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Navigating the depths of nearly failing to profitability, Part 1: A Brewing storm

Andy Cook on March 8, 2018 · 3 minute read

How we got ourselves into this situation

Welcome to our four-part series chronicling our journey from nearly failing to profitability. If you’d like, you can start with our introduction to the series or subscribe for future parts.

Startups are born from optimism, so you never anticipate being in a situation where your company is about to fail.

In fact, you have to believe in yourself and your idea so much that you decide to quit your steady job and sacrifice security to do the near impossible of building something successful from nothing.

That’s just what we did in October 2015. We left our jobs at HubSpot to build a wiki people would actually like to use. We originally planned to bootstrap, but along the way we realized there was a big opportunity for a product like Tettra. So in the spring of 2016 we raised an angel round to make that vision a reality.

We planned to take the “traditional” path of most startups:

Step 1: Raise an angel round
Step 2: Raise a Series Seed → Z from VCs
Step 3: Go public and profit.

So after a year of burning through most of our angel funding, I started to execute on the second step — pitching seed-stage VCs. During those conversations, I got all sorts of feedback…

  • “This market is too small. Sure, you can probably build a business, but not a $1B business. We’re on the hunt for unicorns here.”
  • “You’re too early for us. We’d like to see more traction. Keep us updated and we’ll talk again when you’re further along. But if you get an offer definitely let us know because we might be interested.”
  • “How are you getting customers? How are you going to grow this thing? What are your thoughts about hiring sales people? What’s on the roadmap? Oh, by the way, we already invested in a company in a similar space to this and we’re over-indexed in this market.”
  • “You’re product isn’t truly [differentiated/defensible/disruptive/innovative/magical]. I don’t see why this is 10x better and why customers will switch. Yes, I know you have customers and they’re already switching from competitors, but I can’t see how you’ll get them all to switch and be the winner-take-all in the market.”
  • “Great talk. We’re interested. Let me sync up with my team and we’ll get back to you with next steps.” (Three weeks and a few follow-up emails later, no response)

The specific reasons investors gave didn’t really matter. They all meant the same thing: No. It was pretty clear to me by June that this round wasn’t going to happen.

There’s a silver lining here. Trying to answer all these questions really forced me to face reality about our progress. Our efforts to grow our acquisition channels weren’t amazing and the ones that did get some traction were neither scalable nor repeatable. Our sales process required a ton of handholding for customers that weren’t willing to spend enough to justify the cost to sell to them. Our MRR growth rate was trending down with each consecutive month.

In the end, we couldn’t build a repeatable, scalable business model that was compelling enough to raise follow-on funding after our angel round. The traditional venture-capital-funded startup path wasn’t going to work for us.

Rejection is a sobering experience. When your company’s about to fail, you look back on the journey and ask yourself, “How did we get to this point?”

As the CEO and person who’s one job is to make sure you don’t run out of money, the weight of failure feels especially heavy. We had built something that thousands of customers loved and paid us for, but we were heading towards failure anyways.

The death clock ticked on. One more strike ’til midnight.

So what’d we do to get out of this mess? The story continues in Part 2: Righting the ship. It’s coming soon, so subscribe to get notified when it’s published.

👋🏾 CEO at Tettra. Tall & bearded. Loves cooking, reading, learning new things and helping others. Previously worked at HubSpot and cofounded Rentabilities.