Stick-To-It-Ness Pays: Rapt To Be Acquired by Microsoft

March 20, 2008 by Leave a comment

Rapt Inc. is being acquired by Microsoft, as reported over at TechCrunch by Erick Schonfeld. Rapt is an online ad optimization application, which fits Microsoft’s continued push into more and better advertising solutions. Rapt is also a great case of stick-to-it-ness. By that, I mean keep working at figuring what will make your business successful, and survive long enough to get there.

But let’s back up for a second. To greatly simplify things, one can say there are three types of outcomes for venture capital funded companies:

  • Supernova: legendary companies (Google, Microsoft, Amazon.com)
  • Moderate: cash flow positive (Rapt, SquareTrade, ebates)
  • Flameouts: bust (Pets.com, Webvan, Pay By Touch)

There’s plenty of press for supernovas and flameouts. But not so much for the moderate successes. The moderate successes represent a fairly broad range of outcomes. But they are an interesting study in starting a company, getting to profitability, and having the option what to do next. The three companies above – Rapt, SquareTrade, ebates – are each Web 1.0 holdovers who continue to be successes in today’s Web 2.0 world.

Rapt Inc.

Founded in 1998, Rapt started out life as some sort of procurement optimization provider for manufacturing companies. Here’s how their product Rapt Buy was described in 2001: Rapt Buy is a web-based application that gives companies real-time intelligence to optimize the procurement of strategic goods.

So the company was in the optimization game, but pretty far away from applying that to online advertising. But read what the company described itself as in that same 2001 press release: Rapt Inc. is a leading provider of software and services for enabling real-time, risk-optimized buying and selling decisions in complex business environments, and internet marketplaces.

Somewhere in there is the kernel of Rapt’s transformation from procurement of strategic goods to online ad optimization solution. I don’t know the success of Rapt’s original model, but they stuck with things and found a good market to apply their strengths. They came out with a series of products that enabled web media companies to optimize ad inventories. A March 2005 press release talks about Rapt being used by MSN to improve pricing for online ads. Subsequent client wins included iVillage, Yahoo, Tacoda, CNET and others.

Rapt did raise $55mm, so it needed a lot of capital to get where it is today. But by persevering through different markets and products, Rapt won many marquee clients and an acquisition offer from Microsoft.

SquareTrade

SquareTrade was started in 1999. Its original purpose was to be a mediator for disputes among buyers and sellers on eBay. The company received $9 million in VC funding back in 2000, and it hasn’t taken anymore since then.

The mediation services clearly paid the bills early on. SquareTrade also offers an eBay Seal, which tells potential buyers that a merchant has been reviewed and approved according to SquareTrade’s standards. Again, a nice little money maker for SquareTrade.

The absence of any new VC funding since 2000 tells you that the company is cash flow positive. Which is a nice place to be for SquareTrade. The company could live off the success of its model and dividend out the excess cash to investors and other shareholders. That’s something a lot of traditional, offline companies have done for years.

But you could view that cash flow in a different way. Your own source of “VC money”. Figure out new business lines, and self-fund their rollout. Forget the VCs. What a great option to have.

And that’s exactly what SquareTrade is doing. They’re trying to establish themselves as the largest independent warrany provider. Basically, sell the SquareTrade brand for warranties. I don’t know how they’ll do, but their established cash flow is going to give them the chance to stick-it-out and make a run of it.

ebates

ebates was established in 1998 by San Mateo County prosecutors. Huh? Well, what they created has lasted for quite a while. ebates gives consumers cash back on their purchases with 800+ online retailers. Basically, you just launch your shopping trip via ebates.com, and your purchase info will automatically be captured and your rebate calculated.

It was cool idea in 1998, and this is essentially the same thing ebates does today. Something like 1 million consumers are active on the ebates site. The company raised a $25 million round in 2000, and nothing else since then.

ebates is in a similar position to SquareTrade. Cash flow positive, and able to try new things. So far, ebates seems to be sticking with its 1998 model. More execution around its core model: more retailers, more consumers. Perhaps there’s something big brewing over there. But maybe not – they just enjoy the cash.

In Conclusion

The tech superstars garner the most press and certainly have the largest influence on the tech and business landscape. But the next level down, the cash flow positive moderate successes, do have some interesting things going on. Some keep hustling to position themselves for the next big thing, others enjoy the fruits of past labors.

Keep an eye on them, their cash flow gives them options.

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Farewell, Pay By Touch, Farewell

March 19, 2008 by 24 Comments

Pay By Touch has come to the end of the road. In a press release issued today, the company said it was ceasing all remaining biometric operations:

Solidus Networks, Inc., DBA Pay By Touch, regretfully announced today that it will no longer process biometric transactions on behalf of its merchant customers and consumer membership base, as of 11:59:59 pm March 19, 2008.

 

Alas, this is no surprise. The company was overextended, and bankruptcy is a terrible position for a start-up trying to right the ship. The employees and new management brought in gave it a valiant effort.

A few post-mortem observations about the company are in order.

Consumer Adoption of Biometrics

It’s tempting to consider biometrics a loser in the consumer space. Ben Worthen at the Wall Street Journal does a nice job talking about biometrics’ value as well as its shortcomings. Biometrics is very sci-fi. And yes, it is too spooky for a large percentage of people. Inside Pay By Touch, we found there were two types of people who wouldn’t sign up: those who were concerned about privacy, and those who were against it on religious grounds (mark of the beast). If you follow Crossing the Chasm theory, there was also the mainstream part of population that would wait to adopt.

But there were early adopters. Pay By Touch processed several hundred thousand biometric transactions per month. Now in the grand scheme of things, those numbers pale in comparison to the volumes processed by Visa, MasterCard, American Express and the overall number of transactions occurring at grocery stores. But processing several million transactions over the course of the year is nothing to sneeze at. It shows that consumers were indeed willing to use biometrics for adoption.

I do think the adoption curve for biometrics is longer than for, say Twitter or RFID-enabled credit cards.

Economics of Biometrics

Biometrics requires both hardware and software. The hardware is pricey, and it does need to be replaced periodically. One thing about the field is that vendors continually innovate. Hardware gets more durable and reliable, and prices do come down. I had the chance to test different vendors’ new biometric readers. A lot of effort is being put into biometrics out there. I remember one of my favorites during testing was actually from Casio. It performed well, and brought back childhood memories of my wristwatches.

But the cost of installing and replacing the biometric readers is an issue.

Installing in the grocery lanes also took money. Each lane in each store had to be outfitted. Pay By Touch had to be ready for the different POS versions the stores were running: IBM, NCR or Retalix. Always with some different configuration or customization.

Pay By Touch’s biggest play for grocers was shifting consumers to ACH. ACH is much cheaper than PIN debit, signature debit or credit cards. So, of course, Pay By Touch couldn’t charge too much per transaction. This meant that operational costs needed to be kept low, the company kept small and lean. This didn’t happen, of course.

Level of Certainty in Authentication

Pay By Touch was very focused on a high degree of confidence in its authentication of each consumer, each transaction. There are two measures for how the biometric authentication performed: false rejects and false accepts. False rejects were cases where the consumer was legitimately trying to authenticate, but the system rejected him. False accepts were cases where the system wrongly identified a consumer as someone else.

The company’s bias was to avoid false accepts. One false accept could become a major news story undermining confidence of consumers in using Pay By Touch. And the system was quite good at avoiding false accepts.

The focus on avoiding misidentification meant that false rejects ran higher. False rejects were more acceptable – no one’s checking account would be wrongly debited. Early on, the company had a bad problem with false rejects. But a lot of work reduced that number significantly to a barely noticeable level. And that was important. Too many false rejects also undermine consumers’ confidence in the system: “Oh that fingerprint payment system never works.”

A lot of time was spent improving biometric authentication at the in-store hardware level, in-store software level and the hosted server level.

What Would Have Been Better for Pay By Touch

Hindsight is always 20/20. But it’s clear the gobs of money raised and multiple business lines hurt the company. Pay By Touch really needed to be run as a small company for a while. Keep the focus simple – ACH payments in multi-lane grocery stores. The company would have run in the red for a while, and needed infusions of funding. But it would have time to work through the operational levers and to bring costs down. Work in concert with the grocers to shift consumers toward ACH usage (e.g. better product discounts for ACH users; higher discounts funded through CPGs’ trade promotion dollars).

Expansion into other areas would come after prudent consideration of what was needed to succeed. One good, but admittedly tough example: provide grocers with lower credit card interchange for biometrics than for mag strip cards due to lower loss from fraud.

Also, this is a company that really could have used the guidance of a traditional VC firm. The hedge fund investors ultimately were little more than silent money. Still not sure why hedge funds parked money in an illiquid, high risk start-up.

It’s Over

So now the remaining Pay By Touch employees are left to find new jobs. Creditors won’t see much of what they’re owed. Merchants have to tear all that hardware and software out of their stores.

But Pay By Touch’s acquired division S&H Solutions will carry on (independently or as part of some other company). It’s got a strong loyalty marketing business and some momentum from SmartShop implementations. And the biometric check cashing business, formerly Biopay, lives on as Phoenix Check Cashing. Good luck Jon Dorsey.

And someday, some start-up might try to do mainstream consumer biometrics again.

I’m @bhc3 on Twitter.

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Facebook Beacon Is Dead. Long Live Amazon Grapevine.

March 13, 2008 by 1 Comment

Amazon has just come out with two new Facebook apps, as reported by Erick Schonfeld on TechCrunch. One is Amazon Giver, which lets friends share wish lists. The other is Amazon Grapevine, which lets you broadcast your activities on Amazon back to the Facebook newsfeed.

Pardon me…but isn’t that the basis of Facebook Beacon? Well, sort of. There are a few differences.

Amazon made this completely opt-in, which differs from the opt-out philosophy of Beacon. Also, product purchases are not included in Grapevine, but they were an important part of Beacon.

Personally, Beacon doesn’t bother me that much. I did not experience the early versions of Beacon with the too-fast notice that popped up on e-tailers’ sites. No accidentally revealing an engagement ring purchase. But there are times a purchase says something about you.

In fact, I think the idea of sharing your purchases with your friends has a lot of interesting potential. I can think of three different reasons people would share purchase information with friends and check out what their friends have purchased:

  1. Self-expression
  2. Product discovery
  3. Friends’ reviews

I’ve mapped those reasons to several different retail sectors.

  • Apparel = self-expression
  • Computer Hardware/Software = friends’ reviews
  • Consumer Electronics = friends’ reviews, self-expression
  • Home & Garden = self-expression, friends’ reviews
  • Sporting Goods = self-expression, friends’ reviews
  • Baby Products = product discovery, friends’ reviews

For instance, I think broadcasting your Apparel purchases is more a form of self-expression. People’s fashion tastes are an extension of themselves. Participation in some sort of Beacon-like program for Consumer Electronics, on the other hand, would be a chance to provide reviews to friends and read the reviews of your friends. And Baby Products would have a lot of discovery and reviews. See what your friends have purchased for their infants. Anyone who is a first-time parent knows the challenges of figuring out what to buy.

But, Beacon is still controversial, and Amazon doesn’t go as far as broadcasting purchases. So for now, we broadcast our ratings and reviews. This is pretty good. I can learn a lot from that.

The only problem is, the opportunities to share this way are still quite limited. Not too many e-tailers are doing this yet. However, Amazon has a rich history of driving innovation in e-tail. It was the early leader in e-tail. It was among the first to set up an affiliate program (Amazon Associates). It pioneered product recommendations.

So now it’s experimenting with the sharing of product-related information on social networks. Probably won’t be long before other e-tailers get on board.

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Slide, RockYou = Live By The Hit, Die By The Hit

February 28, 2008 by 2 Comments

A couple of recent posts discuss the new world of Web widgets, which are small programs which can be installed on a web page, and run independent of that web page. Jeremiah Owyang writes about The Many Challenges of Widgets, while GigaOm believes that Companies Can Make Money with Widgets.

The two best known widget companies are Slide and RockYou. Both have grown exponentially via the social networks, Facebook and MySpace in particular. Their bread-and-butter offerings let users post pictures in slide show formats. They’ve expanded beyond that for other hits, like SuperWall and FunWall.

There’s a quality to their business models that seems to require a regular stream of hits. For the sake of argument, let’s say there are two business models. One is to create products that are enduring, and have an established place in the market. Microsoft Office. Tide detergent. USA Today. Margins (non-software) may be lower, but the stability represents good cash flow.

The second model is to create a regular string of hits. Disney Studios, EA computer games, Donna Versace. Margins are higher, and when you’re on a roll, the money pours in. But it is hard to always have a hit.

Slide and RockYou do have some established hits. They have great install numbers for several of their widgets. But to truly be huge, they’ll need more. I see them as more similar to movie studios than anything else:

  • They need releases that people will want (mega-hits, niche successes)
  • They need distribution of their product (like movies need theaters, DVD distros)
  • They need to monetize (OK, this is where they fall down a bit. People aren’t paying $9.00 to use the widgets).

Slide and RockYou need to be tech savvy. Jeremiah’s post lists issues they have to deal with: multiple APIs (Facebook, MySpace, etc.); changing APIs. They need to have a flair for creating great interactive experiences. And they need creativity to come up with new ideas.

This isn’t to say that they won’t build up a list of hits that transcend the up-and-downs that mark creativity-driven enterprises. EA has a great set of franchises in its sports video game collections. But the pressure to create new stuff is always there.

Slide recently raised $50 million, on a valuation of $500 million. Nice valuation, but the company has some challenges ahead of it. There’s that annoying need to monetize its widgets. Also, unlike reliable movie theaters that need releases, Slide and RockYou are depending on consumers to install their widgets. I imagine they’ll target websites as well – a bit easier and more stable than those fickle consumers.

And just as important, both Slide and RockYou need to set up their creative shops and processes such that a regular stream of potential hits are rolled out. They’ll make their lives easier by partnering with other companies that have “widget-izable” content. Touring through the Slide site, I see TechCrunch, Engadget and HotOrNot with widgets there.

There’s a real opportunity in widgets, but it takes more than throwing sheep at people.

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In Praise of Inertia: MyYahoo Still #1

February 25, 2008 by 2 Comments

Over at TechCrunch, they’ve got a post up discussing the top six personal homepages. #1? MyYahoo. MyYahoo has been around for quite a while. 6-7 years? It’s an oldie, but still a goodie. It’s my homepage.

There are others on the list. #2 iGoogle looms as the big scary challenger. Given Google’s success over the past several years in other arenas, it’s surprising they haven’t taken the #1 spot here as well.

It’s a testament to inertia. Not inertia in any negative sense, like laziness or user ignorance. Rather, inertia as a reflection of human sensibilities and value systems. Something called the “9X problem“.

Harvard professor John Gourville put forth the idea of the 9X problem. The gist of his thesis: “a mismatch of 9 to 1 between what innovators think consumers want and what consumers actually want.” The mathematical term “9X” actually does have a little math behind it. And that math is key to understanding the 9X issue.

First part of the 9X equation is based on our comfort with what we have. Things we already know, things that we have invested time in learning and using, have a high psychological value for us. They satisfy some need. We’ve learned their strengths, and live with their weaknesses. When we compare something new to something we already have, we tend to overweight the value of what we already have by 3X. It’s a little scary to give up what you know.

Second part of the 9X equation is based on our natural skepticism about claims made for new things. This probably resonates for most of us. I know I tend to dismiss most commercials and advertisements. This is a healthy trait of people – otherwise we’d all be getting duped left and right. But it also means that we underweight the value of features for something new by a factor of 3X.

Multiplied together, this gives us the 9X factor.

This is powerful stuff. It means new things really have to deliver healthy gains in benefits. Some examples of “9X masters” come to mind. Google was such a leap forward in search relative to its competitors: very relevant results, clean interface. Apple’s iPod just blew the doors off other music players in so many ways. Honda’s reliability and fuel efficiency were miles ahead of Detroit in the 1980s and 90s.

But there are plenty of other cases where good products failed to dislodge incumbents. Supposedly, many other search engines have attained search results parity with Google. I wouldn’t know…I still use Google exclusively. And so do many others.

So there’s the 9X problem. It’s actually a really interesting concept. If you’re doing a startup, can you do in it a way that does not force someone to give up an existing “thing” they like? That way, you only have to deal with the 3X new product benefits underweighting problem?

9X is really about inertia. MyYahoo fulfills a personalized homepage need: news, email, stocks, sports, weather, etc. iGoogle, Netvibes and others have really nifty options for their pages. But have they delivered 9X the value?

The key is to hook your users. Once you get them, it’s hard to lose them. On that note, how about adding my little blog to your RSS reader? You can remove it any time you want… 😉

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Facebook Fatigue: Ten Reasons

February 22, 2008 by 4 Comments

TechCrunch has a post up, “Facebook Fatigue? Visitors Level Off in the U.S.” It appears the number of visitors to Facebook has stopped its inexorable growth, and even declined in January. This is newsworthy because that’s a real change in the trendline. Facebook has been on a tear the past couple years.

I personally enjoy Facebook very much. I check it a couple times a day, and I have activities and apps I like there. But I see some of the issues that afflict the site. Below are ten reasons for Facebook fatigue.

1. Friend activity junk mail: I love seeing all the things my friends do. I hate seeing all the things my friends do.

2. App invite spam: Yeah, too much of this. There are apps you really like, and apps that force invites. More of the former, less of the latter.

3. Lame apps: I got an email from “Compare Friends” detailing my “highest rated friends”. Inane.

4. Non-friend friends: LinkedIn is great for professional networks. Facebook is really best for friends. Adding non-friend friends reduces your interest in “keepin’ it real”. [UPDATE: Robert Scoble, with 5,000 “friends”, expresses his lost interest in Facebook]

5. Is that all there is? Tons of apps. But the killer activity on Facebook hasn’t yet emerged. Amend that…the killer activity for the new joiners (> 30 y.o.) of the past year hasn’t emerged.

6. Backlash by the under-25 set: For the younger crowd, maybe the growth of the over-30 crowd has killed the cool vibe. MySpace making a comeback? Bebo growing?

7. Backlash on the under-25 management conceit: It’s true that Facebook came from college kids. But too much blah-blah about how they really “get it” sours the older folks.

8. Stop the presses: Is it possible for there to be too much media coverage? Facebook, and its ecosystem get a lot (e.g. Slide’s $500mm valuation). Too much talk about how members are making these companies rich.

9. Inevitable bumps: Beacon. Scoble raising hell over lack of contact portability. Inability to delete your account. Competitors’ responses (LinkedIn changes, MySpace API, etc.)

10. Heat always dissipates: Hard to stay hot forever. Google’s been the closest thing to that.

Let’s remember that Facebook still draws massive numbers of users, and continues to drive a lot of discussion and innovation. They’ve got money and smart folks there. Looking at the list above, several are within the control of the company.

As Mark Twain said, “The report of my death is an exaggeration”.

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Pay By Touch and The Peanut Butter Manifesto

February 12, 2008 by 5 Comments

In November 2006, Yahoo executive Brad Garlinghouse’s email to senior management was leaked to the Wall Street Journal, and subsequently picked up by bloggers. In the so called “Peanut Butter Manifesto”, Garlinghouse decried the “lack a focused, cohesive vision for our company”. The email takes the company to task for having too many initiatives, and for failing to integrate various acquisitions. The money quote:

“I’ve heard our strategy described as spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular.”

In light of Microsoft’s bid for Yahoo, the Peanut Butter Manifesto continues to resonate as an issue for the company. Which brings me to Pay By Touch.

Pay By touch raised a lot of money, a whole lot. And Pay By Touch went after “myriad opportunities”. Here’s a list that I am drawing from memory:

  1. Biometric authentication
  2. ACH payments
  3. Credit card processing
  4. Personalized marketing
  5. Healthcare
  6. Online authentication
  7. Online debit payment
  8. Loyalty card management
  9. Financial institutions
  10. Government
  11. Paycheck authentication

The above are verticals. There were also channel-specific efforts as well: multi-lane retail, single-lane retail, international. So there was a lot going on.

The problem with any Peanut Butter Manifesto company is that:

  • Engineering cannot satisfy all the requirements needed for the initiatives
  • The ability to focus on one area, try things out, make mistakes, correct and iterate is drastically diminished, which kills an emerging technology company
  • Senior management cannot focus attention on the various initiatives for funding, sales and strategic moves

One might wonder how Google pulls it off. They certainly are into a lot of things. Here’s the secret: they absolutely own a market (search & ads) that prints money for them. They then get the luxury of trying different things. Microsoft has the same thing with its Windows and Office franchises. GE owned…light bulbs? Well they owned something a long time ago.

So let’s look at these two Peanut Butter companies. Yahoo is subject to a hostile bid. Pay By Touch is in bankruptcy.

As Garlinghouse stated at the end of his email: “stop eating peanut butter.”

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My First-Ever VC Pitch

February 11, 2008 by 3 Comments

I recently had the opportunity to pitch a VC firm. Hummer Winblad, to be exact. As someone who never thought he’d ever do that, I have to say it was all rather cool. Here are the details:

THE IDEA: Over the past couple months. I dreamed up an idea for online retailers to connect to social networks. I won’t say too much about the idea, because you just never know if it might see the light of day sometime. But I did take the time to lay it out via Google Presentation. That was pretty fun, I have to say. I had all these hack graphics courtesy of Microsoft Paint. Primitive, but it worked.

ASKING AROUND: Once the idea was written down, I needed to find out if it has legs. I didn’t worry about someone stealing the idea or anything. You can’t learn anything keeping the idea bottled up. So I asked a few friends to take a look at it. To my surprise, I got a lot of “great idea” responses. Followed by, “isn’t Facebook going to do this?” The feedback pumped me up, even if Facebook was going to do it.

CO-FOUNDER: I don’t code, can’t code, shouldn’t code. I needed to have a development partner. Well, I met a dev buddy and shared the idea with him. He liked it, and agreed to be a co-founder. So, good feedback from friends, and a co-founder who could actually make the idea a reality. Things were going well.

MARKET FEEDBACK: I talked with two different e-tailers about the idea. Both really liked it. Each had his own take on what he liked, and I was pleased with the responses. Good feedback from trusted friends, a dev co-founder, good response from potential customers. Check, check, check!

THE PRODUCT: Uh…we actually hadn’t built anything yet. Hmm…was this going to be a problem?

THE VC INTRO: I sent a link for my Google Presentation to a contact at Hummer Winblad. I had met with him a couple years ago to interview for a VC associate position (didn’t get it). To my surprise, he emailed back and said he’d be delighted to hear more details. I was thrilled, despite having no actual product to demo.

VC PITCH DECK: I needed to convert my original, handcrafted presentation into an investor deck. This was really pretty easy. First, a couple of VCs have written blog posts about what ought to be in a pitch (here’s a good one). Having spent several weeks researching the idea, the slide contents were pretty easy to pull together. The hardest thing was the financial projections. But even those weren’t too bad. See Glenn Kelman’s post on Guy Kawasaki’s blog for some very useful advice.

THE PITCH: My dev buddy and I arrive early for our pitch. We set up in a spacious conference room with a flat-panel screen. We’re a little nervous, but our attitude is “we have nothing to lose”. The VC runs late. Finally, my VC contact and an Associate arrive. We start the pitch. Good attention, questions are asked, dialogue is occurring. I’m feeling OK about it. Then they ask about what stage we’re at. “Seed. No product built as yet.” At that point, the pitch came off the rails. We were gracefully pointed toward the angel investor route. Alas, no follow-up meeting would be needed.

POST-MORTEM:

  • In this web 2.0 age of free software and services, it’s safe to say you’d better have some actual product to demo. Only well-known successful entrepreneurs could get away with not having an actual product while raising money, and it’s unlikely they would ever do so.
  • The entrepreneurs are the best prepared and most acknowledgeable people in the room when it comes to their idea. VCs can seem intimidating given all the pitches, investments and experience they have, but they’re generally learning in real-time from the entrepreneur.
  • Don’t sweat getting a ‘no’. Is it the idea, the company or the VC? Focus on your own view here. If it’s the idea, what needs to be fixed? If it’s the company, what can improve things (e.g. actual product)? If it’s the VC, there are many others.

So that’s my first-ever VC pitch. I’m noodling on what to do next. The product remains, as of yet, unbuilt.

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Do Bankruptcy and Startup Go Together?

February 10, 2008 by 1 Comment

I just left my old company, Pay By Touch, after 2 1/3 years there. You may have heard about it. The biometric identity company that raised $270 million (or so) and subsequently filed bankruptcy. If you need a refresher, check out the Valleywag coverage. Some glaring inaccuracies, but a decent accounting of the company’s woes.

One thing Pay By Touch is endeavoring to do is emerge from bankruptcy, right the ship and move forward in its business. It’s an interesting process.

Some companies have done the bankruptcy thing, and were able to achieve a certain level of success. United Airlines is a somewhat recent example of such a company. However, is it possible for a startup to pull the rabbit out of the hat?

Having just been through it, let’s examine the effects of bankruptcy on an early-stage company:

  • Customers stop dealing with you
  • Vendors stop dealing with you
  • Existing employees spend a lot of time looking for new jobs
  • Employees leave in droves, voluntarily or through layoffs
  • New employees won’t come near the company
  • Senior management can no longer focus on execution, which filters down to everyone
  • Creditors, investors and management shift, sell or shut down company priorities and businesses, paralyzing most initiatives

An essential element of an early stage company, especially one in technology, is progressing forward on something the team believes in. A friend from college used to say that if you’re not moving forward, you’re moving backward. He’s right.

Bankruptcy robs a startup of the oxygen it needs to live and grow. Not money (although that is important). Rather, the esprit de corps and belief in the big future.

I’ve got a number of friends still there, and I hope Pay By Touch pulls through. What they’re trying to do ain’t easy.

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