What I Learned From Losing $100,000 on Two Failed Startups
Don’t invest more money, energy, or time than you’re prepared to lose
Over the last five years, I founded and shuttered two startups, losing $100,000 of personal and seed money in the process.
I worked on the first startup — an app that helped diners discover new restaurants — for a year, and the second startup — a stock market investing publication — for two years. The company details are less important than the insights. Shutting down my dream idea (twice) was painful and humbling. But I survived, learned a ton, and progressed my career in the process. And thankfully, I’m lucky to have a good day job, a happy home, and an amazing family.
Recently, I’ve had a lot of time to reflect on what I learned along the way, which boiled down to these 20 lessons:
1) Startups need your money, energy, and time (MET) to survive.
New ventures draw on three precious resources: Money, energy, and time (“MET”).
- Money in this case means your savings, revenue, and any capital raised from friends, family, and investors.
- Energy is your physical and emotional bandwidth to create something from nothing.
- Time is both the time you devote during each day to work as well as the timeline required for startup goals to be met.
There’s a piece of longstanding wisdom in the startup world that goes something like this: “The job of a startup CEO is to find product/market fit before running out of money.” In my experience, that applies to time and energy as much as it does to money. If any of the three MET supply lines are disrupted, growth will stall. Most people assume startups fail because they run out of money, but exhausted energy and time have also claimed their fair share of new ventures. MET is the lifeblood of your company and success comes down to investing it wisely.
2) Don’t invest more MET than you can afford to lose.
When starting your own company, there’s a temptation to go all in. There are moments when you’d trade anything to bring your idea to life.
For both of my startups, I invested as much MET as possible, but never more than I could afford to lose. When I closed up shop, I could still continue my career, pay my rent, and spend time with my friends and family.
It’s rarely wise to bet the farm on anything. Always keep an eye on how much MET you’re investing and ask yourself, “If things don’t work out and I lose all this MET, will I be OK?”
3) Investing your MET in valuable assets protects your downside.
As you invest your precious MET, consider the value of the assets you’re building.
During my first startup, I invested most of my money into creating an app that became worthless code when I shut down. But in my second startup, I invested in creating high-quality content, building up my customer list, and researching profitable stock market algorithms, which left me with three valuable assets after I closed shop.
Be wary of making large investments in assets which will be worthless if things don’t work out.
4) Do as much as you can before you quit your day job.
When you’re excited about a new startup, there’s a temptation to quit your day job and dive in. But it’ll probably take awhile before your company can start making money. Ideally, if you keep working your day job, it’ll subsidize your startup until it can stand on its own two feet.
For my first startup, I quit my day job and went 10 months without a paycheck, which rapidly drained my MET. I operated my second startup as a side hustle and never missed a paycheck, which bought me twice the runway.
In investing, this approach is called “the barbell strategy” because you place one bet on each end of the risk spectrum: your day job is low-risk with a small upside, while your startup is high-risk with a big upside. If you can, have your day job pay the bills until your startup is ready to take over.
5) Once you taste the startup life, it’s hard to go back.
As you experience the thrill of working hard, dreaming big, and tasting success, the traditional corporate life feels less and less appealing.
In both of my startups, I’d accomplish in two days what would take two months in my day job. After trailblazing at startup speed, menial tasks like TPS reports start to feel more soul-crushing than ever.
Whichever market you target, make sure you’re willing to live fully in that world.
6) The more your company grows, the more it owns you.
There’s a certain lightness that comes with a new startup idea. It’s all excitement and hope, without risk and commitment. But the more your company grows, the more you become tied to it.
When I was trying to win venture funding for my first startup, I asked myself if I really wanted to answer to investors, customers, employees, partners, vendors, lawyers, and press for years to come. I thought:
“Once you fundraise, investors own you. Once you hire, employees depend on you.”
That prospect started to feel as confining as my old corporate gig. While some people thrive on being the boss, others value their space, flexibility, and independence. In other words, uneasy lies the head that wears a crown.
7) Operating as a “solopreneur” can be brutal.
No one cares about your company as much as you do. No one will put in the hard hours, agonize over the big decisions, or experience the emotional ups and downs like you will. Friends and family will often support you, but at the end of the day, you’re the only one on the frontline.
During both my startups, I went through long stretches of intense stress, loneliness, and poor health, which drained my energy and shortened my timeline. If you can find good partners to help share the MET burden, it’ll improve your chances of success. It’s incredibly difficult being in the trenches alone.
8) Be prepared to live in your niche.
If your startup serves a certain niche, be prepared to immerse yourself in that culture.
For my first startup, I worked with dining enthusiasts, which wasn’t a natural fit for me. For my second startup, I sold to “grumpy old man” investors, which took some getting used to. Honestly, I felt out of place in both markets, which hurt my credibility and wore me down.
Whichever market you target, make sure you’re willing to live fully in that world.
9) You’re not as smart as you think you are.
When it comes to starting your own company, the Dunning-Kruger Effect is deadly. Put simply, the Dunning-Kruger Effect is the tendency for founders to vastly overestimate their understanding of an industry precisely because they’re so uninformed about it.
Before I launched my second startup, I was convinced the financial publishing industry was outdated and ripe for disruption. Because I was so uninformed, I completely misread the field and got my butt kicked by veteran competitors.
The smarter you are, the greater the risk you’ll assume you can easily disrupt a market with your brilliant new idea. But the good news is you can avoid this trap by considering the next lesson I learned.
10) Start by stress-testing your big assumptions.
Before you start building anything, write down all the major assumptions that underpin your grand plan. Then find a cheap and easy way to vet those assumptions before you get started.
My brilliant strategy for my second startup was built on a foundation of 3 to 5 core assumptions I knew “in my gut” had to be true. If I had paused to chat with a handful of industry insiders before charging ahead, I would’ve discovered my big ideas were wrong. A few phone calls could’ve saved me from investing a ton of money, energy, and time into a flawed strategy.
Don’t believe your own hype. Test it first.
11) Be wary of consultants.
In both my startups, the bulk of my spending went toward consultants and vendors who helped design and build my product. In some ways they added a lot of value by helping me learn the market fast, avoid costly mistakes, and build a winning product. I traded money for more time, energy, and skill — sort of like buying cheat codes for my market.
But the reality is that most consultants don’t care about your company. They care about winning more of your business, which often takes the form of overpromising, underdelivering, and asking you to hire them again.
Weigh the cost of consulting services against the MET costs of just doing it yourself. If their cost is significantly less than yours, or they fill a critical skills gap, then maybe they’re worth it. But if you can learn on your own quickly and cheaply, then just do it yourself.
12) Take guru crash courses, but temper your expectations.
A huge part of startup success hinges on your ability to learn fast. Thankfully, the internet offers a virtual university of gurus teaching every skill imaginable.
During my second startup, I took crash courses on email copywriting, brand voice, SEO strategy, customer acquisition, social media marketing, and more. The cost of these courses ranged from $20 to $500, and brought me from novice to competent in a matter of days. But before seeking out your own crash courses, remember to temper your expectations. Every guru promised to unlock the big secret to fast and easy growth. None of them did. But they did all reveal an important part of the larger formula.
13) Find product/market fit for your MVP fast.
It’s so tempting to start with a grand vision of what your company could be in 10 years. But you’ll have more success if you start by creating one simple product with solid market fit.
In my first startup, I built too many bells and whistles into my minimum viable product (MVP), which burned most of my precious MET. And in my second startup, I tried to juggle several different mass-market products, rather than conquer a single niche.
Focus on getting one solid win and build from there.
14) Acquiring customers is the first big challenge.
Creating a successful company from nothing involves scaling many challenging peaks. While acquiring investors, hiring employees, expanding products, wrestling competitors, and fighting legal battles tend to come later in the game, winning customers is usually the first big hurdle to overcome.
I found customer acquisition incredibly difficult in both my startups. I’m not a natural marketer (I’m too analytical), and markets are often oversaturated with new ideas. There was a time you could throw up a website and eager prospects would find their way to you. That time is long past.
Yesterday’s easy internet land-grab has been overrun by an army of hardened growth hackers, SEO ninjas, backlink builders, email copywriters, content experts, PPC specialists, social media masters, and others.
It’s really hard to break through, especially if you’re short on MET and marketing experience. Too many entrepreneurs burn their precious MET refining their dream product. Instead, spend it figuring out how to profitably acquire new customers at scale.
15) Try selling your product before you build it.
It seems like common sense that you should build your product before selling it. But I’d encourage you to try selling your product before you build it.
Early in my startup journey, I fully built a new product before trying to sell it. This was a MET-intensive process that delayed what I needed most: customer feedback. Later, I threw together landing pages for new products in just a few hours. If customers tried to purchase my non-existent product, I captured their name and told them it was coming soon. Some of those landing pages never got a single signup, which meant I learned in a day it wasn’t worth building the product.
It’s a strange and uncomfortable concept, but if you can sell your product (or a light version of your product) before you invest heavily in building it, you’ll find product/market fit much faster.
16) The days of easy SEO are long gone.
To recruit customers for my investing publication, I posted nearly 100 high-quality blog posts targeting relevant keywords. Despite following all the latest best practices and writing articles that were objectively better than Google’s first page results, I never acquired a single paying-customer from organic search.
SEO has become big business, and incumbents employ seasoned content-marketing teams to crank out keyword-friendly content, recruit backlinks, broker guest-posts, and more. Unless you’re targeting an underserved niche market, it’ll take a lot of time, energy, and money to rank well.
17) Beware marketing giants in your space.
As digital marketing guru Ryan Deiss says:
“He or she who can afford to spend the most to acquire a new customer, wins.”
I experienced this during my second startup when best-in-class marketing giants, such as Agora and Motley Fool, drove up ad costs to levels I couldn’t match. Their savvy marketing departments, deep pockets, and high-powered upsell strategies allowed them to happily pay $200 to acquire a new customer to buy a $50 product.
I couldn’t compete with those economics, which made paid acquisition extremely challenging.
18) If you want fast results, sell into an existing community.
It’s really tough to build your own customer base from scratch. It’s much easier to take your new product to Udemy, YouTube, or other communities that gather and monetize customers for you.
There’s real power in giving up a share of your revenue to sell into someone else’s platform of hungry buyers. In many cases your slice of a larger pie is better than the whole of a smaller pie. Once your success grows, you can break off and form your own community.
19) Avoid “entrepreneurship porn.”
Most startups require a gradual path to success. “Entrepreneurship porn,” “startup porn,” or “hustle porn” are glorified stories of working to the bone, putting everything on the line, and then winning big.
I never maxed out my credit cards, lived in my car, or pulled ramen-fueled all-nighters when running my startups. While extreme hustle might get more mileage out of your money and time in the day, it’ll bankrupt your energy, shorten your runway, and risk more MET than you can afford to lose.
20) There are many good reasons to quit.
I don’t think startups are the place for a “never surrender” attitude. Your money, energy, and time are more precious to your life than to your startup.
For both my startups, there was a distinct moment where the thought flashed in my mind for the first time: Maybe this isn’t going to work. I kept trying for a few more months, but my subconscious already knew the days were numbered.
There are many good reasons to quit. If you see your idea definitely isn’t going to work, don’t waste precious MET on it. If you find yourself not wanting the life that success would bring, it’s time to move on. And if you see a better opportunity on the horizon, adjust your course.
Don’t be a martyr for your idea. Many entrepreneurs find success with their second, third, fourth, or tenth startup. Try as hard as you can, then live to fight another day.