My very first “real” job was working for a technology startup in Portland. I was employee number three and to this day, my time spent there remains one of the most exciting and rewarding career experiences of my life, even though we failed. I’ll get to the failure part in a bit.
First, allow me to set the stage: Portland’s Old Port in the mid to late 80s was an exciting place to be. The cobblestoned streets were lined with eclectic shops, upscale law offices, real estate development firms, cool startups, and great, I mean really great, restaurants. Remember, this was a time when credit card interest was still a tax deduction so two-hour power lunches were common. (Heck, Happy Hours started at 2:00 at some bars.) Word Processing typewriters sat on desks along with intercom systems and if you were an early technology adopter, you bought a computer from a value added reseller like Valcom.
Our company had developed an early barcode point-of-sale application with an inventory control module called It Works. Four investor/partners, and the developer, launched the company in 1986 and by 1988 we were out of business. At our peak we had a hip Old Port office on the third floor of 5 Moulton Street and a well-stocked beer refrigerator. We often joked that it was “happy hour somewhere” as we popped beer caps, but that’s not to say we didn’t work hard because we worked very hard.
Since working at MCED for nearly five years now, I’ve had the pleasure intersecting with many startups; I often find myself reflecting on the lessons I learned from working at a failed one and am struck by how relevant they still are today. Here are a few things I learned from the experience:
1. Slow down and get it right first.
We came out of the living room too quickly. I totally agree with Steve Blank’s teaching that you should talk to customers early on but we sold to customers too early. We had installations at Sunday River, Joseph’s clothing store and Colonial Shoe. Customers led to needing an office, having an office meant hiring staff, having overhead created sales pressure, adding customers prematurely led to technical problems with the product- which ultimately meant less time for R&D and more time putting out fires.
2. You might survive one bad decision but not a series of them.
We decided a second programmer was needed to get us back on track because our lead developer was now spending several days away at Sunday River. To offset this added salary expense we became VAR dealers for hardware and started selling a couple of software packages. The hardware solution wasn’t terrible but the market was still small and selling hardware created the need for more storage (read additional office space) and a hardware guy. Ca Ching!
3. Know thy customer.
In an effort to generate more revenue, we chose to sell the Ventura Publishing suite and a restaurant POS system called Digital Dining. We sent a couple of employees to a very expensive conferences and trade shows to learn and be able to sell the products. While we were correct that desktop publishing was going to be a game changer, had we done our homework, we would have learned that 99% of the tiny desktop publishing market was using PageMaker and significant sales were still years away. Plus, the few customers we did manage to land required a lot of technical support. Ca Ching!
Even though Portland had more restaurants per capita then any other US city, most of them were small 40-seat places that purveyed daily, paid employees under the table and ran cash operations. Restaurant owners didn’t care about inventory control or time card management features and the big players like DiMillos and the hotels were all happily adapted to a biggest player in the market, Remanco.
4. Hire a CEO ASAP!
We never had CEO. Each partner had an area of expertise, two lawyers, a sales guy, and an established business owner and though not a partner, our lead developer was a shareholder. It has been said that unreasonable founders sometimes get in the way of good execution and that was definitely at work. We were leaderless, lacked a core sales strategy and never fully developed a business model. Desperation gave way to unsound business decisions. A seasoned CEO would have made the difficult choices earlier on that would, most likely, have resulted in layoffs but perhaps the ultimate survival of the company.
5. Wall Street matters.
Nothing sours a startup like drastic market dips and on October 19, 1987, Black Monday, two of our partners lost a great deal of money. Although the crash of ’87 proved to be less of a drag on the economy then predicted, the feeling of not having a safety net weighed heavily on us and within a few months the layoffs started. The office closed later that fall and in early 1988, the dissolution process had begun.