On Startup Failure : Why my software startup failed and How I went Bankrupt?

It takes a lot of guts and courage to talk about one’s failure. Vijay Rayapati, bootstrapped his startup and shares his story on the failure and lessons learnt.A must-read for every entrepreneur!

NOTE: This post is a bit longer but If you have some time (15 mins) then it’s worth reading,You might save 6 Lakhs:) and learn some(1%) business basics.
Last weekend moved off so quickly and amazed me a lot about how fast the time (world) is changing than I thought ( Bills Gates got retired from Microsoft ) and what I am doing in the commodity crowd market ( Being one of the millions of Software Programmers in this world).
I have completed two more management related books this weekend and I feel I am back on my reading track which was almost lost after my college i.e I just read 2 management related books during last 2 years, May -06 to April -08. I feel sorry for almost giving it up for two years but thanks to Destiny for putting me back on the track to continue my further journey.

First book was “life BEYOND CODE” by Rajesh Shetty , this was an amazing book that talks about all aspects of being part of digital world and how to differentiate yourself in your goal seeking process.It NOT only teaches us some basic principles but also action plans that will help us to apply the core principles of success . Few things that inspired me a lot in this book were the details of “Get back on your feet as fast as possible when you are knocked down by goof up or failure” , “It is NOT what we know but who we know is what matters the most” and “If you don’t listen to customer, you cannot sell anything” and the importance of having right mentors and coaches.
Second Book was THE ALCHEMIST by Paulo Coelho , I really pity myself:) for reading it too late eventhough I heard of it 3 years back from a friend (A suggested book during his CAT coaching). It talks about a magical story of a shepherd boy (Spantiago from Spain) who yearns to travel in search of a treasure.The book teaches us , only very few can , about the essential wisdom of listening to our heart , learning to read the omens strewn along life’s path and above all following(pursuing) our dreams.

In simple terms the book is about , How many of us can dare to change from what we are now to what we want to be? , lets make it a bit specific , can I dare to change from What I am today to What everyday I dream to be? , say even you follow your dream then how long you can persist with it (pursue it) despite all the setbacks(blocks) on the way to glory (destiny). Can you follow your dream even if you are about to die?.

After reading above two books the vivid memories of How I started my software startup,bitterness of why it failed & how I went bankrupt ? are back in my mind.
I am Yet Another Software Engineer from CBIT , Hyderbad passed out in 2006 , whose ultimate desire is to be a Entrepreneur.Let me tell you about How I (yes it’s me ,my real story) lost more than 6 lakhs Indian Rupees (officially it is 4 Lakhs as per the startup bankrupt records settled with my partner but I lost more than that ) in just 8 months ,may be it’s not lot of money for few of you born with a gold spoon but for me a costly experience on my way to pursue a dream , which I believed in and desired , which I wanted to conquer ,A Journey to become a Entrepreneur that originated in my heart & fascinated me a lot when my childhood dream of getting into military service slowly got away from my heart after external forces (parents,friends,society etc) moved me to a engineering school.

The loss of money was a costly error for me at this point of time horizon, I mean today, ( I don’t want to term it a failure because I think when we do something wrong for the first time it is error/mistake but if you repeat it then it become’s failure) because I took a personal loan to fund my company ,I lost all my savings from the job till date, I have swiped my credit cards to payoff my office expenses when there was no cash-inflow, I didn’t send any money home for more than 6 months , my brother has completed +2 & I have to support him for the grad school and lot more personal obligations of a typical 23 year old Indian [Boy].But for sure when I look back at this error say after 10 years (23 years age + 10 years life experience) from now it will look like a simple mistake because of our learning curve. I have funded my startup (yes a software startup ) with one of my friend , who believed in my dream.We had a clear idea of what business we are going to be in? , how much money we need to bootstrap? and how we are going to run the business? but a omen was strewn on our way (an Idea to build a software product platform for retail food ordering business) from a friend, which we started to pursue instead of what we wanted to pursue initially because we believed in it as a good idea & it is something which we already know how to do that is writing a software application.This deviated us from our early idea , may be because my heart believed in doing something which it already know how to instead of conquering something new as a kind of security from the fear of failure of my heart to try a newthing.
We rented a nice office ( where previously a successful startup bootstrapped , those guys made lot of profit and brought a 3 floors nice building and moved out of this place ) , hired carpenter to partition the office , brought all the required furniture ,the computers ,the backup ups , the telephone & internet connection and everything needed to start implementing our idea including a recruitment of 4 developers of which 2 were assigned to work on the above idea and other 2 used to work on the Master students assignments from UK & US so we can have a steady cash inflow to run the business without investing from our pocket every month to develop the food ordering software application. I used to spend part of my day with the development team on designing the solution , planning next action items and meeting various people to improve upon the idea before going to my regular job as thought I cannot afford to take 100% risk at that point of time.When I told my Dad about starting a company he said NO ,you are doing pretty good compared to other guys I know of your age so don’t take lot of risk so early in your career but my Mom told me follow your heart if you think you can do it then go ahead.
As the ALCHEMIST describes when we start to pursue our dream , “The universe conspires all the forces to work on our way initially” which is called a rule of favourability or beginner’s luck.We did pretty good for first three months as we had a good cashflow to run the startup without any issues from the assignments money ( at that point of time I had seriously thought of quitting my regular job n put all my energies on startup ).But our development of software application was not moving as we planned initially,many times we were struck with tiny issues for morethan a day or so , the web application development was new to us eventhough our team had a good understanding of building standalone cient – server applications ,I am also new to the technology we have chosen. Sometimes I was damn busy with my regular job where I used to slog night in and night-out so if my team was struck with anything they will be stagnant until nextmorning I go to my startup office and discuss it with them.Then I have realized that lack of progress in development was because of we don’t have clearcut project task’s plan and required technology expertise.One of my team members was a dotnet expert but he was also beginner in web applications platforms.I sent out mails to couple of my friends who offered to lend their help if we need any technical expertise and I had drafted a plan for next 2 months and divided the task’s for my 2 team members.

But Slowly ,as described in the ALCHEMIST the rule of favourability moved away from me ,all the assignment works stopped coming from U.K so input of our cashflow decreased by every month. Eventhough we didn’t had any income from assignments after initial 3 months but still ,I believed in what we started so I did whatever I can do to mobilize money to payoff our expenses for next 3 months.
In the mean time most of my grad school classmates, friends and some of my colleagues came to know about my startup and everyone encouraged my pursuit of becoming a entrepreneur.Those encouragements boosted my morale,confidence,beliefs and I become proud of doing what many souls(people) just dream of doing.When I look back at my dream , it was an abstract & just used to wander in mind when I had no work on the job to how it become concrete , I was very happy & felt good inside myheart.This experience taught me many lessons which nobody will teach you unless you get your hands dirty(digging into what you want).In the initial six months experience of managing a startup company , I have learned some basics of how to deal with people , how to get things done? , how to set right expectations? ( Thanks to Srinath my manager at Trilogy who taught me a lot about this later) , bits and pieces of project management, how to boost my team morale? , how to retain a employee in a startup company and more importantly what a penny(rupee) is worth of?.For next two months I have forced our development task’s to speed up as much as possible and thought we were getting into a right direction of being able to deliver application in couple of more months for initial launch.

Then came a storm to blow my dream , a situation where I can no longer mobilize the money we need in order to continue the business i.e employee salaries, office rent ,power bill , internet bill and other petty expenses (my savings are gone , my salary from regular job was a way less than my startup office expenses).But I haven’t lost my hope , I borrowed money from friends believing that if I can finish off the software application that we are developing in next couple of months and launch it in market then I can expect some cash inflow.So I slogged as much as possible to shield the fear of failure in my heart by telling it to keep working on goal instead of worrying,very soon a good day will be on my way.

I have started to meet few business people ( who ran/run a company or two ) and getting some advices from them , improving upon the idea , started working on drafting a vague marketing plan , how to handle logistics of food order delivery to user with guaranteed timeline ,preparing a business plan so we can meet VC’s to fund our idea once we have beta level product as the segment that we had targeted was pretty naive in India so VC people might not show authentic interest if they don’t see the real working model and also I have acquired a new habit of reading some of business management ,startup management and venture capital related blogs, regularly.During January ,I am really pissed off about my financial strength getting fragile.We estimated that it will take another 3 months to have a alpha level product and I need some money (atleast 3 lakhs) to run this startup and get the product out for next 3 months.I don’t have money and I started discussing with my partner and my other friend who conceptualized the online food ordering plan.I have discussed with known people , some close friends and prospective investors about getting some financial cash-inflow. I went to Hyderabad to convince few of my friends to invest in the project ,initially they were exited to come-in but finally everybody backed off.

I am almost bankrupt I don’t even have 500 bucks in my bank account for the past 2 months after first day of each month , there are more than 1.5 lakh dues on my credit cards but my hopes were still alive and I continued to believe in my dream.
I was unable to pay the office rent, I have delayed payment of my employee salaries and I haven’t paid internet connection bill for past 2 months and power bill for 1 month.I almost forget that I haven’t cleared utility bill payments and my employee called me and said the net connection got disconnected & Airtel customer-care said we haven’t cleared the bill for past 2 months. I rushed immediatly to Airtel office to pay the bill , guess what? ,they said we don’t accept credit card payment for internet connection bill , you have to pay cash. I have just 100 bucks in my wallet but I have morethan 10 credit cards.I gotto argue with that guy, finally his manager said there are few outlets where they accept creditcard payment.
The very nextday , office power connection was also got disconnected , I had a call from employee ,I really don’t have any face to show them when he said power was also disconnected.I don’t have any liquid money and I cannot pay through card for electricity bill at billpayment counter then I called up one of my friends in Kolkata to transfer me some 5k immediatly.Apart from all this the project development was still lagging behind , we were not progressing as we have planned so it kept bothering me.These things have puzzled me a lot and hunted my spirits.Then I called up for a meeting with my team and asked them how much more time they need to give me a basic functional food ordering site and we have agreed for another 1 month.
Eventhough my team has designed a nice business layer, transaction layer for the backend of the application , we were really lagging in the UI design & no clue about browsers compatibility based design.The initial UI was so ugly that I was damn irritated when I saw that but I had controlled my emotions , they tried to improve it and spent lot of time but the end result was not so great.I have consulted some freelancers to get it done but they were asking me to pay so much money which I cannot afford to spend as I don’t even have penny in my pocket.Then I had a lunch meeting with one management professor from XLRI and he said that current idea might not work and we need to revamp it , need to improve it a lot to provide a real customer value.

We were also lagging in meeting our vendors , discussing with them about the business plan and how it will benefit them.At the time I cannot afford to get a guy who can do this or even I don’t have many MBA friends to ask for help ,I cursed myself for all this mess but I took up the responsibility to fix things(get it right).The logistics were another important entity for our software solution system success.I spoke to couple of guys experienced in the logistics domain and created our logistics plan , how we need to distinguish our service? and how to create a logistics system that works for us at minimal cost overhead.
During March, I had lot of issues on my platter to resolve , I tried to mobilize some funds but everything went in vain ,I almost lost every hope and thought for a week and evaluated all possibilities then thought may be it’s time for me to quit so wrote a mail to my partner asking him what should we do next? he said whatever you decide I will be with you , I replied lets close the shop and get our basics right because I thought if I can’t get it right then get the heck out.As I can no longer skip my credit card payment, I can’t survive with 500 bucks for 28 days in a month ,I can’t afford go further bankrupt and lose my face. May be I have abandoned the dream because of ignorance , lack of readiness to take up 100% responsibility of my life ,lack of awareness, fear , need to be right , the need to feel safe , so I choose to get out and get my basics right , I am not making excuses for my failure or telling a victim story ,I just mentioned them because I want you to know that your life success depends on one person that is YOU ,I am learning from these mistakes and improving the outcomes in my new life.In the process I have realized we just have control in three things in our life , the thoughts we make , the dreams we visualize and the actions we take.If we want to grow in life then we need to learn how to master these three things because our success or failure just depends on them.
As I mentioned above ,I really need to get my basics right , a right business attitude , focusing on one thing instead of running a startup and doing another job,ready to take 100% responsibility of outcomes in my life,mastering to use others resources effectively to work for you , to learn how to get(set) things right ,networking with right people before starting a business instead of going by someone who is ready to work with you , conquering fear of failure and a courage to carry forward the dream even if I am about lose my face or die.

If I could have read “BEFORE YOU QUIT YOUR JOB” ,”HOW TO GET FROM WHERE YOU ARE TO WHAT YOU WANT TO BE” and “THE ALCHEMIST” books before starting my company , I would have planned it thinking realistic Instead based on assumptions & just going by my desire to become a entrepreneur before preparing myself.
If I can sum-up , below are the few reasons why I have ( my startup has ) failed?:

1.We never had a formal mentor ,before you start something find a good mentor,someone who has done what you are planning to do because you really need help in lot of business situations eventhough you are a street-smart.
2.We moved from our initial idea to some new idea that came on our way. In a startup always focus on just onething, only onething at a time. Even when you come across a great idea that is a lot better than what you are currently pursuing , never go to it until you complete what you have started of.
3.I was wrong in creating the right team – always get the people who believe in your dream and who are capable of doing things.Get someone who has entrepreneurial spirit rather than one with employee mindset.
4.I can also do attitude – Gates did it ,Ambani did it,Steve did it , Larry and Sergey did it, Dell did it,Ellision and so on did it so I can also do it.It is good to get inspired from great
people live’s but what we are missing here is that whether you are doing it with a passion or a desire?.If you have a passion then you will build something first then start a company. I had only a desire to be entrepreneur lacking a real passion to drive me ahead ,I didn’t quit my job because may be I am scared or afraid of failure ,see I didn’t made myself clear before starting a company.
This attitude screwed my ass and made me bankrupt. Before you plan a startup company ask yourself a thousand more times whether you are really prepared or not?.Even if you have a .001 percent doubt somewhere in your heart , don’t start a company unless you are crystal clear about your decision.
5.Understand a software company as a System rather than a bunch of people and computers working on tasks. A System is a entity which maintains it’s existence through the mutual interaction of it’s parts.If one part fails then the system halts it holds true for startups.
6.The desire to win doesn’t give you the success ,we really need to put all our energies to conquer the dream we believe in. Before you plan a startup think whether you can spend 100% of your time on it or not?. It’s not a distance education course where you can do job and earn a degree so make yourself 101% committed. As famous philosopher Jim Rohn said
“You can’t hire some else to do push-up for you” , if you want result you have to do it.
7.In Startup everyday you need monitor your goal progress instead of checking how you are doing once/twice in a month and spend as much time as possible with your team everyday to get the most out of them afterall it is your company,the baby needs high care. When I told my parents about the loss, Dad didn’t say anything , he remained silent but Mom said the experience is worth morethan the loss but I felt that I let them down because when initially Dad opposed I told him , ” I am starting it to make money ,Not to loose money”.Sometimes I feel bad for losing 6 Lakhs thinking I could have brought a decent car, yes it’s a costly error but I believe that as my Mom told the experience learned was richer than the money I had lost because now I am better prepared to conquer my new dreams.However oneday I will again start journey of conquering the dream that I have abandoned after nearly 9 months of starting it.
If somebody today asks me what it takes to run a company I would say it is the money first, the team next ,the idea last.May be you have a great idea but if you cannot get a right team together to implement/execute it then it means you have no idea.Never start in a hurry ,evaluate as much as possible , find some trust worthy people and discuss your plan with them at length before embarking on it and never spend a penny unless you really need it.

This experience taught me many lessons in simple words ,”Start to conquer your dream when you are ready to give away even your life to achieve your destiny” and the quality of our current life is a result of our past actions and thoughts, now again damn it I feel I don’t need to spent 6 Lakhs to learn the gist of conquering a dream:) which I could have learned if I had read ALCHEMIST worth 100 bucks 2 years back or I wouldn’t have understood the gist in ALCHEMIST better if I had no failure. May be that’s the reason why history say “Good Leaders are also Good Readers too”.

Courtesy: http://www.pluggd.in
Reposted from blog: http://vijay-rayapati.blogspot.com/2008/06/what-we-are-and-what-we-dream-to-be-why.html

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