Part 3 on how we fundraised US$45M in South East Asia and China, lost it all, killed the round and became profitable in 50 days.
This was a wake-up call. We had to kill the round and face reality. We had to behave like a bootstrapped company. The rollercoaster of the endless pitches and manic emotions of hopes and depressions was over.
Despite the many challenges, we saw a large increase in demand and would be closing the year with 223% YoY and 267% YoY increase in bookings and enquiries respectively. We continued to have our shareholders support and trust. We saw a massive amount of condominiums in Singapore and elsewhere in the region building fancy facilities for their tenants to entertain home. We are convinced the market will continue to pick up further.
We calculated we could scrape by for another 50 days if we postponed payables and stretched every penny. We had some small bridge offers, but didn’t want to dilute further or risk a downward round. This was it. We had to become profitable within 50 days.
The turn-around was painful:
● Priority #1 was to continue delivering a quality experience to our customers. Clients should not and would not be affected.
● Cut our cost by ~75%. We already cut costs in the previous months, but it would take radical changes to deliver such savings. Our main cost was payroll, followed by marketing, office and infrastructure.
● Reduced our headcount. This was hard and felt like cutting off a limb. We had a great team. We kept our team updated every step on the way and had informed them 3 months in advance of the funding milestones we had to hit to keep them on. Several team members had opted to take unpaid leave, or to leave on their own accord. While it didn’t make the redundancies less difficult, at least it did not come as a surprise.
● Simplify our business process. We redesigned our business functions and found ways to offshore and subcontract parts of the process more cheaply. The challenge was that end-of-year was our peak season. The transition had to be managed without interrupting the operation. We secured key subcontractors, moved to a cheaper office and offshored some roles to a new office in Philippines. We focused a lot of our effort in implementing and reinforcing our new SOPs with the team and coaching our offshore hires. We wanted to minimize any transition gaps. Working with a distributed team also meant we had to put in place more controls.
● Finally, we had to significantly re-think our growth and product strategy. We had 5 engineers and a huge product backlog. We re-prioritized our product log and really doubled down on those priorities with a renewed sense of camaraderie.
The turn-around was painful.
We managed to become profitable within 50 days. Our emotional gas tank was empty. Those 9 months of fundraising and turnaround became the most humbling months of my professional life. It is never easy to admit defeat, especially when you come so close to a key milestone that could help you realize your vision as a founder.
Since then we’ve given up the scale-at-whatever cost approach favored by VCs, and focused on building sustainable revenue and profit. We learned to say no to anything that deviated from that focus. With an industry that is bracing itself for recession, we already have the business disciplines in place to weather a storm and are confident we can continue on our customer promise of quality.
The new approach has been paying off and we’ve been turning profit for the last 6 months.
The legendary VC Vinod Khosla, likes to use the following analogy: “So think you’re at one of these British roundabouts with six roads going up in six different directions. Once you take VC money, they’ll force you to take a road, a plan that you execute on. I like to say keep going in circles around this imaginary roundabout trying to scope out what is there in each of these paths, even do a small forex, trying things in that area, seeing what works.”
We are tolerant to exploration, as long as it meets our underlying profitability target. By circling the roundabout, we are already uncovering new opportunities. The outlook is bright.
Lessons learned: 50 days to profitability
- “Everyone has a plan, until they get punched in the face” (Mike Tyson). Hindsight is 20/20. We could have done a lot of things differently, not in the least cut out more costs earlier and continued optimizing the business. But for some things, you need to be punched in the face before you act. In high-growth startups, there is a constant balancing act between optimizing the operation and hustling for more business. Only the founders know where to strike the balance.
- Put your customers first. We had a rare opportunity to redesign our company from the ground up in 2 months. In reviewing each process, we asked ourselves how this could be simpler and more customer-friendly. That mindset has helped us deliver a better experience with fewer overheads.
- Fire the right way. I don’t think there is an easy way to fire people. But there is a right way. Treat people with dignity, show compassion and take your responsibility as leader. A lot has been written about ‘hire slow, fire fast’. In our case, this was a structural workforce reduction and had less to do with individual performance. Nevertheless, we took the time in 1:1 discussions to inform each of them during the fundraising process of the potential risk for their job; and during the redundancies we had individual exit talks.
- Treat your investors like family. When the shit hits the fan, you need to have supportive investors to get through things. Choose investors that believe in you and be honest with them every step on the way. It sounds rather obvious but I am always surprised to see how many entrepreneurs accept money from investors that they don’t really have chemistry with. An investor is not like a landlord, you can’t change them at the end of the year!
- Know when to get rid of your funding addiction. In the tech startup world, funding is glorified. Funding is incredibly invasive as an activity and should only be a means to an end.