We started working hard at creating our brand. Logos, webdesign, website copy, flyers, and SEO. We divided our time equally between these tasks and selling the product. We were headed to profitability in short order.
I quickly learned my cofounder was over his head in personal debt, and could no longer work full time. Some of our borrowed money went to him to try to keep him around for a couple of extra months ($1,200). It didn't work and he had to get a job.
We've been floundering back and forth, spent the majority of our money, I invested another $1,000 to help us make one more sales surge to allow us to dedicate more time. We planned to see if this startup would work, setting a sales and spending goal in under 60 days. Success and we continue, failure and we cut our losses.
We planned to make it happen starting next week.
Friday afternoon I got a call from a business owner in another state, telling me that our business name infringes on his trademark for his business name. Our name would be mycompanyname to his companyname. We had only checked and seen that companyname.com didn't exist, we did not check the trademark database.
At this point, discouraged, unable to afford new marketing materials and a complete redo of everything we've done so far, we're left with little money and a threat of a lawsuit if we don't change everything.
Here are the mistakes that I made, and will learn from:
1) Learn about the financial position of any cofounder. A cofounder's personal situation will hugely impact his/her ability to grow the business.
2) Investigate any trademarks or copyrights on any of your branding or naming. Wasting time in a bootstrapped business will ruin you.
3) Have a plan. Not just a mental plan, but an actual written plan. Decide what is required of the cofounders, decide where money will go, decide your failure point.
4) Be prepared to drop the project, or go it alone. Putting all of your eggs in a basket carried by your cofounder can lead to disaster if you aren't prepared to run with the project yourself.
What other lessons can I learn from this? Where can I improve so that my next project doesn't fail in similar fashion?
tldr: My business failed because I made mistakes in timing, my cofounder, and business branding. What else can I learn from my experience?
EDIT: After a few comments, and an e-mail, I should clarify that this is not necessarily a web-startup or app. It's a business targeting seniors (hence the flyers, which were placed in senior centers and used at senior health conferences). My cofounder came into the picture as the one with more experience working with the senior market. We had suppliers for our product, so our main focus was to sell, sell, sell. So, to add another lesson:
5) Cash in a small bootstrapped company should be spent on client acquisition. Not on whiteboards, office refrigerators, business cards, or flyers.
Thank you for the encouragement.
$5,000 is less that the price of tuition, and I've definitely learned more than I ever did in a semester of college.
If you don't care or mis-interpret my "being friendly" as "I don't really care", well then its your own fault (and cost).
But claiming that anybody serious would immediately run for a lawyer is... well, a really pessimistic view on society.
>> "We will take such steps as the law requires."
Yikes! How about "thanks for telling me, I'll check and get back to you, maybe we can find some level of agreement."
Edit: US Registered Trademark search: http://www.uspto.gov/trademarks/index.jsp
The other business owner has said they've pursued other trademark suits in the past. He said they've found that approaching by phone first has been a more pleasant way for them to solve problems than first sending a C&D (I'm sure, if for no other reason, than to save on lawyer fees).
So you're saying I should wait for an official C&D? I have little doubt that he'll send one. But I should wait until I actually receive it.
There are tests that are applied. Also, simply having a similar domain name may not be a problem unless you're directly competing with the guy or you're passing off. There are many limitations to trademark.
One lawyer has said that we are definitely infringing, while another said that there may be some leeway. However, the trademark holder is in the exact same market as us. So many of the limitations you mentioned don't affect his ability to defend against us.
The bright line standard for trademark lawsuits is essentially "would a reasonable person mistake your brand for your competitors?". In this case, based on what you have said here, you have taken your competitors name, and added "my" in front of it. So most reasonable people would conclude that it is highly likely someone will mistake your competitors brand for yours.
If you were in a completely different industry than the similarly named company, then there would be some wiggle room, because you could argue that even if someone was initially confused about the two companies, there is no possibility for them to buy your product thinking it was the competitors. However, you are in the exact same industry, so the likely conclusion is that the customer will be confused and likely to buy your product thinking its your competitors.
Unfortunately, the domain name issue is irrelevant in the face of trademark law. In fact, as has happened with many other infringement suits, it is likely that if you lost the lawsuit, you would be forced to transfer the domain to your competitor.
Lesson #2: at the age of 24, if you don't have even $5,000 worth of savings that you can afford to blow and need to borrow that amount from family, you should probably take a step back and think long and hard about your financial priorities. Depending on your location and your education and/or skills, you can probably earn $5,000/month, if not substantially more, working for someone else. Yeah, that's not as cool as starting a business, but opportunity costs are greatest at your age. What's really not cool: wasting away your twenties and having nothing to show for your efforts once you hit 30. Sure, everybody in StartupVille is always one venture away from a big exit or a $100,000/month business, but when you go to conferences and meetups and see thirty-somethings who have no net worth because they've been swinging for the fences since they were 20, it isn't pretty. Bottom line: at your age, in the absence of substantial existing savings or alternate sources of income (a trust fund, etc.), working on anything that requires you to "work for free" for any length of time is likely to be really, really harmful to your finances in the long run.
I went to college from 20-24 (I had worked for a gap year before then), took about 6 months off to finish a volunteer project I'd started in college, worked for another 2 years, took another 18 months off to work on a startup (that never made any money), and then have been working since then. I just hit 30. My social security statement looks like $money, $0, $0, $0, $0, $money, $money, $0, $money, $money, $money. Except that each time I hit $money again, the amount is double what it was before. My net worth is doing fine - if I didn't live in the Bay Area, I could probably buy a house free and clear in most parts of the country.
Your 20s are the best time to take financial risks. After you get kids and a mortgage, you have responsibilities that really do make it difficult to spend any length of time without an income. But in your 20s, you can live cheaply, you don't have anyone depending on you, and you're still figuring out what you want to do with your life. Taking some time off from the corporate meatgrinder can pay some big dividends in increased skills and self-knowledge that make it more than worthwhile later.
Just be smart about it. Don't throw good money after bad, know when to call it quits, keep in mind what you want to gain from the experience, and remember that there's nothing shameful about getting a job.
The ad network idea started when my cofounder here first got his other job.
You're definitely right though. I appreciate your insight in both of your posts re: the opportunity cost of running a startup at my age. I have a degree and could get a decent job. Sometimes it's good to see reminders of that option, since I've always leaned towards starting my own business.
There's no way anyone can make that choice but yourself. Many people will say "don't give up" but there is little to be gained if the business is going under and you start throwing more money - or other people's money - down the drain.
On the other hand the business shows promise but needs more time and funds, none of which you have right now.
There is another option - suspend business operations, if possible, and rebuild your funds through a "normal" job or consulting. If the business is viable you should be able to relaunch at a later date in a stronger position, perhaps with better partners. If it isn't, you can try again with a new idea.
Knowing when you stand and fight and when to retreat to fight again another day is essential.
I've considered suspending the business as you mentioned. Which would be quite easy to do, our burn rate is negligible (could be near free). While earning funds to continue operations, I could spend personal time rebuilding the brand materials.
My concern is not knowing how to approach a business cofounder who would be entirely uninvolved in such effort. Can I make a clean break and take over that portion? Or, essentially, start a new company on my own? Our partnership agreement is very basic, and does not cover this situation.
So I would be unaware of what would be right both ethically and legally. Thoughts?
Ethically...I think as long as you are above board and honest with all parties, explain the situation and what needs to happen, then you're probably OK. Running a business involves making hard decisions such as firing employees and dumping cofounders. If you can't face doing these things then you're not cut out for running a business (I've had to do it, and hated it). However it's important that even when you have to do these things that you are honest and as decent as possible at all times.
Is your business a company with two owners or a partnership? If it's the former, I think you'll have to buy out your cofounder's shares. To determine their valuation, I think you'll have to talk to an accountant. If it's a partnership, I think you'll either have to get a new partner, or start a new business.
And I might be wrong, as always.
If it is national, you should just change your business name.
As far as the other guy needing to work, that should have been figured out before. I take it you must be independently wealthy to be able to self fund for a long time? You are fortunate, but it's not realistic to assume this is true of everyone. Obviously his debt is related to not getting much if any income after 7 months of working on this venture.
I think your advice is very premature to say the least. You have not successfully executed yet. So you don't have working advice to give. It's strange when this happens, but seems kind of common. So many business books written by guys who don't have experience creating or running successful businesses. A lot of wild eyed speculation presented as fact.
Here is some advice. I see in your explanation you have a list of blaming other people. It's the cofounder's fault for not working more and wanting to earn an income after 7 months. It's the other guys fault for having a trademark. But if the cofounder worked with no salary longer you'd still have run into this trademark issue. The thing is, if you suspected your product had any chance of working at this point you'd not be giving up on the trademark. You know that the business is failing for other reasons, yet you come up with this other stuff. It's a denial of reality. Figure out why the company really failed. It wasn't the cofounder or the trademark that did it.
Now I know you are reading this and getting ready to press reply and type, "Bugsy you big dummy, didn't you see that I accepted blame? The title of this article is 'How I messed up'." Right, about that. Let's look at your numbered list of the four ways ways you are taking responsibility. #1 says your cofounder is to blame. #2 says the trademark is to blame. #2 says your cofounder situation is to blame. #4 says your cofounder situation is to blame. So you don't actually admit to doing anything wrong. Saying "I made a mistake depending on all these other morons!" is not taking responsibility. It's blaming others, while not even taking responsibility for blaming others.
Was there a product? Were there customers? Was there growth? None of these questions are addressed at all in this essay, and these are the real questions to have been asking. If the company has a viable product, a customer base, and is making sales after 7 months, the co founder wouldn't be walking away due to becoming destitute after 7 months of no income, and the other cofounder wouldn't be abandoning the business over a extremely minor branding issue.
My list was not one of reasons I failed, but one of lessons I felt I should learn from the situation. It is not a complete list of my failures by any means.
I'm sorry if it came off that I'm trying to give expert startup advice. I do not pretend to be a success story, or one worthy of providing advice to startups. But I sure wish someone had told me 8 months ago that I should look into any possible trademark issues with my name, and thought I'd pass that along.
I certainly don't blame the cofounder for our predicament. I was there for each step we took. I was merely pointing out that it's important to figure out the responsibilities of each cofounder, and that it may be wise to understand the life circumstances of your cofounder before diving in. Also, it should be noted that he got a job 4 months ago, not just this week. But you're right, not everyone has the luxury of being able to work with no pay for an extended period of time.
If you read the comments in the thread, you'd know that there is a product, we've been making sales (although not as quickly as we'd hoped), and are at a near break-even point. Yes, I would be abandoning the project too early to tell if we could have been successful. Yes, I was undercapitalized, and don't have the money or passion (gasp!) to redo a lot of the work that we've been doing. There's an opportunity cost in redoing the work that I'm not sure I want to take on alone.
For the record, here are some key areas in which I failed:
1) Undercapitalizing the business. I knew we should have more cash, and I didn't make it happen. I felt nervous and unqualified to approach investors, particularly because we weren't doing something new and exciting, and our goal wasn't to become the market leader, but take a piece of the overall pie.
I wanted to work full time for myself, more as an ideal to feel like I was a true entrepreneur than to do what was best for the business. As others have mentioned, I should have been working and doing this as a side project until it could provide a livable income for me and my cofounder.
2) I often created and even sought out distractions from pure customer acquisition. I spent too much time tweaking this-or-that on our website and other things not directly tied to gaining customers.
3) I failed to motivate myself to get stuff done when my cofounder was out of the office. I could have moved forward with the project without him there. I didn't. This was a huge failure point, for which I accept 100% responsibility.
4) I misallocated some of the little money we did have. Unnecessary expenses that did not contribute to building the business. I wanted business cards, I wanted a nice whiteboard, I wanted an office, I wanted a vanity 800 number. I wanted to feel more official than the business was ready or could afford to make me. And I allowed that to distract me from selling.
5) I began working on the project because I saw the dollar signs, not because I was truly interested in the product or service I was developing and offering. Now some would say that the money is all that matters, but for me, working on a project I was more interested in would better motivate me.
There are plenty of other mistakes I made. But, those are the 5 that come to mind first.
I appreciate the time you took to write a thought out response, and to make me look at more lessons that I can learn, or more of my faults I can work on.
You did extremely well with my giving you a hard time, this means that you are definitely going to be successful, just keep at it. (Whether 'it' is to continue with this one or to start completely new ventures.)
Business cards are generally handy to have, but as a personal rule of mine, I don't allow myself that luxury unless I'm at least finished with development (or are attending conferences to which I will need them).
Have u launched yet? You said you were headed to profitability. What about the original idea as others have mentioned here?
Here's another one:
Plan to dedicate more than 7 months to said startup.
I haven't decided to throw in the towel, but I've nearly run out of cash and my cofounder is not around to help.
You're right though, I should continue fighting to make it happen. Spend a few weeks to change our name, forget about the printed materials, and keep working to see if there are legs.
If I were to succeed, how would you (or other HNers) approach the issue with a cofounder, given that he will have not been involved in the additional push?
That way you could use the remaining cash for a customer push and replenish your cash reserve at the same time. Prepare your rebranding peacefully and if you actually run out of cash, you won't have to rebrand (in some countries, this is costly).
Another thing: contact the domain squatter of the other brand. Ask him how much he wants for the domain. If you run out of Cash, consider selling your domain to the other business owner for half the price. Heck, you could even sell your website and design.
Utterly ruthless but this is business. You're already in a precarious position. Don't carry dead weight.
Here's your next written business plan:
1. Build something you can show off - a product, a demonstration of your service, whatever. 2. Show it to anyone who will sit still. 3. If 2 out of 10 people are not trying to buy your stuff or hire you by the end of the demo, pick one from a,b,c below:
a) show it to different kinds of people b) revise it and show it to more people c) take whatever you've learned and can recycle (code, art) and go back to #1 above.
http://tess2.uspto.gov/bin/showfield?f=doc&state=4010:8n...
for "Life Response" owned by Midwest Medical Alert Systems, Inc. CORPORATION ILLINOIS 269 Winding Creek Drive Naperville ILLINOIS 60565.
The weird thing is, the business using the http://www.liferesponseusa.com domain is "Life Response USA" and they're a division of CTR Alarm Systems Inc. --- a Pennsylvania Corporation. So that's odd: not the same company as the trademark holder?
More research is needed.
I would make the guess that liferesponseusa.com is not the same business, based on the different addresses you brought up. I wonder if they're looking at a similar situation with the trademark holder.
If nobody knows your brand, why can't you re-brand? Did you buy a bunch of useless merchandise, or can you personally tweak some logos in Photoshop to a new name.
What is your partner's role? Sounds like he must be the coder / designer.
More than a plan, it sounds like you need a great mentor.
(I assumed this was a web startup, but you made flyers, so now I'm not so sure.)
My partner's role is that he was the one with the experience in the market. He had the connections to suppliers, resellers, etc.
I edited the post above to explain a bit more of the business, and the reasoning behind flyers and some other merchandise. Beyond that, I could tweak some logos and start over. I've replied with a couple of concerns I have with that in other posts.
Thanks for your feedback, I do appreciate it.
As was suggested some day ago here, and as I did when I created my social web company (that had a successful exit), a good thing to do is to create an adsense based site, SEO optimized, in order to live out of adsense.
I faced the same problem as you ten years ago. I received a cease and desist letter from a large multinational. I handed over the domain name, rebranded the business and I'm still here. So it doesn't have to mean the end of your business.
An hour might be a bit much to ask, but 5 or 10 minutes, definitely.
It would sound like your mistakes point to a lack of research. It sounds like your co-founder isn't a friend, so you didn't know enough about him to get started with.
Finally, this isn't legal advice, but don't give up on the trademark situation yet. Especially if you haven't launched. I'm not so sure the other party would be willing to pay lawyers for a lawsuit, especially onsidering there isn't much to get out of small bootstrapped startup. Also, if you haven't launched, then you dont have very much to lose. You haven't established a brand yet, so perhaps this might be the best time to tweak with this. And of course, you'd want to improve on your branding research this time.
Our company went completely under (Chapter 11 stuff), we lost all staff and had legal threats from all sides.
After a few weeks of misery we decided that we don't feel like dying. We went all-in and turned it around on a shoe-string budget in a matter of months.
Keep refusing to die, and you'll be fine - it just won't be easy!
I am not sure why you are giving up at this point, but I can point out some mistakes you made that I don't think you see:
It's fine to bootstrap on five grand; but if you only have five grand? you will almost certainly need to keep your dayjob. I have been running side businesses for most of my life, but for nearly all of that time (until 2009 when prgmr.com really took off) I also had a dayjob.
Dayjobs are great. Someone else gives you enough money to pay your rent and keep yourself in personal computers, chairs, food, etc... and more importantly, someone else pays for your training. I've always worked as a SysAdmin, and I've learned a whole lot operating other people's fleets that I could turn around and apply to my own operations.
Most companies are okay with your side projects. be up front, most places have a form where you write down your own 'inventions' or whatever before they hire you... but again, if we are bootstrapping and not swinging for the fences, there's little chance of your employer becoming interested. To most companies, another couple hundred thousand a year is not enough to bother the lawyers about.
Note, the company will be bothered if it looks like you are spending effort on your project at the expense of spending effort on the stuff they hired you to do. Once I was asked to choose between my own business and my dayjob. (I chose the business... worked on my business for a few months then got a full-time contracting gig)
I've always cycled between a full time dayjob with benefits (get one every time COBRA expires.) corp to corp contracting gigs (for venture capital; I am in a capital intensive industry; corp to corp gigs allow you to spend pre-tax dollars on business equipment... but be /very careful/ with this- tax debt is not discharged through bankruptcy. Once you have enough revenue that paying taxes on all of it would be a big deal, get an accountant. Note I said revenue; this counts the money you are getting from the corp-to-corp contracting gig.) with the occasional month or two full time on the business mixed in.
Next, avoid loans as much as possible. you /will/ fuck it up. Over and over. It happens. Without a loan, you really only return to zero, and eh, you still have that dayjob, right? it's not that big of a deal to be at zero when you get massive checks every month. I mean, you can also return to zero with bankruptcy, but to make that worth the lawyer time, you need to get fairly large loans, which isn't as easy as it sounds. Getting $10-$20K in debit is irritating, can kill your business, and usually isn't worth the lawyer time and hassle of bankruptcy. And a loan doesn't always look like a loan; at one point I signed a contract for a year of bandwidth at $1500/month; this was back when I needed between 1/10th and 1/100th the amount of bandwidth that the $1500/month got me. I mean, I was launching a product that could have used it, if it really took off, but the product didn't take off, and I was full time on the business barely clearing rent, so I ended up with rather a large amount of debt. (I ended up paying it all off as a contractor... honestly, it may have been best to just fold the company at that point and declare corporate bankruptcy; maybe they wouldn't have come after me personally? I don't know. but my point is that leases should be looked at as debt.)
Spend dayjob money on rent at the place where you sleep. Spend the five grand on flyers and other business expenses. (though, five grand is a whole goddamn lot of flyers and business cards. $50 worth of businesscards gets me and my employee through a year, usually.)
If you only have five grand with zero income, the office fridge wasn't your big mistake, the office was. You can get an office once you have business income. Until then, use your garage or front room or what have you.
Anyhow, if the other business owner called you rather than sending a lawyer letter, he's willing to talk. Call him back and explain the situation. Be open about your numbers (this isn't always a good idea, but in your case, you have nothing to lose by letting him know you are not worth suing.) Ask him if you can work something out. This is the advantage of not having any money; Sure, just about anyone could sue you and put you out of business, but there'd be no profit in it; lawyers only work for a percentage of the winnings if they think the winnings will be large enough to give them a better total expected return on their time than working hourly. The guy isn't going to sue you unless he's mad enough to pay a few hundred dollars an hour just to put you out of business.
Of course, if he's a competitor, it probably won't work out. but otherwise, maybe it will. worth a shot.
You only planned to do this for another 60 days. So the only question that matters is whether you can get customers in that timeframe.
I'd continue to work on your business with whatever materials you have on hand. Maybe you can sell your domain and LLC to this guy to cut some of the losses, but even if not just tell him it will take two months to take care of the paperwork.
If he is a total dick and still sues, just shut down your company like you were planning on anyway. In exchange for being unreasonable, this guy will have paid a bunch of money to sue a company that no longer exists, and alienated the holder of the exact-match domain for his business in the process.
The legal nonsense aside, I'd have started your company while you both still had jobs and worked on it during your off hours. If things began to pick up and you got some user traction, I would have then spent the $5,000 where it was needed. For one thing, if you had done it this way you'd have come across your co-founder's money problems earlier.
Explain to the other company that you agree and will change your name shortly. Start thinking of a new name and get some more clients to get some cash. If you have a good business, than it can also work without a name.
It is sad to have wasted so much money just because of the name. But look for marketing solutions where you don't need to pay anything. If you already had some clients, propose some advantages if they get you more clients. etc.
Not saying that you should or should not give up, that's your call. Only that it sounds like a challenge that's no different from the one many other startups faced.
Admittedly, that's easy to say for someone who's got the money to start companies left and right. What I'm trying to say though, is that while your company didn't work out, and it's quite possible that it looks like there's nothing to salvage, you have a team (or maybe only the two of you, but you keep on referring to 'we') and you'll have another opportunity soon if you keep your eyes open.
That is directly from the USPTO. In other words, if you have a company named "A" that writes software and I have a company name "A" that makes shoes.. I can't sue you for trademark infringement.
A website doesn't matter.. it's the type of business that matters.
I have no idea how people begin startups with $10K. I seriously don't understand it. It's nothing. A good developer's time will cost you more than that for just one month.
