From the Founder’s Diary | How we lost Rs 15,00,000 in startup...

From the Founder’s Diary | How we lost Rs 15,00,000 in startup and shutdown before our first anniversary.

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It was April  of the year 2013, and I was pretending to work, but actually wasting time, in a dull cubicle of an IT company in Gurgaon.I had just returned from the US last month, and I had told my manager that I needed some time off to set up my place, and adjust to living in India again, following which, I worked from home for a bit.

However, the real problem I had, was the unhappiness resulting from the job I was doing. 

Like everyone else, I was also toying with the idea of leaving my job and building a big company, but I have to admit that I did not have the courage. I was in discussions with my good friend Amit, regarding the startup but we were unsure about the product. He also had the similar story with his job. He was heading a team in a recruitment firm, working in night shifts to work with the US clients, and making less money than he expected.

We were very comfortable working with each other, so we decided to start a company and build a product. I had saved a good money by living frugally on my US trip, and hence I decided to put all my savings in my startup, rather than buying a home (unlike many other US returned friends).


The first step we took was incorporating a private limited company, invested 5L each and divided equity equally. It was going to take about two months to get incorporation certificate, so we planned ahead with ideating the product, hiring and setting up the office.

We found a basement office in Gurgaon with monthly rent of Rs. 13,000 rupees. We spent another Rs. 1Lakh on the renovation. We bought furniture, air conditioner, inverter, and refrigerator. We were having a good feeling of owning an office.


After much consideration, we decided that we wanted to solve the problem, related to schools because education is a billion dollar industry. This is where we came up with the idea of ERP for schools. Online software for schools to manage everything from fees, inventory, communication with parents, and tons of other features.

Another important step for us at that point, was to hire a team. I was confident that we will hire people easily. We had everything for building a good team; an office, money in bank account, hiring policy and most importantly a co-founder with recruitment experience of more than ten years.

We hired one person who was almost a fresher, and he was open to learn new technologies for our cloud-based product. We needed one senior person to own the product and handle all development work because we were still into full-time jobs.

We started interviewing people. My co-founder went through a pile of resumes, since he had access to all the major recruitment portals. We filtered out best out of best people and interviewed them in cafe’s or restaurants because our office was under renovation. We interviewed many people for product development/design but no one was ready to join a startup like us, and frankly, that shocked us.

My co-founder said, “I could have hired ten people for any other company by this time, I am not sure why people are not joining us.
Maybe they will join after seeing our new office,” I retorted.

Since we were from the corporate background, we spent few days on drafting new hiring policy. We introduced company incentives based on revenue and individual performance bonus along with basic salary.

Our office was ready by June of that year, and we moved in, picking up our hiring process where we left off. Someone advised me to hire initial teams from the personal network, but none of my friends had a profile that we could use, so I asked all my friends to give me references of their friends working in PHP development or website front-end design.

I got hold of a person who was working in Chandigarh, and he was willing to work with a startup in Gurgaon. We were impressed with his technical capabilities, but doubtful about his managerial and leadership skills. We thought of giving a try (since, no one else was ready to join us, anyway). He was a costly hire. We offered him 60,000 rupees per month, plus company incentives if we made any revenue by the end of the year.

We were feeling lucky with two developers. We desperately needed one designer so that our work can be started. I architect the product and developers started coding without waiting for the front-end design.

It was an exciting time. Our product was taking a shape. The co-founders were spending hours on whiteboard discussing the features and developers were busy coding. We managed to hire a designer on 25,000 rupees per month, but we compromised a lot with his skillset and attitude.

We wanted to complete the product as soon as possible so that we could start selling, and that is when we started facing unexpected problems.

Our Junior Developer was not performing up to our expectations so we had to ask him to leave, and our Designer hadto be tracked down, and fired, after he disappeared with the company laptop.With a team of just four people, we completed the first version of our product.

Our first potential client (a known school principle) appreciated our idea and demo, but put us on hold till she hear from higher management. We gladly sent her the sales material and thought we will deploy software in few months.

By this time (6 months) the cost of product development was: Rs. 9,56,000 , including the salaries we were paying to the employees, travel and food expenses, office expenditure, etc.

This is also when we diecided to quit out jobs, to focus on selling the product full-time, which was a step we benefited.

We started reaching out to schools and got the bitter taste of selling to schools.

None of the co-founders were from the sales background.

  • We struggled for getting the appointments.
  • We got exhausted calling 10–12 schools without any results.
  • Crossing the gatekeeper was a big hurdle.
  • We found out that principals did not have decision power.
  • The decision makers were never available in the school.
  • Most of schools admins do not check/respond to emails.
  • Nothing happens for 2–3 months when selling to schools.

 

We hired one person from Ahmedabad for sales training and spent about 30K. Along with training, he introduced us with a few startup guys in Gurgaon, and still, we were unable to sell our product even with more features and less cost as compared to competitors.

We found few customers by leveraging references, but revenue was far away. My co-founder knew customers better than me since he was doing the sales. He said that few big schools wanted to buy our product, if we could implement few more features.

I had a different opinion. I argued that we had enough features for any school to get started, and that we should focus on small to medium schools, even if we earn less money. Conflicts between co-founders started rising day by day.

We were running out of money so we invested more personal money into our startup. We hired a sales person from a big competitor, and he gave us access to the competitor’s product, along with the secret to approaching schools for sales.  He worked with us for a month but could not crack even a single sale, and we realized that he was able to sell in his previous company, only because of the brand name. He never had faced the heat of an unknown startup.

We needed more money to survive. My co-founder at that point, was busy in chasing big schools, who could pay good money in advance. He also started establishing contacts with political and influential people to win the deals. this is when I realized that both of us were on different paths. I believed in lean startup methodologies and doing more with less resources. Unfortunately, he  was still building our startup like a big corporate (alliances with other companies & politicians, hiring sales team for doing the shitty work, maintaining hierarchy in the team).

I proposed to reduce our expenses.

  1. Bring our only developer from cash to equity (up to 20%).
  2. Stop chasing big schools and focus on small schools (to reduce sales conversion time).
  3. Target schools on city outskirts those are relatively easy to win.
  4. Fire the sales guy and spend all our time in sales (including the tech developer)

But our vision and thoughts were not aligned. I knew that our relationship will be spoiled, if we continued working together. We had long (and bitter) discussions on keeping the ownership and equity but nothing was getting settled. At last, my co-founder took over the company and promised to return my cash if the company made any profits in the future.

By now we had wasted more than 15,00,000 rupees on a product that nobody wanted to purchase. After few more weeks of struggle, my co-founder joined another company, and that’s how we met our eventual end, in 11 months.

This article has been adapted form this Medium post written by Pradeep Goyal.

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