Founders at Work.pdf

368 Founders at Work
sales reps without a product to sell? No. Could we have bought more PR? I’m
sure we could have. We actually had a full-time PR person pretty early on. But
we were never going to raise $20 million for a marketing blitz.
Livingston: When you first started trying to get customers, they said, “Pay you?
You need to pay us.” What were some of the other things that went wrong when
you were trying to figure out your business model?
Kaufer: Building the product actually went along reasonably well. The sales
and marketing and business development was the biggest challenge, because
we just didn’t have any takers. We finally had a major company come forward
who wanted to license our database, and they were offering to pay us, I think,
$50,000 a month. Maybe it was $30,000. The deal on the table would have
covered half of our burn rate, right there, all at once. At the time, we looked at
that deal and said, “You know, it may be this or nothing”—as in, if we don’t take
this, we might just go out of business. When you look at a deal in that light, a
very unattractive deal, maybe that’s what you have to do to survive.
As we proceeded down the negotiation path with this company, though, it
became clearer and clearer that they wanted to be able to cut out of the deal
after the term (I think it was 2 years) and essentially walk away with all of our
intellectual property. Their point was, “Hey, our dollars are funding a lot of the
creation of this thing. We’re going to be building a much bigger product around
it. If we can’t renegotiate terms, you can’t cut our product off at the knees and
walk away with your database. We need to be protected, and we need a copy of
your database and the tools to maintain it. You won’t have to maintain it for us
anymore, but we’ll be able to keep going.”
The notion that I take all of my time and energy, build up a business, and
then hand another company who is going to be a competitor the crown jewels
of the business—fundamentally the business, except for the people—after I
thought about it, that ended up making it a reasonably easy decision. “No. I’d
rather go out of business than take everything I’d worked for, for so long, and
hand it essentially for free to somebody else.”
In hindsight, we clearly made the right decision. But at the time it wasn’t
obvious, so we kept negotiating with them. My tip for someone in a similar
situation—a company looks like it might be going out of business—this might
be the only way to get enough capital to survive, on terms that really aren’t very
acceptable: keep pushing at it. Don’t say yes too quickly, don’t say no too
quickly, to see whether any other options come along, or to see whether the
deal gets so bad that it actually becomes an easier decision to just say no and
you can go about your plans. We had a few sleepless nights back then.
Livingston: Can you think of a moment when you wanted to quit?
Kaufer: No, I never wanted to quit. I mean, it wasn’t working, but I was going
to find a different way to try—something different, something new.
A good chunk of our engineering team was directed to running tests for
prospects who might conceivably be clients. We weren’t doing a whole lot of
new product innovation, because it wasn’t the product that was stopping us