The Story of My First Startup Failure

When I started my first company, I had it all figured out. Up to that point, things had gone relatively well for me, at least on paper. Undergrad at MIT, a software engineering job at Google, and then grad school at MIT. But the thing I had always wanted is to start a company, create something new. So, when I entered my last year of business school (in Fall 2008), I was ready to do it. I was going to found my own startup.

The first thing you need to start a company is a product idea, and one night when out to dinner with friends, an idea was handed down to me from the heavens (we had a long wait for our table). I was going to replace the restaurant pagers with a system that sends out text messages (suspend your disbelief for the next two minutes). I was in business school at the time, so I went to various mixers for the business plan competition, and found people who seemed excited about my idea. Not surprisingly, I found a few people who might be interested in helping out (one became my awesome cofounder Jeff Shi), and we started hacking together the initial concept. We came up with a decent name (InstantQ), and put together a two-page executive summary that got us to the finals of the executive summary competition. We didn’t win, but it apparently was close. I was well on my way to success as a startup founder (or so I thought).

Our next step involved building a product (your business plan competition entry is much more believable if you have a product by the final phase). So Jeff and I sat down and hacked out a quick prototype in a weekend. The next step was to find someone to sell it. My business plan required a lot of sales, and I sure wasn’t going to do it by myself (I’m a nerd. The last thing I really tried to sell was Cutco in high school, and I didn’t sell all that much). So I went out and found the schlockiest salesperson I could find (to be fair, he was actually a great guy, but he totally rubbed me the wrong way). I didn’t really like him all that much, but based on my totally flawed sales sense, he seemed like he could do the job. We went out one night and got really drunk, and I convinced myself that I could grow to like him. He more or less did his job (at first), and managed to get one restaurant in Cambridge to try out our system for one night. The reception was kind of lukewarm, but hey, it was just an early version, so we were well on our way.

We didn’t win the business plan competition, but we did make it to the semifinals, and got invited to a bunch of dinners and received $1000 to cover some expenses. We also got into YCombinator - Paul Graham actually hated our idea, but we were two nerdy guys from MIT, so we had a lot going for us (we didn’t bring the sales guy to our interview). So we moved out to California and rented a cheap apartment within walking distance of the YC office. Everything was great - we spent a lot of time coding and occasionally went out to the bar to blow of some steam. We were living the startup dream - we had crappy office furniture in our living room, and the walls were covered with shower board.

About the second or third week in California, we realized that we hadn’t actually closed any customers (or gotten anyone to even use our product since The Asgard in Kendall Square tried it for one night), and we probably needed to start working on that. Our sales guy was talking to restaurants, and they weren’t exactly giving him overwhelming feedback. It turns out that most restaurants didn’t have lines out the door on the majority of nights (the economy wasn’t exactly up at the time). So, like good little YC Founders, we went to Paul Graham’s office hours, and he had an idea. “What about a dial that restaurants can use to turn up the supply of customers?” We bought, it, and decided on a two-tiered approach. On busy nights, we replace the pagers, and on empty nights, we give you a marketing solution that you can use to bring back your existing customers.

This time, we tried to take a more customer development focused approach. We walked into restaurants with our laptops, and forced the manager or proprietor to look at our demo. They seemed semi-interested, if we could make them money. We took this as enough validation to move forward, and hacked together something that worked well enough. Or so we thought.

As we found later, the real problem was acquiring customers who would actually pay us for our product. There is a big difference between building a product and building a product that people actually want to pay you money for. It turned out that our sales guy wasn’t so good at selling a product that didn’t exist yet - he was a lot less experienced that we originally gave him credit for. After hanging out with a good friend who has been a pretty good guide over the years, I decided that we needed to let him go, and Jeff agreed. So we cut him loose - he moved back to the East Coast and has done quite well since then.

The conversation the day after we got rid of our sales person went like this. “Wait, we don’t have a sales person any more. I guess that we need to go out and sell now.” So Jeff and I spent the next couple of months going out and selling, and we slowly realized that it wasn’t going to work. Despite initial enthusiasm for the idea, neither us were passionate about selling to restaurants. And, as the rejections racked up, we became more and more discouraged. YC Demo Day came and went, and we hadn’t launched (we never launched publicly because we never had any paying customers). Investors seemed lukewarm at best - we had one or two meetings that went nowhere, and our hearts weren't really in it. To be fair, Fall 2009 was a relatively difficult time to raise a seed round, but we weren’t exactly primed for success.

We talked about pivoting to something else, but we never raised any money post-YC, so finances were sort of tight. Plus, I moved up to San Francisco while Jeff stayed in Mountain View. Paul Graham’s comment was something like “that’s too far - it won’t work.” To be fair, it seemed like we were already drifting apart. I have never taken rejection well, and having two products fail was too much for me at that point. I was pretty much ready to quit after less than a year. We met several times a week to brainstorm ideas, although I remember playing a lot of Farmville (this was right as Zynga started taking off). We initially found some consulting work to tide us over, but we weren't exactly overflowing with ideas to change the world. 

Then a bunch of life circumstances intervened. Jeff’s wife got pregnant with their second child, and he needed a steadier income. My father died suddenly about a month after that, and I was thrown totally off balance for about six months. Both of us decided to bow out of the startup game, although we dragged our feet for a while. I spent about four months working on various projects and dabbling in consulting, but my heart wasn’t really into it (I was still in shock and feeling pretty unstable). In the end, I took a job at another startup that seemed relatively promising, and we shut the company down. Jeff did another startup, and then ended up at Netflix. So that’s it - the story of my first startup. I wish I had more to talk about (like customers and revenue), but hey, that comes later (I’ll tell you about my second startup failure later).

16 responses
Thanks for sharing your very honest perspective; I think the startup ecosystem really needs more of these stories to help future founders see both sides of the eqauation!
Thanks for an honest depiction of your story. We need more of these stories, indeed. Just to see how life can turn and ultimately intervene. I'm curious as to why the restaurants rejected you though? Do you believe there is some viability to the two-tiered approach to the idea, for someone with a passion for selling to restaurants?
Looks like NoWait is doing exactly what you were doing. It's good to hear from a YC company that has learned a good lesson. Thanks for sharing.
I can really understand your story, I had a similar experience. Now working on a new start-up.
Ha, that sounds remarkably like how I started my company. We came in 2nd place at a hackathon, and got some great feedback from potential customers. But when it actually came to using our product, the potential customers faded away. Well, good to learn these lessons sooner rather than later! Thanks for the post.
thanks for sharing! It´s a very honest post and I liked it. I´m sure we´ll hear from you soon, but with a succesful start up now. Greetings from Guatemala Central America
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