The Downs and Ups of Entrepreneurship - A Critical Self-Reflection

2015 - It is quite funny, this phenomenon called "entrepreneurship". Everybody seems to love it, many people I talk to want to become entrepreneurs, and it is widely recognized as the prime solution to almost every major problem in the world - job crisis, innovation crisis, environmental crisis, among others - in that entrepreneurs come up with new products and services to tackle those issues.

What is forgotten in all this glorification of entrepreneurship is how hard it is to build a successful and sustainable business and the ups and downs that one goes through on the way to success - or failure.

Having started a few companies and projects to date, I have had my share of ups and downs and I would like to share my personal reflection on this, based on one specific company of mine - HR Matching AG.

The Ups of Ideation and Prototyping

What started off as an idea that two students had in their mid twenties - to bridge the gap between the education system and the labor market through smart technology-based online career networks - turned into a real company shortly after. We hired our first employees, worked out business plans, built a beta website, and started preparing sales material. We were sure that not a single person in the world has thought about this idea and that it is truly unique. That is also the attitude we carried into our first meetings with customers, only to then realize that they were actually not so much impressed by our offering. Totally disillusioned by this, we started looking for the reason for this perception gap. We were convinced, of course, that the customers were wrong and that they simply did not understand our USP, so we tried even harder to convince them of what we believed was our USP.

The Downs of First Market Entry

Well, over time, as with most novice entrepreneurs, we gave up to realize that we were wrong and that this market is actually totally overcrowded, with new career websites popping up on a monthly basis. 

This was the first big "shock" after all the excitement of the ideation & prototyping phase. We had to be honest with ourselves and admit, that we did one major mistake - we developed a product behind closed doors in order not to share our "totally novel and unique idea" with ANYONE. The result: 1 1/2 years of development in the wrong direction and a reputation on the market that was everything but ideal. Given that we contacted all our potential clients already, they had come to associate our company name with a suboptimal solution in a far too crowded market environment. 

The Ups and Downs of Re-Inventing the Business - Pivoting Phase

What was left to do for us was to actually re-invent ourselves and figure out what else we could do in order to add value to our clients. Because giving up was no option for us. We were (1) way too stubborn to admit that we didn't add enough customer value but at the same time also (2) creative enough to consistently come up with new ideas for products and features that we could offer our clients. We went through dozens of pivoting cycles where we came up with new ideas on an almost daily basis and quickly tested them with our clients, just to see what could work and where we could add value. While this was intuitively a good thing to do, we certainly didn't do it systematically. Hence, it was more of a creative ideation session with subsequent IT development. Typically it would go like this: I would have a new idea in my head and bombard IT with it, asking for a beta version so we can pitch it to the clients. Well, this was certainly not the best strategy for working with developers given that I only distracted them from more long-term projects. But it wasn't a problem. They just put in place a dedicated ticket system for "Peter's ideas", which they ended up emptying from time to time :-)... Nonetheless, it was still good to go through this continuous real-time pivoting exercise, because we gradually - being totally novice to the industry, which we all know is negatively correlated with venture success - figured out what customers might want and where we could actually add value.

The Ups of Planning and First Major PR Visibility

Every novice entrepreneur knows the euphoric feeling when he or she wins the first startup competition (of which there are of course many, so it's actually not so hard to win one), raises the first seed round of money or wins over the first clients with happy faces. These are great times and they illustrate that some things are going right and that not everything you do is nonsense. It gives you the emotional reward for the hard work that you put into the business. 

With HR Matching we won some prizes such as the Red Herring Award, the Global Hot 100 Enterprise Award, received recognition by the Swiss governmental innovation promotion agency in that we got the CTI Label (today Innosuisse), closed a seed round with a well-known IT investor, whom we felt was the perfect match for the business, and developing great new matching technology (today people would call this "AI", back then it was just a self-learning algorithm) with EPFL laboratories after having received R&D funds from the Swiss government. With all this momentum came a growing team - 6 at that time - that tirelessly worked on boosting the product offering on the market, with more crazy ideas to boost the brand, such as our spontaneous and highly successful speaker series. Organized in 4 weeks, fully funded through sponsors, 17 speakers, 8 universities and 635 participants. Wonderful moments!

We were approached by several media houses to discuss a strategic investment and prospective future acquisition. They were very interested in our product and solution, and we were actually optimistic to close a win-win deal within a short period of time.

The Downs of Realizing you got the Wrong Investor onboard

All of this is great, if we hadn't run into the problem of having chosen an investor that turned out to be a problem for the company. Worst of all, we turned down many other great investors in the seed round who were willing to invest; but our gut-feeling told us we should go with the one we picked. The biggest mistake we made was to trust his word of additional funding within 12 months - no specific milestones defined. First funding should be used for R&D, with the second round for sales & marketing.

The result: 11 months and 10 days after the first round, we sat down to execute the second round - with 30'000 CHF left on the bank account and 9 people on the pay-roll... Just in time. He then told us: Sorry, but I have shifted my investment focus to the financial sector and no longer want to invest in HR-related businesses.

Having turned down all the other business angels during the first round, they were of course not willing to now come onboard anymore, especially given that the lead investor decided not to pitch in any more money. Also, I believe that during the first round we had disregarded the rule that you always meet twice in life, so we did not properly maintain the ties with these investors. The decision of the lead investor to step out unfortunately also resulted in the media houses being sceptical and ultimately terminating the conversations with us. 

At the same time, we had to terminate salary payments for all employees - including ourselves of course. But instead of laying-off the employees without any support, I must say that we're very proud of having pro-actively placed each one of them in a different company or organization, including one who has been granted a position at the WEF as a result of our introduction. After all the harsh emotions of those weeks, this was certainly a relief for us, the founders.

The Ups and Downs of Turning Around your Own Business

What has followed was a time-consuming and tedious process of turning around the business. Pitching in personal assets in order to avoid bankruptcy, we reduced our cost structure to almost zero - no office space, no salaries, no allowances... Only the bare minimum costs - servers, domains, accounting. Through this, we managed to bring our cash basis to a healthy level again in order to grant us room to breathe again, before we suffocate.

However, this was not the only problem. The lead investor wanted to do a hostile takeover. While we were struggling with no cash on bank, 9 people on the pay-roll and several major invoices not yet paid, he suggested to take over the majority of the company (without investing a single additional CHF) in order to do his "magic trick" of incubating our company in his great company builder. We were not at all against the idea of transferring the majority of the business to him, given that we evidently screwed up and should have acted differently to avoid this situation. But he did not accept any conditions that would provide us with some transparency as to what the business (not even talking about us, the shareholders) would get in return for transferring the majority of shares. When he said he wouldn't accept any hard terms (e.g., provide office space for 2 years, pay servers and accounting costs, pay salary of 2 developers for 2 years, etc), we realized that he is actually not interested in turning around the business.

We decided to reject his offer and try it the hard way. Result: He was upset, left the board of directors, and told us he does not want to be attached to such immature company. After having promoted our company as one of his great investments on his website, it was quickly erased after this incidence.

But the good thing was, we were back in control of the business. Less than a year later, he actually offered his shares to us for sale. We bought them back at a good price :-)

We were in a comparatively comfortable position now (some cash on bank, but not enough yet to hire a few people to get going again). Of course we had lost all momentum - a full stall so to say - and stopped interacting with our clients, because we were way to occupied with the challenges of keeping the company afloat. It was the three founders left, all working elsewhere in the meantime to make a living. The company became a side-project, but still a very promising one.

We created good leads with universities and started searching for strategic partners to hand over the business to someone from the industry, to ensure continuity. We searched for roughly 1 year, talking to some 10 companies from the HR industry. Many promising conversation, but ultimately no signed deal because of different expectations. 

We spoke with dozens of entrepreneurs to see if they want to join - in return for some major equity in the company - and take on the lead of the business. 

The Ups of Spontaneous Encounters

Then, totally unexpected, we met a bunch of guys in October 2014, who were looking for a business to join operationally, which sounded like the perfect match, as we were looking for operational support. Then, they also mentioned that they want to invest some money. We were back to 6 people on the pay-roll and new momentum. At the same time, we (the founders) were able to sell some of our shares personally, which was evidently a nice experience. Something to share with people out there: "wow, I've partially sold my company"...

In summer 2015, the investor decided to invest a second round into the company, re-confirming the momentum and their great interest in the business. We also decided to sell out even more of our own shares (at that time I was personally still sitting on >55% of the shares and wanted to hedge my risks a bit; and a bit of cash in the bank account never hurts).

Things looked very promising and we were tremendously optimistic about the future of the business. Of course we were also tremendously happy - as founders - that we found the right sparring partners to carry the business forward. I was on a track towards professorship, so I wanted to take a more passive role in the company, after steering it for more than 8 years. It was uncertain where the journey would take us, but I was sure that it will be exciting and full of ups and downs, such as every entrepreneurial journey. 

The Downs of getting into a Legal Fight with the Investor

Well, after some good "ups", the whole story seems to have turned again in late 2015, with a variety of challenging situations inside the team. As a result, the whole company has stalled and we had to go through several months of very harsh negotiations with the investor family and their lawyers, in order to settle some heavy misunderstandings that have built up over the months. Their mismanagement of the company leading to us taking them out of operations and them, in turn, claiming their investment back (from us personally)... This was, by far, the most challenging situation in my professional life, to date. Clearly a situation I do not wish to have repeated at any point in my life again. But one that was very insightful and one where I have grown personally and professionally... Luckily, we managed to settle this issue in a "friendly" and less costly way, so that no harm was done on neither end. But what a crazy experience...

How will this continue? We don't know yet. But as always in life: there are always solutions and I am certain we will find a great next thing... As long as you stand up once more than you fall down, you will succeed!

Continued (June 2017)

So the entrepreneurial rollercoaster continued... So while trying to get rid of our office at the Technopark (we were committed to 3 years of rent and didn't need it anymore - learning: never sign a rental contract with such a duration...), a guy approached us who himself is active in the labor market of Switzerland. He has extensive experience and indicated an interest in joining forces and collaborating to push our solution into the market, alongside his own company. Great!

At the same time, we decided to broaden the scope of our company and focus on a variety of activities - besides the core HR-related services - so we formed the Delta Venture Partners AG, which focuses on a set of disruptive trends, launching and investing in startups as well as helping established companies overcome those challenges. So we're back on track and excited to sail towards new shores. Let's see where the journey is taking us next...

Success is when you get up at least once more than you fall down...