Micah November 11th

Confessions of a Failed CEO

You might to grab a cup of coffee, or bookmark this for later because this might be a long one…

Quick & Dirty Background

I started my first business when I was 9 years old. At least thats what my mom told me. I have always been a bit Tom Sawyer-ish in my businesses, finding it more interesting to run the business than to make money.

I remember convincing friends and family members to run a lemonade stand when I was seven or eight, there was a paper route when I was nine, where I had two friends deliver most of the my papers (for a salary of course), at ten or eleven I got my cousins together to wash cars so we could go to a movie and dinner, and, what I consider my first real business, a pool cleaning business at 14, where I got the popular kids in school to help me clean pools.

Through out high school I made money by brokering. I always knew someone who wanted to sell something, and someone else who wanted to buy that thing. I would extract a commission, and made quite a good amount of money doing that through most of my high school career.

In terms of jobs, I was never anywhere for long. I worked at a non-profit for a couple years out of school. Then raised money from colleges and universities by running call centers and soliciting annual gifts. After seven years of the non-profit world, I started working with local startups in San Diego, landing at Kozmo.com for six or seven months in 2000, leaving right ahead of the layoffs, then moving to Oakland to work at MyPersonal.com (which became Synacor) for about a year, before I was laid off in the fourth round (right after dissolving my group, and working myself out of a job). While at MyPersonal, and for awhile afterwards, I did consulting work as Current Wisdom. I moved to Colorado for a summer in 2001 with the intent to attend business school at the end of summer, but didnt get into any schools. So, I started applying for jobs, landing a short gig at Video Professor (which was the worst job ever), before landing at ServiceMagic.

I continued to consult with startups and other businesses on marketing and other business development functions, but ServiceMagic really took most of my time. While at ServiceMagic, I began to do some search engine marketing, and like my Tom Sawyer youth, got a good friend to help out with the work. As the side projects began to grow, I made my entire annual salary on the side in three months. It was time to leave ServiceMagic.

Failure Begins

In the first six months of running Current Wisdom, two of us brought in more money that we knew what to do with. We bought the nicest computers, went on great trips, and I started living the life of a rock star to land and keep clients.

Things just continued to grow.

The business was doing great, it was profitable, and we were able to cover all expenses, plus some. I continued to spend like the faucet would never be turned off. Current Wisdom was invincible.

Then we lost our first client. It was no big deal, I quickly found other, bigger clients.

Things continued to grow and I started hiring people. Now, instead of two people, we were five. I started outsourced payroll for the first time. Health care for employees became an issue. And we continued to spend.

Still cash flow positive but with shrinking margins I came to three realizations:

1) We had no money in reserve to help spur growth;

2) I needed to raise money or sell the company;

3) I had failed as a CEO.

Current Wisdom had reached a point where I could not take it any further. Market conditions were shifting where small search marketing firms were getting acquired or going out of business. We had no money in reserve to defend our position or grow the business. There were a ton of unpaid bills and other responsibilities that were not being taken care of even with the books showing a slight profit.

So, I got out. The company that took over my clients and employees is run properly. They understand the value of the dollar, and with improved structure, the revenue generated by the old Current Wisdom increased 500%.

Lessons Learned From Getting Punched in the Face

1) I am not a CEO today. I know now what a CEO should be, and I am not it. I dont have the love or understanding of structure to be effective. Instead, what I am really good at is introducing people and finding ways for companies to work collaboratively. Which is my role at Lijit, and one I am very happy to have.

2) Treat every dollar, especially if you are a funded company (Current Wisdom was self-funded), as if its your last.

  • Dont like the chair you are sitting in? Suffer.
  • Wish you had a new computer? Keep it to yourself.
  • Want a new car? Buy a bus pass.
  • Want to fly around the country (for business)? Use a phone.

Every dollar that I spent reduced my ability to do something to further the company. If I had been less of an entertainer, there would have been money in the bank to take more risks, hire a top notch sales person, have a booth at a trade show, provide better health insurance, etc.

Every dollar that didnt create 3, was a wasted dollar.

For freshly funded startups with no revenue, every dollar spent is a piece of your company. Is that shiny new wireless keyboard really worth $80 in equity?

As a self funded CEO, the amount of money I spent was indicative of my hubris, arrogance and lack of ability to manage. What does the money you spend say about you and your company? If you are an early stage startup, who has just gotten their angel round, what do you want future investors to be impressed by? Your stuff or your product? Your spending habits or you?

I often think about what I could have accomplished if I had a bit more maturity about the management of the business. While the sale of my company certainly was a success, in terms of being a CEO, I failed.

  • Its the easiest thing to squander; and as you know, it can be the hardest thing to attract.

  • Its the easiest thing to squander; and as you know, it can be the hardest thing to attract.

  • Thanks Kath – ServiceMagic is awesome. You just have to be ready for the calls! And, please keep sending your friends to my blog ;)

  • Thanks Kath – ServiceMagic is awesome. You just have to be ready for the calls! And, please keep sending your friends to my blog ;)

  • A point of clarification: Current Wisdom wasnt deteriorating, our margins were, top line we were continuing to grow, albeit slower. It was simply that I felt I could take it no further–that the excess spending had crippled our ability to grow at an appropriate rate and potentially could be life threatening given the current market climate. While, my ability to get out while still making a few bucks is certainly a testament to my ability as a businessman; the need to explore liquidity events was clearly a failure of mine as the CEO of Current Wisdom. If I had been more fiscally responsible, I probably would still be running Current Wisdom, and if not, certainly not because of cash flow issues. Failure doesnt have to come from going down in flames — Failure can be from falling short of goals or from drowning from your own real (self-funded) or perceived (venture-backed) success. The post wasnt a woe is me, post, rather it was a learn from me post. Sorry you got something else out of it.

  • A point of clarification: Current Wisdom wasnt deteriorating, our margins were, top line we were continuing to grow, albeit slower. It was simply that I felt I could take it no further–that the excess spending had crippled our ability to grow at an appropriate rate and potentially could be life threatening given the current market climate. While, my ability to get out while still making a few bucks is certainly a testament to my ability as a businessman; the need to explore liquidity events was clearly a failure of mine as the CEO of Current Wisdom. If I had been more fiscally responsible, I probably would still be running Current Wisdom, and if not, certainly not because of cash flow issues. Failure doesnt have to come from "going down in flames" — Failure can be from falling short of goals or from drowning from your own real (self-funded) or perceived (venture-backed) success. The post wasnt a "woe is me," post, rather it was a "learn from me" post. Sorry you got something else out of it.

  • Bill Kocik

    This is very sound advice. I will be absolutely sure my startup is well managed for cost.

  • Bill Kocik

    This is very sound advice. I will be absolutely sure my startup is well managed for cost.

  • Nice points — applicable past the CEO job to all levels.

  • Nice points — applicable past the CEO job to all levels.

  • I truly admire you for being so honest and upfront about your experience. You need to blog on a regular basis. Just my 2 cents, of course. Btw, ServiceMagic rocks…have used them several times since moving to Denver and not knowing who to call when home repairs are needed.

  • I truly admire you for being so honest and upfront about your experience. You need to blog on a regular basis. Just my 2 cents, of course. Btw, ServiceMagic rocks…have used them several times since moving to Denver and not knowing who to call when home repairs are needed.

  • APL

    I don’t know that you really failed, Micah. One big mistake you did NOT make was to hold onto your dream even as it disintegrated. You admitted it was time to bail and you made the best deal you could. I know hundreds of people who have gone down in flames — and bankruptcy — because they failed to accept that reality. Is it really so bad to build a decent company and make some decent coin selling it? Give me a break! Only 1 in 10,000 business owners get to the place you did. The other 9,999 just limp along endlessly until there families force them back to taking a salaried job. Kwitcherbitchin!

  • APL

    I don't know that you really failed, Micah. One big mistake you did NOT make was to hold onto your dream even as it disintegrated. You admitted it was time to bail and you made the best deal you could. I know hundreds of people who have gone down in flames — and bankruptcy — because they failed to accept that reality. Is it really so bad to build a decent company and make some decent coin selling it? Give me a break! Only 1 in 10,000 business owners get to the place you did. The other 9,999 just limp along endlessly until there families force them back to taking a salaried job. Kwitcherbitchin!

  • Another great post Micah. Like everything in the realm of starting and growing companies, there is a fine balance of being frugal and buying the office a Wii (i just did that last week :-) Generally speaking (which is dangerous) I ‘notice’ startups that fail on the two ends of the spectrum the most… Starved startups (either culturally or through operations) and PHAT startups that spend way ahead of any success.. I don’t think it a predictor, but rather a flare after the fact that everyone notices.

  • Another great post Micah. Like everything in the realm of starting and growing companies, there is a fine balance of being frugal and buying the office a Wii (i just did that last week :-) Generally speaking (which is dangerous) I 'notice' startups that fail on the two ends of the spectrum the most… Starved startups (either culturally or through operations) and PHAT startups that spend way ahead of any success.. I don't think it a predictor, but rather a flare after the fact that everyone notices.

  • Brett Borders

    I have to admit I’m addicted to nice computer… and I am willing to spend on it. It’s difference between digital slummin’ it and digital paradise. Seeing that I spend a majority of my waking life in front of a computer… my environment got to be shiny and comfy. Bright, glossy high-res screen. Audiophile headphones. Top-of-the-line Logitech mouse (that doesn’t ache my index finger to scroll). Ergonomic chair. Wrist pads and gel mouse pads. Enuff RAM. Fast processors. Beryl or Spaces, Quicksliver and OmniFocus. Hell = XP, single 1024×768, F key doesn’t hit every time, jumpy mouse, Norton Anti Virus has expired would you like to update? Other stuff I’m more frugal about. Like my Ford Escort Wagon with 110k miles, blown speakers and no door handles.

  • Brett Borders

    I have to admit I'm addicted to nice computer… and I am willing to spend on it. It's difference between digital "slummin' it" and digital paradise. Seeing that I spend a majority of my waking life in front of a computer… my "environment" got to be shiny and comfy. Bright, glossy high-res screen. Audiophile headphones. Top-of-the-line Logitech mouse (that doesn't ache my index finger to scroll). Ergonomic chair. Wrist pads and gel mouse pads. Enuff RAM. Fast processors. Beryl or Spaces, Quicksliver and OmniFocus. Hell = XP, single 1024×768, "F" key doesn't hit every time, jumpy mouse, Norton Anti Virus has expired would you like to update? Other stuff I'm more frugal about. Like my Ford Escort Wagon with 110k miles, blown speakers and no door handles.

  • Pingback: crawlspace|media » Blog Archive » Daily Ma.gnolia Links for November 19()

  • IPA-IBA

    A nice cathartic blog post – makes you stop and think! Nice that you can share your experiences as a CEO so openly. Every dollar that didnt create 3, was a wasted dollar. this really struck a chord with me!

  • IPA-IBA

    A nice cathartic blog post – makes you stop and think! Nice that you can share your experiences as a CEO so openly. "Every dollar that didnt create 3, was a wasted dollar." this really struck a chord with me!

  • Anonymous

    I live on $10,000 a year as a writer. Talk about slummin it! Am I one of those people who held on to the dream long after it disintegrated? Everything I read in business says that you’re supposed to perservere, persist no matter what. I went bankrupt 3 years ago. I kept going with this anyway.

  • Anonymous

    I live on $10,000 a year as a writer. Talk about slummin it! Am I one of those people who held on to the dream long after it disintegrated? Everything I read in business says that you're supposed to perservere, persist no matter what. I went bankrupt 3 years ago. I kept going with this anyway.

  • Janni

    Fallen chief executives like Bernard J. Ebbers and L. Dennis Kozlowski made headlines recently with their hefty severance packages. Mr. Ebbers, who resigned under pressure from WorldCom last spring, will receive $1.5 million a year for life; Mr. Kozlowski, formerly of Tyco International, had negotiated a package worth more than $100 million.

  • Janni

    Fallen chief executives like Bernard J. Ebbers and L. Dennis Kozlowski made headlines recently with their hefty severance packages. Mr. Ebbers, who resigned under pressure from WorldCom last spring, will receive $1.5 million a year for life; Mr. Kozlowski, formerly of Tyco International, had negotiated a package worth more than $100 million.

  • guest

    Wah wah – your sobs may soothe your soul but offer little to anyone else. Who can feel badly for you? You had it all then blew it. You’re a dumbass.

    The rest of your tips are pure baloney. Corporate cost cutting lowers morale. If your company can’t afford an $80 wireless keyboard you shouldn’t be running a company and it will never be successful. Everyone knows that incurring initial debt is a natural part of the business growth process. Petty little thrift measures like you suggest feed the myth they actually work and give greedier CEOs more ammunition to cut corners and slash wages for workers. If you lavishly spend your own personal money, that’s your own matter. Spending corporate money on yourself is unethical. But spending corporate money on the corporation itself – whether it be coffee mugs or a financial analyst – is rarely a fatal move, unless something else is critically wrong.

  • Typeav

    We all failed at some point but to become better as a person in general. You have more experience now and know your limits and yourself. I cant start like you did, what I”m doing wrong? I will find out with the time…….you did great!

  • anti-guest

    as easy as it is to rip somebody whos clearly writing this piece as a means of advice for upcoming entrepreneurs

    id first life to ask. what have you done?