the ceiling, saying like trying to picture what these conversations would look like with these people that believe so strongly in me and to think that I was going to come back and tell them that I failed you. Let me just that simple, right? It was partially my ego, but partially because these are people I came to really care about and the idea of failing them just really, really just tore at my soul and months go by. The business is long since dead, right? Everyone knows it. But me and I finally have to sit across from some of the investors. I remember sitting across from rick smith at crosscut ventures, kick a svc. They've done really well. I remember sitting across from Rick and I'm saying rick, you know, I got to break it to you buddy. Uh, ford it's not gonna work. He looks at me, he's

Ryan Rutan: like, he's like,

Wil Schroter: he's like, dude, we wrote it off a year ago. Goddammit. How did, how did I not get this information? And every single investor, we had, we had nine investors in captivity. Every single investor was like, yeah, dude, we wrote that off a year ago. Like, this isn't new news.

Ryan Rutan: I'm like, you could have filled an olympic swimming pool with the cold night sweats

Wil Schroter: and like,

Ryan Rutan: it could have all been avoided, right, man.

Wil Schroter: And here's the other funny thing since then, I've had the, maybe a good fortune to, uh, watch some of my friends go through this same period whereby the business is kind of, you know, hit a rock if you will. And that the entrepreneurs trying to like, uh, scramble, like crazy to find some people either by the business, whatever. And so now what I do, because, you know, we built, we bought six companies since we started startups.com, we've done diligence on maybe 40. So we have talked to a lot of companies. All I do now is I just call some of the investors because it's such a nepotistic group and everybody knows everybody and I say, hey, such and such is going through this, this issue in the business. They might not be able to raise money in order to grow it. What have you? Where's your head at? Right? And the same thing? Every time they're like, man, you guys should just call me like, we've written this business off a year ago, right? Like, and I think he's sitting there killing himself day after day, night after night trying to avoid this conversation, call the guy and let him know it's over.

Ryan Rutan: You know what's funny though? So I, I had never really given this thought, but why aren't the investors reaching out? I mean, I guess at that point there's no, there's no real vested interest for them to have it wound down, but there's also no real sense in having that entrepreneur to string themselves out. What do you, what do you think is keeping them from just picking up the phone and saying, Hey, will, this isn't gonna work, stop running around Sandhill Road and just go lay down, let this thing die and get up and try something else.

Wil Schroter: Because I think it's the same way when you see somebody's marriage failing, right? It's one of those things that you kind of need to let them come to on their own. If you're the one that comes in and say, hey, you know, you're very terrible. Your wife is terrible. You should give this thing up, then you're an asshole. Yes. But even though everyone knows it, right, You know, you probably should have said it. I think that's one of those things where the entrepreneur often has to get there on their own. But boy, if we have any investors, uh, you know, even angel investors that have family money in, in one company, that's their cousin, at least maybe provide the option that hey bud, if this doesn't work, we'll be okay. Right? Look, there are some people that don't feel that way, You know, and it's, it's, it's not across the board, There are some investors that are, that are going to have a really tough conversation with you. But what I say to to entrepreneurs to founders who are going through some of this call, a couple of your investors have an honest conversation and say, hey, there's a pretty good chance. This thing is not gonna work. How do you feel about it? Can you just walk me through this and I would give you 99% confidence that the person on the other end of the phone is going to try to console you and say, hey man, you know, you gave it your best. We appreciate it. You know, let me maybe call some of the other investors and and let them know that we should probably having a conversation with you, but kind of soften the landing a little bit.

Ryan Rutan: Yeah, that totally makes sense. Yeah, It's tough. And we talked about this at the top of the, at the top of the show, which is that we both sat across from people that we're looking at going, you probably need to think about winding this down, but in the same, the same analog, right? You don't want to be the asshole that fires that first shot. It's, it's really tough to be that even when you're fairly sure that's what needs to happen. Yeah, tough combo is all around.

Wil Schroter: Well, what I tell founders again because I don't want to be that that guy either. And I also don't think it's necessarily my place. Even if I think, I know the answer. I don't think it's necessarily my place. But what I will tell the founder is, look, you have two options, you can either keep pressing forward or you can kind of fold the tents, You know what, keep pressing forward looks like because you've been spending 18 hours a day working on it just for a minute. explore properly what folding the tents looks like, talk to a couple of your investors and say, hey, if we weren't able to proceed forward, where's your head at? So at least have that conversation because the mistake I made for a year, I was thinking that this was going to be some calamitous conversation that that heaven forbid if I sat across from Mark Suster and told him that that, that I didn't have his money that he was going to come back at me like the mob, right? Or Dave McClure. I don't think, I think Dave McClure registered that information for 0.9 seconds, right? I think he was like, alright, alright, that wasn't, there was even a conversation like Dave, I've been like killing myself for a year. That was less than one second of your headspace, right? At

Ryan Rutan: least look a little disappointed for like the next five minutes. Okay.

Wil Schroter: Yeah. And so I think when you look at all the points, the Ryan, I think when you look at all the points that you're burning capital, you're just trying to, you know, avoid losing all these things. I think you just sort of know, right? I see it on entrepreneurs face, you kind of know when, when the game is over. I don't think it has to be this binary chart. You know, the slide ruler that says, well if this this and this is the case then then I should fold the tents. I've yet to meet an entrepreneur who is at a point where they should probably fold the tents where there wasn't some semblance that that should probably be the case.

Ryan Rutan: Yeah. I was never dislike and out of the dark mystery, right? Like, oh my God, I just didn't see that coming at all right. Like the last three years have been, have been the prelude to this event.

Wil Schroter: And so to that end, I think the most important part about everything we're talking about here is what you sacrifice by not shutting it down. Right? So just to build on that for a second and I learned this lesson personally and in so many ways every minute that I was spending building, afford it, which ended up going nowhere, right or unsubscribed, which ended up getting sold Where I wasn't diverting 100% of my attention, my passion, my creativity towards something that was positive that I cared about that I could build was a massive failure on my part.

Ryan Rutan: Yeah, right? It's a huge opportunity, cost huge

Wil Schroter: it is. And and even if I'm going to take that energy, all that negative energy and try to just roll it into something positive, I'll be better off 10 out of 10 times right all the time that I spent on Sand hill road, getting my teeth kicked in by VCS that you know, that didn't want to invest in my company. If I could have just taken that same amount of time and put it toward raising money for something new that was going to take off, I would have been able to give my investors an infinite return compared to zero that they got. I'd rather be able to spend my time that way. And I think that's true in life.

Ryan Rutan: If the signs are pointing at closing time for the business, the only thing we can do wrong at this point is to continue to invest in something that's failing, continue living in denial. It's time to fold up and move on.

Wil Schroter: Look, life's too short, my friend, just get onto the next thing

Ryan Rutan: agreed. Mhm. That's a wrap for this episode of the startup therapy podcast. This is Ryan Rutan on behalf of my partner Wil Schroder and all the startups dot com family thanking you for joining us and we hope you'll continue to join us. Be sure to subscribe rate and comment on itunes or wherever you love to listen to startup therapy, you can find all of our episodes at startups dot com slash podcast. If you're looking for more amazing resources to launch or grow your startup, be sure to head the startups dot com and check out startups unlimited. It's everything we have to offer from our online university to our amazing community of experts and founders and even all the tools we've built like biz plan, fungible and launch rock. It's everything a founder needs visit startups dot com slash begin at startups dot com slash b e G I N. You'll thank me later.

Copyright © 2022 Startups.com LLC. All rights reserved.