Founder Fuck-up Story: My $4.5 Million-Dollar Wake-Up Call

I'm kicking off a brand-new series here – my very own Founder F*ck Up stories. So, welcome to the very first edition, the no-holds-barred space where I'm going to spill all the beans.

I had this crazy idea for starting Founder Fuck-up newsletter. It's because, well, let's be real – everyone's out there shouting about their success and achievements, as if they've never made a mistake in their lives. But here's the truth: Success is just one path that worked out for them. What about all the other paths filled with epic fails and faceplants? You know, the ones that ultimately lead us to the holy grail of success? That's what I want to talk about in this newsletter – the messy, glorious journey of failure that every entrepreneur faces at some point. I believe we can learn so much more from failure than from success. Please do not miss to subscribe here on Linkedin or on Substack. ??

Now, let's jump into my first story.

Back in 2016, I made a gutsy move. I pivoted LoginRadius from being just a social login widget provider to a full-fledged Customer Identity and Access Management (CIAM) platform, handling all-things-login for web and mobile apps. It was a bit nerve-wracking, I won't lie. But guess what? The pivot paid off big time. We saw annual growth rates soar past 100% in 2017 and 2018, our revenue grew significantly, and the best part? We were running a profitable ship. But here's the kicker – our revenue didn't just match that figure; it soared right past it. You know how uncommon it is for your revenue to surpass the amount you've raised.

Now, like any ambitious founder, I decided it was time to raise more capital to supercharge our growth. So, in mid-2018, I went all in and secured a sweet $17 million Series A funding round from ForgePoint Capital and Microsoft's M12. Suddenly, our bank balance looked like it had been pumped up by a superhero – 17 times bigger than before. We went from nervously counting every dollar to swimming in cash.

But here's where it gets juicy: When you have an abundance of anything, even cash, human psychology plays tricks on you. It's like the more you have, the less you value it. And that's where I messed up big time.?

As a first-time venture capital-backed founder, I experienced firsthand how money can lose its value when you're swimming in it. This shift in mindset was a colossal f*ck up, and I estimate it cost us $4.5M and 1.5 years of time.

Exploring the Psychology of Surplus:

Our brains are wired in a way that makes it hard to grasp when your supply suddenly skyrockets many folds, like whopping 17 times. It's a colossal shift, and our minds struggle to keep up with this new reality. It needs time to adjust itself to the new normal. This phenomenon isn't exclusive to money; it can happen with fame, power, pleasure – you name it.

Think about those singers and actors who hit the big time overnight. One day they're nobodies, and the next, they're everywhere. Some end up stumbling into the pitfalls of fame – drugs, scandals, and a rollercoaster of bad decisions.

Resetting your mental framework to accommodate this excess supply isn't a walk in the park, especially the first time around. It's like learning to swim in a tsunami. Once you've been through it, you might handle it better in the future, or if you're lucky enough to have wise mentors and brutally honest friends, they can help you steer clear of disaster. Unfortunately, I had to take the hard road and learn from my own mistakes.

Another significant catalyst in this series of events was what I've come to term "unicorn fever." To put it simply, it's the relentless drive to scale and expand, no matter the expense. Unicorn fever had become this powerful, almost irresistible force, pushing us to invest rapidly.?

Now, let's be clear – there's absolutely nothing wrong with aspiring to unicorn status or pursuing robust growth.

I'm an optimistic and ambitious founder, and wanted to see my venture soar to unimaginable heights. But that unrelenting pressure to grow quickly, especially as a first-time entrepreneur, created a perfect storm of blind spots and a time crunch that severely compromised the quality of decision-making. The problem snowballed, and so did its consequences.

The Biggest Casualty was the Spending Discipline:

The biggest casualty of excess money was the spending discipline which had been the cornerstone of risk mitigation, resourcefulness, creativity, and the cultivation of high-quality decision-making.

With no spending discipline, it was like a free-for-all. Everyone went all-in on their growth ideas, whether they'd been tried and tested or not. We were all riding high on optimism, and that led to some pretty lavish spending sprees. We hired more people, bought software, splurged on cloud services, got swanky office spaces – you name it. All that hustle and bustle created a ton of activity and workload in the company. Sadly, many of our experiments didn't quite hit the mark because we abandoned our discipline of investing with validation. It also stirred up all sorts of issues – from work culture to operational efficiency, finance, etc.

Looking back, I estimate that we wasted $4.5M -- that's a huge amount. If you give me this much money today, I can build a new startup of $5M annual revenue.

The good news is that I recognized this misstep within 12 months and then put dedicated six-month effort to rectify the situation. I got us back into the mindset of valuing every penny. LoginRadius has been running profitable for three solid years now, all while enjoying some pretty sweet growth. ??

I’d love to hear your thoughts ??.

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