I had coffee with a young entrepreneur that I've become quite a fan of. This particular entrepreneur, age 28 (best guess), started his company almost 2 years ago. His business originally was an online marketing and promotions company aimed at the college market. After about 6 to 9 months, he realized that business wsn't going to work and started to marketing and promotions on twitter. His business has continued to evolve -- as it should. I met him about 4 onths ago and he was "rudderless". He didn't know what he wanted his business to be when it grew up. He came to the coffee with a piece of paper with 5 very different strategic opportunities on it. The common theme: all were based upon twitter. He was thinking about customer service, lead generation, and marketing business all using twitter. I told him he had to decide what he wanted his business to do.
Well, at yesterday's coffee, he articulated for the first time a business that could be a business. Since the last coffee, he's met with lots of customers and gotten input and has figured out what he thinks he could sell NOW. He's realized he needs a "need to have" not a "nice to have" product. I don't know if he's right but it sounded directionally credible to me. That's Good. He knows what business he's building.
And now is where startups become hard. He's tired and his cap table is a bit upside down. He has 2 other people that have been working with him. They've taken little to no salary for 2 years. They raised an initial 300K but most of that is spent. They now spend 10K per month in total expenses including salary for 3 peopel (if you call it that). I told him founder weariness starts to set in around the 2 year mark and really kicks in around the 3 year mark. I told him it's a bit like what happens in marriages around the 7 to 10 year mark (for me it was 10 years). Things get REAL and get hard. The fantasy and dream of starting a business give way to the reality of no salary and limited success. This is when most people either push through or bail. He seems prepared to push through but....
His cap table is kind of upside down. He's raised 300K in a convertible note that assumed he'd raise a venture round in 12 months. Well, the venture round never came. The 300K is all from family. His dad recently agreed to give him 50K more into the same instrument. The problem is that when he makes traction in his new business and goes out to attract money for it...he's going to either get massively diluted himself or need to deal with those shareholders and cram them down.
I had a lot fo respect for him. I hope he succeeds. It's stories like this that are the real startups. We all dream about building the next Facebook, Google, or Twitter-- but mroe often than not success comes more slowly and with greater challenges and difficulty. Start ups are hard. They're not for the faint of heart. And capitalism isn't kind.