Adventures with Lyrical: Buying a Business (REPOST)

It’s been a few years since I posted in this thread. Re:

Tmac said:

Currently I have two businesses that are about to merge with a larger company that specializes in REIT's and TIMO's. One company is TU, which is currently getting a facelift and should have a new design in two weeks. The other is LL, which should be out by the time the good Lord returns, because my programmer (php) has over committed himself.

TU addresses the issue of helping educate landowners in proper timber management and sustainability, while also connected them with reputable timber companies (also an issue in the industry), while Logger Log is a smartphone app that tracks timber from the landowners property to the mill and updates all of the essential data in real-time.

TU is in it's infant stage, so any advice/help in the SEO department would be greatly appreciated. LL should sell itself and with the connections I'm getting with the larger company, I'm not really worried about getting the word out.

I'm at the beginning of this journey, as these are my 2nd and 3rd ventures. My first waswww.realcreate.com, but that burst with the real estate bubble. Timing as they say, is everything.

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tl;dr - This year we’ve done $147,000 in sales and if nothing changes (meaning even if we don’t add a single customer) we’ll do a little over $350,000 in sales next year. And we’re currently in talks with another company that wants to test it with one of their crews, which would push our sales to over $1,000,000 next year.

PART 1

To give some context, LL is enterprise software for the timber industry and at this point we’ve spent over 4 years pursuing it. We spent the first 3 years with one guy and pushed out a web app and two android apps, which eventually sputtered, and 1.5 more years going back to the drawing board, raising startup capital, and doing things “the right way”.

In the quoted post I mentioned that our developer for LoggerLog had overcommitted himself and was moving slowly. This trend continued and really never remedied itself. I think this occurred because of two major issues that I’m sure most startups make:

1. We hired poorly
   1. Our developer already had an app on the market that was bringing him cashflow, so he didn’t need our app to be successful. He was already content and that’s bad.
      
   2. We traded him equity up front in exchange for his time, which created a huge issue six months into development, where he was less-and-less motivated to work. He was already vested and wasn’t getting paid, so it’s understandable. Giving up leverage up front is bad. Don’t reward people for doing nothing, reward them for doing good somethings.
      
   3. He was a back-end-only guy, who tried to wear the designer hat, didn’t ask for help when he needed it, and made way too many executive decisions. He was sort of a loner who didn’t work/communicate well with others. He was a super nice guy, but lacked process.
      
   4. He didn’t develop on a framework, which bit us on the ass over-and-over again. Spaghetti code is bad.
2. We didn’t spend enough time planning
   1. I took our developers word on a lot of stuff and chose to be lazy instead of being diligent and checking up on him and his work. This was exacerbated by his lack of willingness to communicate and propensity to get red-faced if he was questioned.
      
   2. We didn’t integrate the design/development process until later in the dev process, which should’ve been done up front. It also tangled up in our hire, where our developer refused any changes and took any suggestions as a direct insult.Which, ultimately left us with an interface of Frankenstein proportions.
      
   3. Scope creep. When you don’t have a design and someone’s building software based on assumptions and what you tell him, you’re going to have scope creep. You’re going to have some much mf’ing scope creep you’ll think it’ll never end. It won’t.

The first mistake lended itself to the second mistake. I still remember the day we met with our developer for the first time, presented our site-map and a simple user-flow, asked if he had any questions, and he responded, “Nope. I got it! I’ll get started right away.” I still remember being shocked and confused by the response. “Really? You don’t have a single question? This is pretty extensive software…” I do, however, remember my dad being impressed and excited by the response, which I think was due to his lack of knowledge around software design/dev more than anything.

This sort of shoot-from-the-hip attitude quickly became the norm and about a year later we were trying and failing to onboard our first customer. I think it was around the Summer of 2014. My dad and our developer went to meet the customer in person and get him started. Everyone was excited and I was waiting to get a phone call talking about a successful launch. To make a long story short, our developer couldn’t even get him signed up. To this day I cannot comprehend how this even happens, but I’ll point again to #2 on the “major issues” docket.

About 6 months prior to this we’d totally redesigned the site and hired a front-end guy to come in a put the UI together. Before this, the software was a total clusterf*^$ and nearly impossible to navigate, so it was a necessity. I spent a lot of time with a designer getting everything right and then again with the front end guy to get it translated. Once we got it into the hands of our developer, he totally half-assed the integration. I was pissed.

When I called him on it he was legitimately shocked. I couldn’t believe it. He insisted that he’d done his best, wasn’t a designer, wasn’t a front end guy, and had been left holding the bag to get everything done and out the door. Mind you he never asked for help or direction during the integration, did it all in one foul swoop, and then cried foul when I got pissed. It was at this moment that I knew we were fucked. I guess what I felt is the same thing people feel when they realize they’re in a shitty relationship for the first time.

If I questioned his design choices, he’d get mad and say he wasn’t a designer. When I presented him with designs, he’d half-bake them into the software no-questions-asked and then get mad when I questioned them. The weirdest one was the whole design thing, because he would insist he wasn’t a designer or a front end guy and then lose his mind if I was critical of design choices or front end dev. Anyways, I realized that this was a bad cycle that was only going to repeat itself.

After the failed launch, I upped my cries for parting ways with the developer, which had only been subtle suggestions up until this point. It probably took 3-4 months for my dad to get onboard with the idea. You see he’d been the one going to the developers house everyday to motivate him to work, make sure things were getting done and hold him accountable. I’m not shitting you. My dad went to his house everyday, because if he didn’t, nothing would get done. Work only got done when my dad was there.

My dad didn’t want to split with the developer, because he felt like we’d come so far and actually and had something going. I mean we had an MVP of sorts and people wanted to use it. It kinda drove him crazy that it was always so close to being finished, yet so far due to design flaws in the system. I told my dad, as many times as it took, “Look, I get it. We’ve come a long way and we kind of have a system here, but we tried to launch it with someone and he couldn’t even get them signed up! What’s going to happen the next time? Why would we expect things to go differently when nothing is going to change? If we don’t do something different we’re going to hurt our reputation.”

My dad’s fear did have a point. The longer you take to release something, the more opportunity there to lose that opportunity. But, the risk to move forward with our developer was too great. So, we split ways and started looking for funding. For what it’s worth, on top of the total shitshow that our dev cycle was, our developer was going through a divorce, so I’m sure that added to his woes and created issues that wouldn’t have otherwise existed.

When it was all-said-and-done I think we were out $20k over a couple of years, which isn’t bad. And we also had a really good idea of what we needed to do. We’d built a couple of mobile apps based on field tests and they were really good prototypes. We’d also attended a couple of big industry meetings in 2013/2014 to get a feel for demand and there was definitely a growing need for what we were building.

PART 2.1

In December 2015 we raised $70,000 from friends and family. We got $50,000 from one of my dad’s friends in the industry and $20,000 from my uncle. Having learned a few lessons from our previous experience, I went ahead and redesigned the software up front, so that we’d have something to give our new developer when we found him.

I spent about 3 months working with a buddy on our previous software to turn it into something better. The biggest challenge was that I didn’t have anything to use as a base, because our previous developer refused to hand over the software, kept the domain, and was obviously super uncooperative. So, we had to use our previous designs and make assumptions about how the minute details worked. I actually own a software design/dev company as my main gig (which was my main context for knowing our original developer was a baddy), so I started reaching out to some designer buddies to see if they knew any Ruby developers that they’d recommend. I eventually got connected to a guy I’ll refer to as The Unicorn and he was interested in working with us.

He promised to work for a couple days a week at $150/hr and figured he’d have our app up and running in about 6 months, which he did and it was. So, by June of 2016, we finally had a functional MVP with a decent UI/UX. It was a pretty cool feeling to see it working and to have it be a relatively painless process to get it there. Especially considering how hard the past couple of years had been. The Unicorn did a bangup job and there was really only one occasion where scope-creep became an issue.

We took a booth to an industry tradeshow in July of 2016 as a sale’s maiden voyage. We got a ton of looks and probably left with about 10 good leads. I was pumped! As we were walking out the door at the end of the two-day conference, a congressman came up to my dad and said that his company might be interested in taking a look at what we had and wanted to setup a meeting. After weeks of post meeting back-and-forth, we set a first meeting for December 2016.

Nothing really got done between July 2016 and the meeting date, because at that point we were out of money and none of the leads from the conference had panned out. And with no money in the bank and no customers to get feedback from, we just sat and waited.

PART 2.2

Actually, I take that back. After seeing the feedback and buzz the software generated at the conference The Unicorn got interested in becoming vested with our company. So, we had a conversation about what he’d be interested in doing to become vested. We eventually reached the agreement that he would work at half his hourly rate ($75/hr) and use the other half to generate equity and become vested after 2 years or 5% equity at a $2,225,000 valuation.

Around this same time one of the largest companies in our industry (a company that had plans to test our software with 15 of their crews) got acquired for like $9b, which ruined a great opportunity for us. They had a great culture and would’ve launched us into orbit, but it wasn’t meant to be. Womp womp!

PART 2.3

By the time December finally rolled around I was beside myself with anticipation. One full year had passed since we’d raised money to get this thing going and it was moving at an agonizingly slow pace (we hadn’t raised all that much money after all).

Without getting too deep into the weeds the meeting went really well. The company we met with is probably the most reputable in my state and are to our industry what Air Jordan’s are to sneakerheads. They loved what we had and it was a super encouraging meeting. For whatever reason, they wanted us to come back again in February and present our software to their whole organization. They’re owned by some of their employees and wanted to get feedback from everyone involved.

So, again nothing happens for another two months and we revisit the situation in February. This time the meeting went even better and their employees were even more pumped about the software than we’d thought they would be. We had a post-meeting-meeting with the principle owner to talk shop and the details. I told him it’d take us about six months and $107,000 (will probably end up taking $25k) to customize the software for their company and walked out the door with a $17,000 check.

As a side note, I actually could’ve walked out of there with nothing, but after we shook on the deal he said, “Alright, well I guess we’ll just mail you the check.” To which I responded, “Could we just get a check right now,” and he smiled and nodded. Leaving with that check made it feel 10x more real for me and The Unicorn. Asking that simple question was a huge lesson for me--you don’t get what you don’t ask for.

After The Unicorn came on board we attended most meetings together, because my dad became less involved. This was less of a proactive decision and more the result of me making myself more involved.

We immediately cranked back into gear and got an iOS app designed, developed, and started working on the MVP again.

After such positive meetings in December and February it kind of threw me off when the owner of the company stopped being responsive. We didn’t receive our next check in March and it took me being super pushy to get a second check by April. In May, we pretty much stopped working again, because we weren’t sure where we stood.

To make a super long, drawn out, and agonizing story short. The owner of the company had been super preoccupied with other businesses he owns and had told the employee-owners to take the reigns, but they didn’t, which left him on the hook and out of touch. Ultimately, in June of this year we secured the rest of the money ($107,000) and plan to launch with 30 of their crews in January 2018.

By this time a year had passed since our last state tradeshow and it was time to attend again. This time, with a real customer in our books, I had way more confidence and the conference felt a lot more fun than it had the year before. I’m not going into too much detail here, but during the 2016 tradeshow I was super stressed out and hated it. I think it was in part, because of the pressure to have the software pay off and part due to the fact that I don’t really like the idea of “selling”. However, when you get your first reputable customer, selling starts to feel a lot less like “selling” and a lot more like you’re providing people with something they NEED.

After the first day of the conference, I ended up at the bar of our hotel with a couple other vendors who I’d befriended from previous events (one of the clients from my other company is in this industry, so I’d run into people here-and-there). The bar closed around 10:30PM and we were some of the last people in there, so we decided to call it a night to get ready for another early morning.

The only other people in there were two dudes sitting at the bar and as soon as we got up to leave one of the bar-guys yelled, “You guys want a water moccasin shot?” We replied, “No, it’s getting late and I think we’re gonna go to bed.” Bar guys responds, “What are yall? A bunch of pussies”? We all look at each other half-laughing, and shrug, and walk over to the bar.

We take water moccasin shots and then some other kind of shots. Apparently this dude has been tipping well, because the bartender is happy to keep the bar open. Somehow, because things started to blur, it comes up that I have some software, so he starts describing the software he wants. I’m shocked. He’s literally describing one of the first smartphone apps we built that got rejected by the industry, because it was too future forward (basically everyone we showed it to said it wouldn’t work because reasons). I laughed and said, “Dude! I built that two years ago and no one wanted it, so we had to start over.” He slapped his knee and said, “Well I want it! How much can I get it for?” I pitched him my starting price and he immediately countered at half, which is what I actually wanted, and responded, “Deal!” We shook hands and he proceeded to tell us the most ridiculous and hilarious stories I’ve ever heard in my life.

I walked back into the hotel room around 1AM and woke my dad up carrying on about the deal we’d just struck up. He had been asleep, but woke up laughing because I was being ridiculous, due to the excitement (shots).

The sales cycle on this deal has been exponentially shorter than the first and we’ll be launching with them tomorrow. They fronted us $40,000 to get the iOS app they want developed, but will use our standard system until March/April 2018 when I think we can get the app done.

So, this year we’ve done $147,000 in sales and if nothing changes (meaning even if we don’t add a single customer) we’ll do a little over $350,000 in sales next year.

We’re currently in talks with another company that wants to test it with one of their crews, which would push our sales to over $1,000,000 next year.

a_skeleton_03 said:

Tmac you should post that to r/startups as well if you have not already.

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I'll try to do that in the next few days. Will the title I give it effect the traction on this kind of post?

a_skeleton_03 said:

Not really, I would just label it some kind of success story, people there love these kinds of reads and someone might reach out to you with business or something. You would be surprised.

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After 5 Years of Fail, I Made $147,000 in Two Months • r/startups Here ye go

Shonuff said:

We've been making progress paying down the principal on the business. Only 39k more in extra payments to go. We should get there in the next 60 days. We've been paying the loan off by 2 to 5k a week. I'll be so glad when I'm not being choked by the business loan.

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Have you changed your opinion on carrying debt? Obviously, you have a line of credit, but I remember paragraphs you would write citing MBA School X and how awesome debt is, but it sounds like your tune has changed, at least in regards to your original loan. Maybe?