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Too many hands spoil the fudge [a post-mortem]

My first “real” company was founded in 2002 along with 3 partners, all colleagues at the company where I did my internship (a couple of months before I graduated). We started with a grand total of $8k, which basically compromissed all my savings back in the day (the other partners contributed with some computers, a couple of chairs and mom’s car). Being four partners with equal distribution was both our best and worst decision: on the good side, we had very clearly defined responsibilities from day one (I took the commercial role, the most experienced of the partners went for the tech & infrastructure and a third took care of daily operations). The bad side of that equalitarian division proved to be one hell of a problem…

The company was focused on developing mobile solutions for enterprise customers, the leading piece being a sales force automation software for Palm devices (bear in mind the Palm III was the top-notch device at the time!). Services such as salesforce.com were still on their infancy, the term m-commerce had just been coined and the market was ripe for disruption. Better still, we had a well functioning product (which I had developed during university time) AND a paying customer. The sky was the limit - except we decided NOT to fly.

Fear, the mind killer

It was all poised to happen, if not for two crucial details: being located in one of the poorest states in the country put us in a very though market for growth. That wouldn’t be so much of a problem if we followed the obvious formula popularized by outsourcing firms: develop the product where it’s cheap and sell where the money is. But there was one small problem with that approach: most partners were absolutely scared of the “big city” (it was Brazil after all - the country where people get shot in the streets… At least according to the news). Plus, we’d require more money to pull that stunt, and although we were selling reasonably well, the money was barely enough to pay our bills.

To make things worse, one of the partners had wife and kids, while the other was on his way into a marriage - as it were, two thirds of the company “decision men” were all about staying where we were and growing like a “family” business (and I didn’t have a dime to invest anymore). That crucial decision played a huge role on gluing the company to the ground when we could (should) have spread wings and flied with all our 20-something strength. Ultimately, we could never reach an agreement to what level of risk each of us found acceptable. Staying local was the only possibility of the moment, so we had to figure out a way to make it big. And that meant selling A LOT of licenses.

Slow revenue

Interestingly enough, a change in the business model never even crossed out minds: we sold monthly per-device licenses - a model that scales very well if you have a great number of devices floating around. Problem is: the vast majority of the tech team’s time was spent on integrating the system with all sorts of different back-end software - and we did that basically for free. And then, given the small size of the average local firms, we rarelly saw more than 5 or 10 licenses per customer. The rational was that “licenses would bring in a lot more money in the long term”. Why we never even considered a more consulting-style approach is a total mystery to me. I promissed myself never fall on this “SaaS trap” again (which I promptly did, years down the road. Ouch.)

Joining the adults

Given everyone’s reluctancy on taking larger risks in a larger market,the only decision that stuck with all the involved was “to try something bigger, but locally”. We would “try the big city once enough money rolls in”. But what huge customer would we be able to close in the middle of nowhere? Well, the government, of course!

Being the government in question one of the most corrupt in the entire world, it requires but a sidenote to guess how much of a risky path that was. Government was (and still is) the biggest buyer of tech in e entire country - problem is: how do you actually get to sell without having to resort to all sorts of dirty tactics, and after that, how do you actually get paid.

The project in question was huge: we proposed replacing all the paper forms used by itinerant doctors in every city of the state with handheld devices, with all the data consolidated on servers and automatically synced. The savings alone would be enough to justify the upfront cost: the entire health program costed a few millions per month to run, which included a gazillion tons of printed paper forms per month, a huge team of typists, transport crew to move paper boxes around and, of course, the ancient system used to save all that information on an old, dusty box in the server room. The negotiation (which included a couple of gov agents basically asking to “keep a few Palms for themselves as a gift”) was surprisingly fast, and soon enough, we got the contract. A thousand devices. A THOUSAND bloody licenses. But first, we needed to finance all that with the bank - we’d be paid in a couple of months, right? They even ran TV ads and billboards with our product on them!

Then came elections, and the government changed. Our contract (and everyone that ever heard of it) vanished. The devices themselves (I can’t recall wether we got to buy all the thousand ones) disappeared. We were back on square one - seeing any of the money invested back would take a long and litigious process (one which I didn’t stick around to watch).

Throwing the towel

After two years of struggle, the company was still not making enough to sustain the team. The gov sale fiasco took all my hope with it. A final event came as a sort of “divine answer” to my question to whether or not I should jump ship: while going to one of the final meetings that would close a much more favorable deal on the gov project, one of the partners (driving like a suicidal maniac) blew a couple of traffic lights, then got hit full force by a crossing car. I took the majority of the impact, and although not even a single bone was broken, surviving the 3 rows and exiting the crashing car only worrying about the laptop and the meeting we were to miss got me thinking that was not a path I wanted to keep trailing.

After these events, I gave away my share, leaving with a 15k hole in the bank, and moved on to pursue an entirely different product we were already cooking up at the time. We’d make it big on games…

To some people’s surprise, the company is still alive and well. Not surprisingly, though, it never made past the local market: it’s now a stable little software house, feeding two partners and a couple of developers. Of our competitors at the time, two got sold for very large figures and one became a big market leader in the country.

My takeaways from the experience: picking the right partners will make or break you. Having the guts to risk it all is key, specially if you’re sure the market and timing is right. Never bet all your eggs in a single omelette.