Ask HN: My Startup is Going to Die Because I Messed Up

Undercapitalization is one of the most common reasons a company fails. Have successful businesses been started with $5,000 or less? Sure. But don't drink the Kool Aid. Lesson #1: it usually takes a lot more than $5,000 to get a business going and to sustain it long enough to reach break-even. In your case, just think of it this way: any salesman worth his salt is unlikely to work for less than $5,000/month...<p>Lesson #2: at the age of 24, if you don't have even $5,000 worth of savings that you can afford to blow and need to <i>borrow</i> that amount from family, you should probably take a step back and think long and hard about your financial priorities. Depending on your location and your education and/or skills, you can probably <i>earn</i> $5,000/month, if not substantially more, working for someone else. Yeah, that's not as cool as starting a business, but opportunity costs are greatest at your age. What's really not cool: wasting away your twenties and having nothing to show for your efforts once you hit 30. Sure, everybody in StartupVille is always one venture away from a big exit or a $100,000/month business, but when you go to conferences and meetups and see thirty-somethings who have no net worth because they've been swinging for the fences since they were 20, it isn't pretty. Bottom line: at your age, in the absence of substantial existing savings or alternate sources of income (a trust fund, etc.), working on <i>anything</i> that requires you to "work for free" for any length of time is likely to be really, really harmful to your finances in the long run.

Look on the positive side - $5,000 isn't a ton of money and people are failing at business every single day, usually losing a lot more too. If I were you I'd get a job to pay back the money borrowed from family and then bootstrap another startup again, building on the lessons you learned from this experience.

You've learned a lot about business, and it cost you a lot less than an MBA. Given the time and money you've spent, you're in a better position than most 24 year olds.

For future reference: very little of what you spent money on is in the critical path for B2B sales, which I assume is what you are doing. One might decide to sell the software to at least one person, then write copy and design flyers. After you have one sale, $1k is presumably not a lot of money. (I am hearing high touch sales so presumably you priced at least in mid four figures, right?)

You sound like you have a good idea of what went wrong. But surely you got a lot of things right too. What were they?<p>It would sound like your mistakes point to a lack of research. It sounds like your co-founder isn't a friend, so you didn't know enough about him to get started with.<p>Finally, this isn't legal advice, but don't give up on the trademark situation yet. Especially if you haven't launched. I'm not so sure the other party would be willing to pay lawyers for a lawsuit, especially onsidering there isn't much to get out of small bootstrapped startup. Also, if you haven't launched, then you dont have very much to lose. You haven't established a brand yet, so perhaps this might be the best time to tweak with this. And of course, you'd want to improve on your branding research this time.

How have you failed if you haven't even launched?<p>If nobody knows your brand, why can't you re-brand? Did you buy a bunch of useless merchandise, or can you personally tweak some logos in Photoshop to a new name.<p>What is your partner's role? Sounds like he must be the coder / designer.<p>More than a plan, it sounds like you need a great mentor.<p>(I assumed this was a web startup, but you made flyers, so now I'm not so sure.)

There's two options at this point. Keep the business going or give up.<p>There's no way anyone can make that choice but yourself. Many people will say "don't give up" but there is little to be gained if the business is going under and you start throwing more money - or other people's money - down the drain.<p>On the other hand the business shows promise but needs more time and funds, none of which you have right now.<p>There is another option - suspend business operations, if possible, and rebuild your funds through a "normal" job or consulting. If the business is viable you should be able to relaunch at a later date in a stronger position, perhaps with better partners. If it isn't, you can try again with a new idea.<p>Knowing when you stand and fight and when to retreat to fight again another day is essential.

I think you only go under when you stop refusing to die.<p>Our company went completely under (Chapter 11 stuff), we lost all staff and had legal threats from all sides.<p>After a few weeks of misery we decided that we don't feel like dying. We went all-in and turned it around on a shoe-string budget in a matter of months.<p>Keep refusing to die, and you'll be fine - it just won't be easy!

Product and sales first. It sounds like you spent your marketing money way too soon. Later you might have found out that your offering was not even what customers really wanted. Then you're back in the same position where you've spent everything on marketing, and have no money to make more appropriate materials.<p>Here's your next written business plan:<p>1. Build something you can show off - a product, a demonstration of your service, whatever. 2. Show it to anyone who will sit still. 3. If 2 out of 10 people are not trying to buy your stuff or hire you by the end of the demo, pick one from a,b,c below:<p>a) show it to different kinds of people b) revise it and show it to more people c) take whatever you've learned and can recycle (code, art) and go back to #1 above.

I'm also bootstrapped. I am not sure if I'm really a 'success' yet, but I'm beyond where you are. I've been running businesses all my life and it's kinda hard to pinpoint where this one started, but I started selling my current product in 2005. At this point, my company has around $200K/year in revenue, which is about double what we had the previous year. I have one full time employee, and I can pay myself $30-$40K/year while buying the equipment required for growth without debt; so we're ramen profitable, but not yet opportunity cost profitable.<p>I am not sure why you are giving up at this point, but I can point out some mistakes you made that I don't think you see:<p>It's fine to bootstrap on five grand; but if you only have five grand? you will almost certainly need to keep your dayjob. I have been running side businesses for most of my life, but for nearly all of that time (until 2009 when prgmr.com really took off) I also had a dayjob.<p>Dayjobs are great. Someone else gives you enough money to pay your rent and keep yourself in personal computers, chairs, food, etc... and more importantly, someone else pays for your training. I've always worked as a SysAdmin, and I've learned a whole lot operating other people's fleets that I could turn around and apply to my own operations.<p>Most companies are okay with your side projects. be up front, most places have a form where you write down your own 'inventions' or whatever before they hire you... but again, if we are bootstrapping and not swinging for the fences, there's little chance of your employer becoming interested. To most companies, another couple hundred thousand a year is not enough to bother the lawyers about.<p>Note, the company will be bothered if it looks like you are spending effort on your project at the expense of spending effort on the stuff they hired you to do. Once I was asked to choose between my own business and my dayjob. (I chose the business... worked on my business for a few months then got a full-time contracting gig)<p>I've always cycled between a full time dayjob with benefits (get one every time COBRA expires.) corp to corp contracting gigs (for venture capital; I am in a capital intensive industry; corp to corp gigs allow you to spend pre-tax dollars on business equipment... but be /very careful/ with this- tax debt is not discharged through bankruptcy. Once you have enough revenue that paying taxes on all of it would be a big deal, get an accountant. Note I said revenue; this counts the money you are getting from the corp-to-corp contracting gig.) with the occasional month or two full time on the business mixed in.<p>Next, avoid loans as much as possible. you /will/ fuck it up. Over and over. It happens. Without a loan, you really only return to zero, and eh, you still have that dayjob, right? it's not that big of a deal to be at zero when you get massive checks every month. I mean, you can also return to zero with bankruptcy, but to make that worth the lawyer time, you need to get fairly large loans, which isn't as easy as it sounds. Getting $10-$20K in debit is irritating, can kill your business, and usually isn't worth the lawyer time and hassle of bankruptcy. And a loan doesn't always look like a loan; at one point I signed a contract for a year of bandwidth at $1500/month; this was back when I needed between 1/10th and 1/100th the amount of bandwidth that the $1500/month got me. I mean, I was launching a product that could have used it, if it really took off, but the product didn't take off, and I was full time on the business barely clearing rent, so I ended up with rather a large amount of debt. (I ended up paying it all off as a contractor... honestly, it may have been best to just fold the company at that point and declare corporate bankruptcy; maybe they wouldn't have come after me personally? I don't know. but my point is that leases should be looked at as debt.)<p>Spend dayjob money on rent at the place where you sleep. Spend the five grand on flyers and other business expenses. (though, five grand is a whole goddamn lot of flyers and business cards. $50 worth of businesscards gets me and my employee through a year, usually.)<p>If you only have five grand with zero income, the office fridge wasn't your big mistake, the office was. You can get an office once you have business income. Until then, use your garage or front room or what have you.<p>Anyhow, if the other business owner called you rather than sending a lawyer letter, he's willing to talk. Call him back and explain the situation. Be open about your numbers (this isn't always a good idea, but in your case, you have nothing to lose by letting him know you are not worth suing.) Ask him if you can work something out. This is the advantage of not having any money; Sure, just about anyone could sue you and put you out of business, but there'd be no profit in it; lawyers only work for a percentage of the winnings if they think the winnings will be large enough to give them a better total expected return on their time than working hourly. The guy isn't going to sue you unless he's mad enough to pay a few hundred dollars an hour just to put you out of business.<p>Of course, if he's a competitor, it probably won't work out. but otherwise, maybe it will. worth a shot.

There are state trademarks and national ones from the USPTO. If his is a state trademark and he is in another state, it shouldn't affect you at all and him harassing you would be malicious interference with a business.<p>If it is national, you should just change your business name.<p>As far as the other guy needing to work, that should have been figured out before. I take it you must be independently wealthy to be able to self fund for a long time? You are fortunate, but it's not realistic to assume this is true of everyone. Obviously his debt is related to not getting much if any income after 7 months of working on this venture.<p>I think your advice is very premature to say the least. You have not successfully executed yet. So you don't have working advice to give. It's strange when this happens, but seems kind of common. So many business books written by guys who don't have experience creating or running successful businesses. A lot of wild eyed speculation presented as fact.<p>Here is some advice. I see in your explanation you have a list of blaming other people. It's the cofounder's fault for not working more and wanting to earn an income after 7 months. It's the other guys fault for having a trademark. But if the cofounder worked with no salary longer you'd still have run into this trademark issue. The thing is, if you suspected your product had any chance of working at this point you'd not be giving up on the trademark. You know that the business is failing for other reasons, yet you come up with this other stuff. It's a denial of reality. Figure out why the company really failed. It wasn't the cofounder or the trademark that did it.<p>Now I know you are reading this and getting ready to press reply and type, "Bugsy you big dummy, didn't you see that I accepted blame? The title of this article is 'How I messed up'." Right, about that. Let's look at your numbered list of the four ways ways you are taking responsibility. #1 says your cofounder is to blame. #2 says the trademark is to blame. #2 says your cofounder situation is to blame. #4 says your cofounder situation is to blame. So you don't actually admit to doing anything wrong. Saying "I made a mistake depending on all these other morons!" is not taking responsibility. It's blaming others, while not even taking responsibility for blaming others.<p>Was there a product? Were there customers? Was there growth? None of these questions are addressed at all in this essay, and these are the real questions to have been asking. If the company has a viable product, a customer base, and is making sales after 7 months, the co founder wouldn't be walking away due to becoming destitute after 7 months of no income, and the other cofounder wouldn't be abandoning the business over a extremely minor branding issue.

Dude, you are just getting started. Someone threatening to sue you is the first sign of success. If you have cash flow fight on. Figure out your partnership issues and go for it.

Caleb,<p>You only planned to do this for another 60 days. So the only question that matters is whether you can get customers in that timeframe.<p>I'd continue to work on your business with whatever materials you have on hand. Maybe you can sell your domain and LLC to this guy to cut some of the losses, but even if not just tell him it will take two months to take care of the paperwork.<p>If he is a total dick and still sues, just shut down your company like you were planning on anyway. In exchange for being unreasonable, this guy will have paid a bunch of money to sue a company that no longer exists, and alienated the holder of the exact-match domain for his business in the process.

I think the best thing you can take away from this is that you got a good little business education for merely $5,000. I think you mishandeld some of the ways you allocated your money, however, and think you probably could have gotten away with spending far less for the same education.<p>The legal nonsense aside, I'd have started your company while you both still had jobs and worked on it during your off hours. If things began to pick up and you got some user traction, I would have then spent the $5,000 where it was needed. For one thing, if you had done it this way you'd have come across your co-founder's money problems earlier.

I don't think you should be quite ready to throw in the towel.<p>Have u launched yet? You said you were headed to profitability. What about the original idea as others have mentioned here?<p>Here's another one:<p>Plan to dedicate more than 7 months to said startup.

What is most important is if your business works (gets traction/clients). The name and branding is only secondary.<p>Explain to the other company that you agree and will change your name shortly. Start thinking of a new name and get some more clients to get some cash. If you have a good business, than it can also work without a name.<p>It is sad to have wasted so much money just because of the name. But look for marketing solutions where you don't need to pay anything. If you already had some clients, propose some advantages if they get you more clients. etc.

6) It is hard to bootstrap a company with so little money. I'm all against big funding, VCs and so forth, but $5000 to start? At least you should have enough money for all the founders to live in a decent way for the time needed to get other funds or to get customers.<p>As was suggested some day ago here, and as I did when I created my social web company (that had a successful exit), a good thing to do is to create an adsense based site, SEO optimized, in order to live out of adsense.

I was expecting your question to be: what can I do to make my company survive? From what you describe it sounds like you're giving up, the situation itself doesn't necessarily sound terminal. Other startups have survived worse situations and succeeded in the long run.<p>Not saying that you should or should not give up, that's your call. Only that it sounds like a challenge that's no different from the one many other startups faced.

I'd visit a lawyer who specializes in trademark law. Most lawyers will give you an initial hour at no charge. At bare minimum you will learn your options.<p>I faced the same problem as you ten years ago. I received a cease and desist letter from a large multinational. I handed over the domain name, rebranded the business and I'm still here. So it doesn't have to mean the end of your business.

You haven't messed up yet. You now have an excellent opportunity, research everything you can about companyname and the owner you talked to. Then get yourself on a plane to their offices with everything you have about your company, turn up and ask if you can take the owner to lunch / dinner and pitch him your company. Explain in simple terms that you don't have the cash to change at this late stage, that either you can find an accommodation between both your companies or your company fails. Make an offer of say 5% equity and a link to companyname on your homepage for an agreement not to sue for trademark infringement, I would expect him to make counteroffer, you counter that with something a bit less plus a capital investment of X, negotiate until you have a deal that works for both of you and if you can't, be prepared to walk away, if companyname and your mycompanyname are in the same line of business then you could always pitch yourself as an employee of companyname to the owner.

Do you have your product built? You're already giving up, the worst that can happen is failure which is the <i>same</i> as giving up. Scrap marketing, find a new name and launch. If it fails because of no marketing, oh well that's a shame, if it succeeds then woo! If you give up you're just skipping the launch part and going straight to guaranteed failure.

Terry Matthews is a successful businessman who also does a lot of investing in Ottawa, Canada's startup scene. He's a well-known name in early-stage businesses and the telecom industry up here. I can't source this off-hand, but one time someone asked him what to do about needing to lay off a number of his staff. Terry told him "if you've got a good team, don't lay them off and lose them. Keep them together and start another company with that team."<p>Admittedly, that's easy to say for someone who's got the money to start companies left and right. What I'm trying to say though, is that while your company didn't work out, and it's quite possible that it looks like there's nothing to salvage, you have a team (or maybe only the two of you, but you keep on referring to 'we') and you'll have another opportunity soon if you keep your eyes open.

Have you talked to someone about the trademark? Do you know if you are actually likely to be infringing?<p>There are tests that are applied. Also, simply having a similar domain name may not be a problem unless you're directly competing with the guy or you're passing off. There are many limitations to trademark.

FWIW: This appears to be his startup: <a href="http://www.myliferesponse.com/" rel="nofollow">http://www.myliferesponse.com/</a> and from his resume, it appears he's the business/marketing partner in this relationship.

I hear you talk a lot about the branding, marketing and your cofounder, but what about the idea? Is it original or still worth marketing? A name change and a cofounder might not be the best reasons to call it quits.

Sorry to hear of your trouble. Bootstrapping is very difficult and you should not expect 1 or 2 months is enough time to gain traction and be profitable. I would not say you have "failed". Your product may be the best thing no one has heard of. Keep your day job and keep working on your bootstrap. I started out writing code on a thinkpad I bought used on ebay for 200 usd. Talent without endurance is likely to lead to little. Good luck.

"...that is similar to your mark and used on related products or for related services."<p>That is directly from the USPTO. In other words, if you have a company named "A" that writes software and I have a company name "A" that makes shoes.. I can't sue you for trademark infringement.<p>A website doesn't matter.. it's the type of business that matters.

The trademark thing happened to the last company I worked at. We just told them that we disagreed with their opinion and carried on. Never heard from them again.

None of these reasons you mentioned is a reason to quit/stop/lose. It doesn't seem you failed for any of those reasons - you failed because you simply gave up!

I've experience with being hit by a trademark dispute and your best bet is to cut off the existing name now. It costs more than you have atm to defend it.

Weren't your flyers used for client acquisition?

business cards are cheap, and for many businesses they are a key tool for client acquisition.

Have a Plan B

That's not the money you want to start with. It gives you zero cushioning if something goes wrong, or if you need to buy something expensive urgently (e.g. lawyer's time).<p>I have no idea how people begin startups with $10K. I seriously don't understand it. It's nothing. A good developer's time will cost you more than that for just one month.