Ten. Million. Dollars.
Literally up in smoke. Money bonfire.
That’s enough to retire with $250,000+ in annual income.
Here’s what happened…
The business was making a couple hundred thousand dollars a year in annual profit and I was trying to figure out how to invest the profits.
Agencies can be great businesses, but they are HARD.
The model they used for Basecamp was:
1. Build great software that scratched their own itch (project management)
2. Assume others have this problem
4. Focus on organic growth via product improvement and public writing
5. Spend less than they make
Make money while you sleep for building cool software for yourself. Easy.
I hated the idea of having some annoying VC involved, pressuring me to grow or move to San Francisco (believe it or not, that was almost 100% required at the time).
I had the money. So I decided to follow suit.
My biggest problem at the time was managing people. I was up to about 10 employees and I was having trouble keeping track of what everyone was working on.
I decided to build a shared to-do list app for teams.
We called it Flow, and it was actually really cool.
From day one, it was a huge hit. A lot of people had the same problem and there was nothing else like it.
I got reach outs from all the top VCs and tons of tech luminaries started using the product.
We’d made it…or so I thought.
I was consistently spending 2-3x our monthly revenue and losing money.
And not venture capital. Out of my personal bank account.
He was freaking out watching me burn so much money.
I thought he was shortsighted:
“We are going to make millions! Maybe billions!”
“You have to spend money to make money!”
“Once we launch this new feature, then everyone will see!”
A few months later it went live.
And I breathed a big sigh of relief.
Not a threat in the slightest.
I felt validated:
With a team a quarter of the size, and a fraction of the money, we had built what I felt was a superior product.
He implied—in the nicest possible terms—that they were going to crush us.
(Emphasis on nice, he is a very nice, humble dude. Both Dustin and @christianreber, my two key competitors, turned out to be mensches)
He walked me through who was backing them, how much cash they had, how they had hired top executives from huge companies, and that it was only a matter of time until they beat us on product and outspend us on marketing.
I was on the bootstrapping train. He was drinking Silicon Valley KoolAid.
“Nice try!” I told him “let the games begin” and we left with a friendly handshake.
They wanted an iPhone app.
They wanted an Android app.
They wanted an iPad app.
They wanted a Mac app.
After all, they had a dev team 5x the size.
Suddenly it was a key feature when people compared Asana and Flow side-by-side. Mobile was table stakes.
We had to keep up.
I continued to pound cash into the business. $20k, $40k, $60k, $80k, $150k a month.
For designers, more developers, more marketers, more office space.
We started almost missing payroll and rent.
At one point in 2012 Chris even had to inject cash from his personal account so we wouldn’t miss payroll.
It was terrifying.
I had no other investments outside of MetaLab, which was struggling at the time.
At this point, I had invested millions of dollars, without even realizing it.
Just continual weekly injections over the course of years.
Then, Asana raised $28 million and started pouring it into marketing.
We didn’t do paid marketing, it seemed douchey and aggressive.
We focused on organic growth….
“If you build it, they will come”
But I wasn’t Jason Fried. In my opinion, one of the best marketers of our generation.
My blog posts barely made a dent. I didn’t understand marketing.
Suddenly, Asana ads were everywhere.
Billboards. Bus stops. Conferences. Airports. Google. Facebook. Capterra.
We started burning money on ads and hiring sales people just to keep a toe hold, but mostly we focused on making the product better than theirs.
Our one remaining advantage.
In order to stay competitive, we had underinvested in our engineering team due to cash constraints and stretched them across mobile, desktop, and web.
We started to get an endless stream of bug reports from our customers.
20% monthly growth dropped to 5%.
Customers weren’t getting the features they wanted.
Our clients were unreliable and had syncing issues.
Our team felt frustrated and under resourced and we churned through staff.
We had to hit pause and spend years—literally years—rewriting all of our clients, only to emerge on the other side to see….
At first, a tiny little team. Nothing to worry about.
But after a year or two, they started hiring a huge team of incredible people.
One day I woke up to see that Asana had fully relaunched. Their marketing site looked…great.
Better than ours…
By this point, we were burning over $150,000 per month.
Still, we powered on for YEARS. We even doubled down and raised money—too little too late—from some friends of mine.
We could just have a small slice of pie. We focused on base hits.
Our revenue growth slowed, we kept on growing.
Until one day it didn’t.
Churn caught up with us, customer acquisition cost became unprofitable (Asana and others could afford to spend way more due to higher customer lifetime value), bugs continued to dominate our time, and Asana and others kept making their product better.
Their marketing is better.
Their product is better.
Their features are better.
Their enterprise support is better.
Their integrations are better.
They won. We lost.
The writing is on the wall. Dustin was right.
We lost the war, due to inexperience, product myopia, and a lack of capital in a highly capital intensive and competitive space.
We’ve were forced to downsize it to breakeven and shifted to a team based in India led by my friend @mohitmamoria to keep our remaining customers happy.
We aren’t fighting Asana anymore.
This is a very expensive slice of humble pie.
And we are holding our noses and wolfing it down.
Today it’s sitting at about $900k ARR, breakeven, with a low growth rate.
Sure, it could turn into something, but I will never make my investment back and barring a miracle, it will never own a large chunk of the productivity market.
We got obliterated. Obviously.
Looking back as a more mature entrepreneur, this was inevitable…
It was a slow 12 year train wreck.
A thousand paper cuts, driven by my complete inexperience and incompetence on my part.
The absolute worst part about this is that a team of incredibly smart people, many of whom have become good friends, worked on a company—some of them for a decade or more—that didn’t turn out.
I’m so sorry it didn’t work out the way we had hoped and the responsibility falls squarely on my shoulders:
But better than failing is getting to learn by reading about my failures in a tweet instead of losing $10MM yourself.
The key takeaways are:
1. If you are in a competitive VC-funded space, it’s foolish to compete without raising money. Don’t bring a knife to a gun fight.
3. If a tree falls in the forest and nobody is around to hear it, it didn’t fall.
4. Every developer in the world wakes up thinking “I should build a to-do list app” and people love jumping between productivity apps and workflows. There is no moat in productivity—avoid it if you can.
6. Failure sneaks up on you slowly, then all at once.
7. R&D is EXPENSIVE. Especially when competing with venture.
9. Good product with great marketing beats amazing product with no marketing.
10. Bootstrapping works best in uncompetitive spaces/niches or if you have an unfair advantage (a personal brand, unique customer acquisition channel, etc).
This one hurt. A lot.
I’ll try to keep sharing my screw ups as they happen.
Follow me at @awilkinson.
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