Friday, July 30, 2010

Reality TV: So You Think You Can Startup

There is a lot of hype surrounding the startup culture, especially if you are young and fresh out of college. People blog a lot about making your own startup, but rarely about what to consider when joining someone else's startup. This is very different than joining an established company because it's much more likely to fail than succeed. The reality of startups is not the buyout or bust that blogs like TechCrunch make it seem: it is a painful roller coaster of hard decisions, long nights, and a lot of waiting. Oh, the waiting! 

Well, the waiting has come to an end. Today is the last day of operations at Janus Health. It's a huge bummer to say the least. Following a roller coaster of financing issues, the money well is finally dry. Hopefully this eulogy sheds some light on how things really end in startups, and things to think about before accepting a position at that startup that "have the perfect position for a person with your skills".

Like many developers, I was working a normal job and doing some consulting work on the side. The company was trying to do a proof of concept of online-offline patient management and I was working the technical implementation. After a couple months, I signed up full time as a lead developer, platform specialist, database admin, etc...  

The next 3 years were insane. I was constantly stressed out, babysitting the system, learning new tech under pressure, and of course reveling in the victory of conquering problems. As the only developer for 2 of those years, I did way more boring code monkey work than I ever imagined. It completely surprised me that startups are the actually the last place to try out new ideas - it's push or perish! 

The product had become my ill behaved child, my obsession, and a continuous source of drama.  I thought about leaving constantly, but who would watch after it if I left? Just like a child, after about 3 years things started to get easy. I had help now. The system was stable and fast, the customers were happy, and we were ready to announce 2.0. Money was coming in, but apparently not enough. 

This was really the second death. A few months ago we were almost dead when a last minute term sheet with a big wig investor gave us enough credibility for a 2 month bridge loan. The deal included a clause saying we wouldn't look for any other investors while the lawyers battled over stock options. 2 months later and 1 month of server costs left in the bank, and the investing company is being acquired. Deal off. No backup funding. Employees cut loose. Customers notified.

The Real Losers
The people who are the worst off in this situation are the customers themselves. A painful contract termination letter went out two days ago stating that they have 1.5 more weeks to use our services. Switching EMR (Electronic Medical Record) vendors is usually a 3 month task. My heart goes out to them since their workflow will be severely hampered. This is the risk of going with a startup to fulfill a critical business operation - I'm grateful they took the risk and sorry that it will probably scar them for the rest of their IT purchasing life times.

On the more positive note, the customers were always happy with the product and seem to be working together to create a grassroots/cooperative maintenance solution of the product. Luckily one of the customers was also a big investor and is willing to leave the source code in it's current installation. I hope they follow through and make the dollars work for them.

It is better for the product to go grass roots anyways. I had an epiphany a few months back about why we were struggling in the first place. The company strategy was to be bought out, and that requires a lot of initial capital and an "enterprisey" take on the healthcare market. However, our customer was not enterprisey at all; they are [mostly] grass roots physicians who truly believe that it's better for the health of people to be taken care of at home*. They choose to take severe cuts in pay and deal with billing hell because they believe in the cause. In that sense, it's important to align with your customers market: a home brew market needs home brew solutions to grow with them, and we didn't want to be small. 

I didn't think we would always be enterprisey. When I joined the team, I assumed things would change with time (with my influence of course), and we would become more transparent and "open sourcey". I now know this rarely happens, and if I had took the time to sit down and actually read the financial part of the business plan (which EVERY startup should have) I would have known that. 

After things started going bad, an old friend once told me "some CEO's like to climb mountains, while others like to fly". Most people actually join other peoples startups, and if you are presented with an opportunity you better figure out what kind of passenger you are and what kind of CEO is leading the way. This way, you know how they have the potential to make your life miserable. If that company is climbing mountains, things are slower, the cash pot at the end is less likely and/or a long way away, but you'll be fully aware when things go bad. Flying means you crash into the side of a mountain with no survivors. 

Reflecting upon the accident it's interesting to reveal what actually caused crashed. I don't think it had anything to do with the product, although I had moments where the choice to not use a stock LAMP or Java solution may have prevented lucrative partnerships.The business model was innovative, perhaps risky. I gasped the first time I learned our burn rate. We were flying in style. A lot of money was spent on licensing that could have been shaved. We needed more employees to grow, but maybe we should have been letting them go. 

I never took the time to learn things like bridge loan, diluted stock, term sheets, etc... and I sincerely regret it. If you are thinking of joining a startup, take a crash course at your local SBA or sit in on a local college class to learn, especially if you will enter into a decision making role. Heck, even if you aren't going to a startup I recommend it: business accounting is fascinating. In retrospect, there are several key decisions I made that I now wonder if I would have decided otherwise if I had understood the finances better. Contrary to my previous beliefs, its actually accountants that are our overlords, not octopuses. 

This idea in startups that if you build a great product, eventually you will have great customers and money will just start flowing is absolute horse poo. That meme should die alongside princes saving princesses on white horses. I'm convinced that companies touting this secretly have amazing money wranglers in the background, and should be legally obliged to footnote these claims with "for motivational purposes only". 

I couldn't be more grateful for the experience and wish the best to all the people who worked side by side through some truly awful and amazing times, to the clients who tolerated our mistakes as we learned how to steer, and to the investors who believed in the product to begin with. Best of luck to all.

* After tagging along for one house call I truly believe this as well. It's amazing what they find in the home with respect to medication compliance alone. If you have an elderly family member I recommend calling your local house call doctor to see if their insurance covers house calls. 


Pish said...

Really good post about Janus. Even in a go-go dot com market, the potential customer base, housecall docs, was too small to be fundable by professional money. Needed to be expanded to homecare nurses, but that was not in the plan. My greatest takeaway is the relationships like yours and Richard.

Anonymous said...

Thanks for sharing your information about startup. I want to start a business in a startup plan so that I can managed it properly.