107. Startup Failure Analysis 🔎 Key Lessons from Abby Sugar
Video: Analyzing a Startup Failure
In the world of startups, success stories often steal the spotlight. Yet, failure is a far more common companion on the entrepreneurial journey. Today, we reflect on valuable lessons from one such journey—Abby Sugar’s founder experience with Play Out Apparel.
The Cult of Success in the Startup World
The startup ecosystem fosters an almost cult-like devotion to successful founders. We study their paths, extract their pearls of wisdom, and attempt to emulate their successful strategies. However, the real reasons behind their success can remain elusive. It could stem from a multitude of factors, and often, we can never be sure.
Conversely, when startups fail, the reasons are usually much clearer. Abby Sugar, co-founder of Play Out Apparel, boldly unpacks her journey, sharing insights that are critical for early-stage founders navigating similar waters.
Founding Play Out Apparel
Play Out Apparel aimed to revolutionize the world of gender-equal apparel. The company offered a unique shopping experience, promoting inclusivity by offering clothes without gender labels. Their mission resonated deeply with Gen Z’s shopping habits and preferences for gender-neutral clothing.
Abby’s team included industry veterans—heavyweights from luxury fashion and retail giants like H&M and Intermix. Yet, despite this powerhouse team and significant early traction, the journey was fraught with challenges.
The Fundraising Gauntlet
Abby raised close to three quarters of a million dollars during the pre-seed round, largely from tech investors—a notable feat, given the challenging market conditions. However, this success was fleeting. The onset of the Ukraine war, the crypto crash, and the general market instability in 2022 hampered her efforts to secure seed funding. Even promising investor meetings often led to polite rejections, citing the difficult economic climate.
The Tipping Point: Infighting and Mental Health
Navigating through menacing market conditions was compounded by internal challenges. Abby’s co-founders, despite their impressive résumés, struggled to adapt to the resource constraints typical of a startup. The pressure mounted, and essential cutbacks were resisted. As Abby faced the end of the runway, her mental health deteriorated severely, underscoring the intense personal toll of startup leadership.
Critical Lessons for Startup Founders
Be Prepared for Hard Fundraising: Fundraising is exceedingly difficult and requires persistent effort. Abby’s experience reiterates that raising capital is not just about having a good idea—timing, market conditions, and investor appetite are equally critical.
The Importance of the Right Team: Having experienced co-founders can be beneficial, but they must align with the startup mentality of doing more with less. Ensure that your team understands and can operate within the unique challenges of a startup environment.
Founder Mental Health is Crucial: The entrepreneurial journey can take a severe toll on mental health. It’s vital to build a support network outside of your founding team—trusted mentors, peers, or professional counselors.
Make Tough Decisions Early: Radical cutbacks and tough decisions are often necessary to extend your runway. Delay can be fatal. As Abby notes, being decisive as a CEO, even in the face of resistance, is crucial for survival.
Invest in Relationships: Investors often invest in the founder as much as the business idea. Building and maintaining strong relationships with investors, advisors, and your entrepreneurial network can provide critical support when navigating turbulent times.
Moving Forward
Today, Abby channels her experiences into consulting and advising other startups. She brings not only strategic insights but also hands-on execution, ensuring that lessons learned the hard way can benefit others.
For startup founders, Abby’s story is a testament to the resilience and adaptability required in the entrepreneurial world. Failures provide profound lessons—a sentiment aptly reflected in her journey with PlayOut Apparel.
Going Deeper
Abby’s detailed recounting of her startup’s rise and fall is a crucial resource for any early-stage founder. Her insights highlight not just the tips for success but the stark realities and challenges behind the glamour of startup life.
For a more in-depth dive and actionable advice, make sure to listen to the full episode YouTube or read the full transcript below her bio.
Abby Sugar’s Bio:
Having worked as a writer, editor, and independent personal trainer, Abby Sugar is a lifelong learner and taught herself about fashion, business and startups after studying English Literature in college. Abby is a graduate of Barnard College, Columbia University, and studied abroad at Hertford College, Oxford University.
To Abby, learning is everything, and her life motto is f*cking figure it out – so she set out to build the brand that she and her cofounders wish existed when they were younger. As an outgoing, unapologetically queer startup founder, she strives to be a leading voice in and for the LGBTQ+ community. Abby founded Play Out Apparel in 2018 with her cofounder, Grey Leifer. As Play Out's CEO, Abby:
- Graduated from the Founder Institute as a Select Portfolio Company
- Raised $750K in pre-seed from mission-aligned investors and secured loan opportunities
- Won $20K from the National Business Inclusion Consortium’s pitch competition and $10K from Alibaba and HelloAlice (chosen as 1 of 50 winners from 12,000 applicants!), as well as winning other pitch competitions
- Shared her story in the New York Times and Forbes
After an incredible journey, Abby closed Play Out Apparel in 2024 to pursue other opportunities as a startup founder, consultant, and investor.
Abby was named to the Forbes Next 1000 List in 2021, she speaks on podcasts, international panels, and gives frequent interviews about startups, fashion, diversity and inclusion, and topics important to LGBTQ+ individuals.
Be sure to SUBSCRIBE to Multitudinous Musings, Abby's monthly Substack Newsletter, where she shares general educational articles about startups and investing, longform journalism, and poetry/literature that she reads - it's also known as Sugar's Recommended Reading. https://abbysugar.substack.com
Transcript:
Lance: I think the startup ecosystem has an almost cult like relationship to successful founders. We study their stories, we listen for their pearls of wisdom, we try to understand what made them successful. But I think, in many cases, we really don't know why they were successful. It could have been so many things.
They have theories, but they could easily be wrong.
However, when things go wrong, it's almost always clear what happened. So today, I want to dive into one such example and see what we can learn from it.
Welcome to Feel the Boot, the science of startups. I'm your host, Lance Cottrell, and I'm here to help you navigate that nearly vertical learning curve you're going to encounter as you launch your business.
I know what it's like, I've been there myself, and I've helped countless other founders along their journeys.
Now, this episode is part of our series on Founder Insights, things you need to understand about the founder process. And you can see all the other episodes on this topic over there.
For this episode, I interviewed Abby Sugar.
She is, without question, one of the most impressive founders I've ever encountered and every other person in the ecosystem that's talked to her seems to feel the same way Despite that her startup play out apparel didn't end well But she's one of the few brave founders willing to publicly unpack exactly how things went down. I'll put her full bio down in the description.
I think you'll find a lot of really useful insights that you can take away from our discussion. She talks about many of the unique problems that she encountered in her journey, as well as some that are far more common to many startup journeys, including issues with co founders, Uh, market trends and timing.
Abby, welcome to Feel the Boot.
Abby: It's so great to be here, Lance. Thanks for having me.
Lance: Yeah, we've been trying to schedule this conversation for a long time now, so I'm super excited that we were finally able to talk. And I wanted to have you on because I and all of the other people in my angel network who met you and talked to you when you were going out and doing fundraising for your startup were incredibly impressed with you.
And so I wanted to talk a little bit about kind of where that experience went and how things turned out for you and then explore the lessons that we can take from that whole journey. So maybe we could start off by just a little bit about PlayOut.
Abby: Yeah, so I'll even start out with, you know, How you just started this conversation of, I think it's even advantageous that it took us a little while to be able to connect to have this conversation because it allows more reflection, more understanding of, of what happened or processes in a startup's life, in an entrepreneur's life.
Um, and I think that I have a little, even more insights maybe than when we first talked about. Having me on feel the boot a few months ago, so I'm really happy to be here and to be sharing that, um, for everyone else. I met Lance through the founder Institute, um, that I went through for my startup play out apparel, and this was in January 2020, actually, which how do you feel about the pandemic?
I mean, it all feels like time has gone. I cannot believe it's now mid 2024. Um, but I think that we first met through the founder Institute initially when I was in the accelerator and then reconnected about a year and a half later when I was out fundraising for Playout. Maybe I'm jumping the gun here.
Maybe we didn't meet in Dondrinsk too, but it was definitely through that network.
Lance: Yeah, definitely. And I'm sure it wasn't, it's, it's now long enough in the past. And that, that whole time was fuzzy. I I'd have to go back and do some
Abby: time is not
Lance: archaeology to dig out what exactly that history was.
Abby: Yeah, exactly.
Um, and so just to share, you know, with, with your listeners, um, I was the founder and CEO of play out apparel and play out was sort of the gender equal apparel and community shopping destination. And it's funny because I have, this pitch. It's so ingrained in me, even though, um, I've moved on from play out.
But that's what happens. I mean, you should have your pitch so ingrained in you right when you're going out and raising money. Um, but
Lance: you should be talking about it all the time.
Abby: Exactly. And you should be able to concisely and easily explain what it is right. Um, and so, you know, the question is, What is gender equal apparel?
Why is it necessary? And what we were building was we were an e commerce brand, but the vision was definitely to be more than that to be a safe space. Um, and to be the leader in Gen Z shopping habits. So all the data Which was true in 2020, 2021, 2022, is, is even more true now, um, is that Gen, 85 percent of Gen Z shops outside of their assigned gender, or is willing to disregard gender categories because clothing is clothing, they want to be comfortable, they want to express themselves, and so when we say gender equal apparel, it's not just unisex, it's not saying Here's a pair of shorts and it's one size, you know, fits all size.
It's saying that, you know, for gender equality, all gender expressions should be celebrated, should be valid. So we're not saying this is a men's shirt or a women's shirt. It's just a shirt. Um, we're also, you know, not saying that a man has to wear something that looks a certain way or a woman has to wear something that looks a certain way.
We're saying this is a skirt. No matter what your gender identity or your gender expression is, choose what you want to wear. Um, so, you know, that's a little bit about the, the company. We started out designing underwear. And again, you say when you talk about body types, that's a hard thing to start with.
But it was actually quite easy because we're not saying it's men's underwear or women's underwear. We're saying it's men's underwear. Here's a pouch version. Here's a flat front version. Everything is equally available in prints and colors. So it's not, you know, pink is for this body type. Um, just shop your style, not your gender was, was our approach.
Um, so we sold underwear, We expanded into swimwear, which was was very much welcomed. And we also expanded into athleisure. Um, so I went through the founders to startups accelerator in 2020. It was the last in person cohort before everything moved virtually. Um, and then we had great success in that program.
We, I, you know, we'll get into what I learned as a founder, but taking, you know, doing tests, taking risks, and then decided, um, I had an amazing team. I had built an amazing team. And so went out to fundraise in 2021, uh, which was just pre crypto winter and everything for our pre I'll stop. I'll let you ask questions.
Lance: So what, what was the, uh, your experience of doing that sort of fundraising? Cause this is not your classic kind of SaaS startup. It's, it doesn't fit the, the mold of most of the investors out there. And, and especially for these sort of older white male cishet kind of, uh, angels, this is going to be a bit of a challenging topic.
Abby: You know, Yes. And no, I'll say no. It's not a challenging topic just because of who I am and what I was building. Right? So, um, you know, I think if you look at and and maybe this is getting a little bit too big picture, but you look at articles by underrepresented founders, you you look at even people. I think that I hate to say this.
Watch Shark Tank, right? You always have these, like, questions of, you know, do you invest in the single mom who is building this business, right? And there absolutely is something to be said for the grit and resiliency that's required to go out and do this. And so, you know, I am cisgendered. I identify with my gender identity.
With the sex that I was assigned at birth, but I am part of the LGBTQ community If I'm on a podcast and I don't say at one point that I'm like really really gay, then I've not Represented myself properly. It always happens, right? So here this is me saying that right? So a queer female startup founder and we know the statistics for female startup founders raising money and They have been improving.
Actually, Crunchbase and PitchBook just came out with more info. They've been improving for dual gender teams. One one female founder with male co founders. Unfortunately, for solo female founders or all female founded teen startup teams, it's still pretty dismal. Um, and so we're talking, you know, I was raising 2.
5 3 years ago. And so you're already looking at this. underrepresented founder, you know, bias. And then you are absolutely correct. I chose the absolutely hardest, um, type of startup to raise money for. And there's also something to be said, we can get into this about timing. So in the early, meh, late 2000s, mid 2010s, there was a lot of investor.
and interest in direct to consumer companies. Um, so Andy Dunn, who's the founder of Bonobos, Bonobos was acquired by Walmart in 2017. Um, Andy was one of Playout's angel investors. Um, cause he understood the industry, but he also knew people weren't investing at that time, right? You can look at things like, um, the darlings of direct to consumer, Startups such as Outdoor Voices, Tyler Haney, Ty Haney, sorry.
Um, you can look at things like, you know, Bonobos and Warby Parker were the ones that started really, but also these, these brands expanded beyond direct to consumer. And what I, the vision that I was building also was. Um, what we're gonna talk about today is Omni channel retail. And when I first started the company and was in the founder Institute talking about omni channel retail, meaning meeting your customer where they are, right?
So combining a traditional wholesale. Business to business to consumer approach retail approach with your direct to consumer approach. Um, people didn't know what the term on the channel was outside of fashion and retail. And of course, we've been in the retail and fashion industry for decades. 10 years at that point and and starting in, you know, 2006 2007 Macy's, the Fashion Institute of Technology, professional education, all of the fashion schools were always talking about omnichannel retail.
Um, it's only in the past two to three years, uh, that online advertising has gotten much more expensive. The web, the web has gotten crowded, getting, getting eyeballs on your website. Whether it's as a service provider or a product that you're trying to sell, it's, it's really expensive. Um, and it's hard to get those eyeballs.
You're, you're one website out of billions, right?
Lance: Do you think that that was something that you could have or should have been able to sort of see as a trend that you would have needed to take into, into account?
Abby: The increasing cost of advertising online? Um,
Lance: Yeah, the increasing cost of advertising and sort of the decreasing appetite for the direct to consumer models.
Abby: Hmm, hmm. I think from an investor perspective, um, the decreasing appetite for direct to consumer
I was aware of, but I, there's, there's perhaps in every founder or startup entrepreneur ego involved saying, I understand that, but What I'm doing is valuable and good, and I'm gonna find the right people, which I did. You know, I raised close to three quarters of a million dollars for our precede. Um, from a business and revenue perspective, um, I have learned a lot about the cost of advertising online and what it takes to get eyeballs online.
And I don't know if I could have predicted it, but maybe, you know, I hate saying this, but so much comes down to if you're funded or if you have available budget to do things differently, right? So even if you say, you know, a lot of investors will say, well, what about organic marketing and advertising? And it's like, yes, seeding your product, whether it is a consumer app or it's a physical product.
Seeding it to micro influencers and, um, getting the community excited about it. Unfortunately, because of the way that Facebook and Google have, uh, solidified and changed their revenue models, even going to micro influencers costs money. And so it's like, yeah, instead of paying 500 for an ad, you're paying 50 to a person to get it out there.
But you need. 10 of those people and you need to pay them 50 bucks. So it's still a budget. There's no such thing. I promise you there's no such thing as organic marketing anymore. Even if you want something to go viral on Tik TOK either. Yes, you can create it yourself and you can hope that the, The Gods, bless you.
The TikTok Gods bless you in this way. Or
Lance: you can buy lottery tickets too.
Abby: Right? Exactly. Or you partner with, instead of paying for direct ad, you know, online people value the, uh, reputations of these influencers. So you're not paying for a direct ad, but you're paying an influencer, right? And maybe that influencer, your budget goes to pay for sponsored ads.
influencers because then it has that influencers name on it, introducing your brand, but it's still paying for ads. And you know, we all know that when you're scrolling on whatever social media platform, you're hardly seeing posts from your friends. You're seeing ads, right? Like not even your friends. And so saying something like, you know, we're gonna go have all of our friends talk about it is fine, but there's no guarantee, especially when you're registered as a business.
account on these platforms, people are not seeing your organic posts because they want you to pay to promote it.
Lance: Right.
Abby: Um, so in terms of fundraising, you know, I think that I chose as an underrepresented founder, I also chose the hardest product to launch and to fundraise with absolutely a hundred percent.
Lance: But nevertheless, you were able to get $750k in funding. through this process. So what happened then?
Abby: Yes. So we raised pre seed. I want to say it was 2021. Um, with the vision to go and raise a seed round in 2022. Um, I had a amazing team. Uh, and, and really this goes to a lot of learning that I've taken away in terms of co founders and building a team and also.
a little bit shiny object syndrome. Um, what's inspiring to me is that my team was industry veterans. Um, and that was impressive to investors. Unfortunately, them being industry veterans actually did not work in my favor. It did not work in my favor because they were not startup. So my Co founder was the former director of creative production for intermix this luxury fashion house They'd been in luxury fashion for 20 years close to And my COO was the former country CEO of H& M Mexico.
So this brought me CMO design in my co founder and it brought me retail expertise Um, and financials, etcetera. He and I shared the CFO management, right of all of our CFO and CRO, if you will, like he and I work together on this. Um, and so that that definitely in the beginning helped me with raising money.
Um, in the end, they did not understand the we're not a big, uh, company with this big budget that you're used to working with. So the, here's an idea for a marketing plan and whatever. And the conversation would go well to do that correctly. It costs X, Y, Z, and we don't have the funds to execute it with that imagery, with that, whatever, whatever.
And, and my answer as a startup founder was, I understand that fucking figure it out. Like we need to work together because we don't have those resources. And so it's having that, um,
awareness, which is something I'm taking forward right in in meeting other startups for potential co founders, et cetera, et cetera.
Lance: Yeah, I've seen exactly the same thing frequently as people with the corporate background know how to do it correctly. And they've got this model for how to do it. And, you know, with the startup, you're always using chewing gum and bailing wire and tying things together and getting creative and, you know, working out some squirrelly way of doing it at 10 percent the price, uh, you know, just
Abby: excuses are not acceptable, right?
Like saying, we can't do it the way that I want to do it or the way that I want to look, want it to look is an unacceptable answer. It's an excuse for, I'm too lazy to figure this out. At least that's. Sort of my feeling about it having gone through all of this frustration. My approach to the world is, is two things as a startup founder.
One, I've said it before, I swear like a sailor, but is fucking figure it out. And two is. Always upgrade your problem. So if you are experiencing the same problems, you're not actually growing and building as a startup, as a, as a person or whatever. Right. And so if you're, if your problem is, um,
I don't know, like the minimum order quantities from the manufacturer have increased two X. Great. That means your new problem is, um, Increase your sell through rate and your customer base, right? As opposed to you're just starting out. You're in the idea phase, and you don't even have a manufacturer, right?
Like you've upgraded your problem. I think that that's a very simplified example, and you could probably give better ones for for software companies. Um, but, um, That's those are the two main approaches that I take so yeah,
Lance: yeah, I mean, I've certainly seen companies that that get Sort of paralyzed by the prospect of success like oh my god, if we get this many users It's gonna overload our systems and we're gonna have trouble scaling.
I'm like, that's the problem you want to be having
Abby: Yes, absolutely Yeah, so back to your question. So I had this team. It wasn't just the three of us. We also had a team of we had our manufacturer with the precede funding. We had a digital marketing agency that we were working with. Um, I still I don't regret spending the money on the digital marketing agency because when you are a small startup, you can't do everything in house, right?
Unless you're saying, you know, I'm raising 5 million and there's a budget to have that marketing in house, but having a team of people that has someone that, you know, does the Facebook ads and the Google ads and the, um, Facebook and Instagram go together, Google ads and the email marketing. Right? Because that's, that's, that's, that's.
Three people to have people that are experts in each of those areas. And if you have an agency, they have those people, right? As opposed to you needing to hire individuals that know what they're doing. Finding someone that can do every single one is, is sure be, be a startup with a generalist, whatever expensive or impossible, right?
Um, so, so, so we had manufacturers, um, we were manufacturing in Mexico at a woman owned factory that hired LGBTQ people. So that was really amazing. They're great partners. The second was this agency. Um, and then we had freelancers in house, right? So digital artist for all of our content that we needed, uh, to be creating, because that's the other thing is that social media is content hungry.
It's expensive to constantly be creating this content. And we were really good about using the created assets in multiple ways. Um, really good, but you constantly need to be feeding it. Um, and then a data analyst and a community brand ambassador manager, right? Like, so we had a team, so, okay, let's go. And, and I had one.
In addition to the money I'd raised. I'd won, um, a number of grants in 2021, I want to say. Um, so a grant from Alibaba that they had done, um, I think with eBay for 10, 000, which when you're operating at the scale we were operating at, um, our monthly burn rate was about 45, 000, which for a startup, totally reasonable.
Um, so 10, 000 doesn't make a big dent in that, but. We were one of we they awarded 50 grants. I think we were chosen out of 12, 000 applications. So that's what you get, right? Um, we also were part of the Macy's workshop, which is their incubator for retail brands making those connections. We were sold on Macy's dot com.
We were the first ever gender equal brand to be on Macy's dot com to be. Dual merchandised. So what that means is merchandising in retail is where you display and sell your goods, like what merchants it's sold under. So men's section or women's section, we were dual merchandised with the exact same product and the exact same images, because again, gender expression doesn't matter when you're wearing our clothes.
Um, so we were the first ever brand to be dual merchandised on Macy's. com in the men's and women's sections. You could find it both places without. Gender, um, labels on our own, uh, copy and descriptions. So,
Lance: and was this a strategic initiative for, for these retailers, something that they were wanting to lean into?
Abby: Yes, absolutely. Um, you know, I think that so, but so then went to raise seed in 2022 is what this whole story is about. And the interesting thing is you asked about, um, Raising money as a physical product. Or even take it a step further apparel, and I still believe with the uncertainty in the markets, even tech investors are looking to diversify their portfolios.
Um, so you can also talk about and we can get into it. Are you investing in in the product? Are you investing in the founder? Are you investing in the traction, right? Everyone has different things that they're thinking about. And so. Most of my investors were tech investors, which is great because there's a lot more money available first.
But second, it's terrible because at the beginning of 2022 was, uh, the invasion of Ukraine and the Ukraine war. Soon after or around the same time you had the crypto crash. Um, and so in 2022, at the very start of it, when I was going to go raise seed, it was like. People were really worried about the global economy, and that's when, you know, we started seeing all these.
I mean, yes, and this is still during the pandemic, right? So you still have the impact on the economy from the pandemic, um, as a brand as a as an e commerce brand starting in 2020. We did great during the pandemic because everyone was shopping online, and people still are. It accelerated that trend. Um, but so, so then.
Lance: Well, an investment was on fire during that period too, right? Valuations were going up. It was, it was insane. And so by the time you went from pre seed to seed, the air was going out of that balloon.
Abby: Exactly. Exactly. Um, and people in Q1, 2022, after the invasion of Ukraine. We're like, well, we're waiting to see what happens and then crypto crashed.
And so then it's, well, we're waiting to see, you know, I've lost 50 percent of my crypto portfolio. I need that to recover before I make any investments. Talk to me in Q4, right? The issue is when you're a startup and, and maybe I kept going for too long, but the winds can change in two weeks, right? If you are out there pitching correctly.
You can get a 200, 000 investment and that can change what your runway looks like in a month, right? Um, so I got during that time, the other issue was investors pulling back and reinvesting in existing portfolio companies to keep them afloat, right? So that posed a challenge as well. Um, and we can get into types of investors I'd target differently than what I did, but anyways, So, so this issue of runway is you're raising money.
The winds can change in two to four weeks. Um, you keep going, you keep going out on a limb, right? Um, but when they said come back in Q4, we were going to run out of money in Q2, right? So it's like not helpful. Um, I got one of the best rejections. Ever. Um, from an investor that said, you know, your cultural moment is perfect.
Your team is impressive. You're just fundraising timing is terrible. Like, we're not investing in new companies because we're keeping our old companies alive. Um, it was a really great rejection. Um, but but then this brings me back to okay runway, right? And this brings me back to Corporate backgrounds, which is had a conversation with my co founder where it was like, this is the reality we need to cut these, you know, teams and everyone was a freelancer and we were working with a digital marketing agency, right?
So let's cut the agency. We need to just batten down the hatches and do this ourselves. And my co founder coming from corporate, their response was, you know, If we cut the marketing agency, and we have to stop using these people, then we don't, how can I say this, we don't have, um, then we can't do the marketing.
We can't do it. I can't do it without them, blah, blah, blah. And I was like, if we don't cut these things, we run out of money and we have, we don't have a company anyways. We can't do anything.
Lance: That's right. There will be nothing to sell if we keep spending money.
Abby: There will be nothing to pay people with if we keep spending this money.
Right. Um, so I, I, at one point took out a business loan that I personally guaranteed to give us four to six more weeks of runway. Um, and the other thing about raising money and the other thing that's a frustration is that I do think severely impacts underrepresented founders the most is what I like to call ghost money from fundraising.
So you have a company in business. You're, you know, maybe you're making revenue, maybe you're growing in other ways. Right. You're, you're, but you're not profitable, right? Because who expects you to be Right? Um, but you're, you're in operations while you're raising money. So every month you have your budget and you have your burn rate, you have the expenses you need to pay, and you're raising money, but you get a $25,000 check and that goes to pay bills.
That you've been racking up because you're already in operations, as opposed to going out and raising a chunk of change for growth to to invest in the activities that are really going to get you to the next level that are going to be a step above for your growth. And so I see it all the time. You know, it has convinced me.
I think it's, it's so hard because. Um, and so the question is, who do investors invest in? What do investors invest in? If you have an idea stage thing, and you don't have any traction, but maybe you're part of a privileged group that can go out and say, I need 2 million to build this, and then you have that seed money to launch.
Whereas if you are are in operations and building something because you need to show traction to investors. You're from an underrepresented group. Um, you can't raise on an idea. Um, because they say, well, we don't believe in this idea, show us the proof. So then you have to go out and you start being in operations.
And then you get into this raising money to pay bills that exist. Right. And
Lance: no investor wants to do that because they want to see the money going into growth rather than just funding survival.
Abby: Um, so, you know, who knows if this will, will change, um, I sort of made a promise to myself to not do an unfunded startup again.
There has to be funding. That being said, uh, I did do three months as a fractional COO role at an unfunded startup, um, where the founder was supposed to raise the money to make it happen. Um, and that didn't happen. There's a lot of reasons for that. Um, and then making it, making a decision with myself saying.
Do I want to carry this company? Because I know I have the lessons that I've learned. I have an incredibly supportive network. I also have an incredible, uh, warm connections network. If I do this, do I believe in this co founder? Do I believe in this thing enough to carry it? Because, because they had tried, I said to them at the very beginning, raising money and I'll, I'll say this to everyone listening.
Raising money is going to be one of the hardest things that you do. Um, and their response was, well, I've, I've had rejections before. I've heard no. And I was like, you don't understand. I did this for 18 months.
Lance: That's right. It's, it's not one or two no's. It's, uh,
Abby: yeah. And, and after five, six weeks they said, well, my network's not interested.
And I was like,
it took me 18 months to raise 750. Like, You don't say, Oh, I have no one else to call. Cause it's been four weeks. Right. Without a check. Like, so, um, I have lessons that I've learned. Absolutely. Um, but I also think one of the lessons that I'm struggling with is I do feel like I can do it all right. Like fucking figure it out.
That's my motto, but I shouldn't. Right. Just because I could take on this company and. Execute on it doesn't mean I should. So
Lance: I mean, you, you are effectively making a gigantic investment when you, when you come onto that and, and you do sort of need to think about it in the same way you would writing a large check.
Uh, 'cause you are basically,
Abby: yeah. So, so what is the time in your life? .
Lance: So you're running, you're running outta runway. You're, you're your. sort of conflicting with some of the co founders. You're, you're sort of debating, you know, direction. Do you do sort of a radical rescaling or try to just keep making the thing work?
So what, what, so how did that play out?
Abby: Play out, play out apparel. How did it play out? Um, so I, you know, I guess I'll just be radically honest. I don't know how much you, I mean, I think you talk about your, your health challenges and your, your inspiration on this podcast. I think that there's a lot of lip service.
It's paid to founder mental health. That is just that. It's lip service. Um, I don't know how to fix it. My father's a psychiatrist. I have a very high EQ. I consider myself like an armchair psychologist. I've never taken a psychology class in my life, but I absorbed everything from my parents. My dad's a psychiatrist.
My mom's a neurologist, right? Um, I, you know, in the last six months of my fundraise. In the running out of runway, I was not. Okay. Um, and I absolutely was suicidal at one point, and I was suicidal for two reasons. One is, you know, whether you're a small company, the CEO of a small startup or the CEO of, of Fortune 500, you know, there is this, this, you are responsible for people being able to.
Pay their rent or feed their children or whatever. Um, so, so I felt that weight. I also absolutely did not have the support of my executive team air quotes, which I would consider my co founders. Right. Um, and so when, and, and I mean, this goes to a lesson of, um, Knowing your co founders, choosing your co founders.
Or, or. Communication. You know, I think that having gone through this, everyone should have, uh, couples therapy with their co founder. Um, so when I would look for that support and say to my co founder, you know, this is what I'm really stressed out about. Their response was, um, if being ceo and raising money isn't the right job for you will find someone else.
And that's We started this conversation, Lance, by you saying how impressed you and your angel network were with me. I'm really good at my job and and it is absolutely a core talent of mine. I that, you know, if it goes back to communication to EQ to connecting with people to building relationships, one of my superpowers is building relationships, right?
And so that absolutely was not the case. Um, It was a timing and situation and not having support, you know, that's not the answer. Um, and, and so that happened. Um, so we were running, uh, so that happened, uh, about six months before we ran out of runway, uh, before we ran out of cash. And then what I took from that conversation and this goes back to founder mental health was deal with yourself, pull yourself together and get it done.
Um, so. We can talk about the isolation of being the CEO of a startup or any CEO, right? Um, so, so that was that. And then we got down, you know, three months later to the conversation about we need to cut our monthly spending and, and the pushback that I got. And then the other thing I learned was, um, and I had this conversation with a mentor of mine, um, my co founder and my COO, my COO was.
Eight to 10 years older than me. My co founder was, uh, 19, 18, 19 years older than me. And they brought this again, corporate experience, which was a shiny object to investors. Um, now I'm not 20, right? I, I was early thirties at the time. Um, mid thirties even. And when I talked to this mentor of mine, when we first met, I said, She said, you know, she was really impressed when my co founder decided to join me because of their,
but I was the, I was the linchpin building and running this company. Um, so what this, what this works into though, and I think that everyone is, it's a process or you need to do the work on yourself as a founder. I deferred to my co founders more than I should have being the CEO. Because they're older, more experienced.
You know, I trust their opinion of things. And also, I was, I was maybe afraid is too strong of a word, but I didn't stand up for my
what I wanted to do or what I saw needed to be done. So, for example, my co founder wanted to buy more inventory. And I was like, Look, the question is, do we buy the inventory or do we pay for advertising? Because we can't have more inventory and then not have a way to sell it. And their response was, you know, well, if we're designing a capsule collection of apparel, we need to expand the offerings so that people will buy the pants we've designed with the t shirts.
We never should have expanded beyond underwear and swim
Lance: just because the, the, the, the cash requirements of having the bigger portfolio.
Abby: Yeah. And we didn't have our, we had our target customer, we had our core customers, but We didn't have enough revenue from that core customer group yet to sustain expansion. Um, so, you know, now this is three months for three months, two to three months before running on a runway.
Um, after having the conversation about not cutting expenses was when I said, okay, I'll take this, this loan out. Because I'm still trying to raise money because again, the winds can change in two weeks, right?
Lance: Right.
Abby: Um,
Lance: yeah, one, one good meeting changes everything.
Abby: Yeah. Um, and it's at this point that we can talk about, you know, I did not have, I had angel investors and micro VCs on my cap table.
I did not have a big lead investor that I could go to and say, here's the reality of the runway. Can you float us a bridge? Right? Like the angel investors were tapped out. They lost 50 percent of their savings from the crypto crash. Right? Um, so I didn't have that. And that's why I say, you know, what type of investor are you going to?
Are you getting funding from? Right? Um, so I took this loan out and, you know, we had. The other thing was when we were spending money on advertising, if we were spending 11, 000 to 12, 000 a month on advertising, we were seeing 15, 000 in revenue, right? Like we were not not generating sales, right? Except that eyebrows eyeballs on the internet are expensive.
And yes, we are making 15, 000. But as I said, our burn rate was 40 to 45, right? Um,
anyways, so we ran out of money. Um, and it, it happens in startups. Um, when the number one
Lance: cause of startups going under is, is just, yeah, hitting the end of the runway. And if you'd gotten more funding, you probably could have done something interesting, but you don't have any maneuver room anymore.
Abby: So it was at this point in June that we ran out of runway end of June.
Um, and my co founder basically said,
I had, I had pivoted. I had pivoted from raising 2 million seed to being like, we're going to raise a bridge. We're going to raise a bridge. 000 just to get us to Q four or Q. One of the following year when hopefully crypto Ukraine, World War three, etcetera will be different. Investors will be in a different place, right?
Um, so we run out of money because I was unable to raise this bridge and my co founder basically said, Well, what do we need? We only need 300, 000. Uh,
I will get the money. I will be CEO. I have investors who will only invest if I am CEO. And I, you know, made an assessment of the situation because remember, I was suicidal and and desperate and because I had no support because I was trying to keep this company afloat myself. Um, and so either it was shut it down and walk away or okay, you think you can do this here?
Be my guest. And also I said, where were these investors? Four months ago because we're a team. We're building a company and a mission. It's not about one person being CEO or not. Where were these investors four months ago? We wouldn't be in this situation. And there was no answer. So I did a lot of internal work if they are successful with raising money and taking this on and being successful processing the loss of identity.
Processing the handing over of the company that then went on to be whatever I kept my shares, right? Okay, you go raise money.
The company survived four more months and and survived is is a strong word They they were not able to raise money and they were not able to raise money because of they said The company was carrying too much debt the company the company had 80, 000 on a credit card that was used to purchase inventory like there's startups that run multiple hundreds of thousands carrying debt, right?
And and the debt, it was a line item in the financial model. It's not. We're taking a 50, 000 check to pay that. No, no, no, no, no. We're taking the 50, 000 check to increase our revenue and grow our sales. And 5 percent of sales is going to the credit card bill every month, right? Whatever it is, it's just a budget item.
So they didn't understand how to because they were a designer. They were not finance person. They didn't understand how to discuss. The financial model and the finances and the projections, which I built, by the way, um, and also they said, you know, the global economy is just terrible for raising money right now.
And I was like, Yeah, that's what I've been saying for six months. Um, and and then when I came back, um, so so the reason I took the company back was because of these personally guaranteed loans. So if the company was to to file for bankruptcy. Um, I still would have to personally pay them back. And so the other thing is, you know, this could be a separate conversation, but why do companies file for bankruptcy?
It's kind of like a public announcement that you can't pay your debts. So you're asking somebody to step in and save you, whether that's another corporation to buy you or private investors. It's kind of like an announcement that you're on sale, right? Um, As a tiny startup with, with no value outside of the valuation we've created by raising money and, and the inventory assets, not just us, any startup at this pre seed stage, no one's going to acquire you.
No one's going to whatever. Um,
Lance: You don't look like an aqua hire. You're not, you know, doing deep tech or something.
Abby: Right. Um, it's not advantageous in any way to, to declare bankruptcy. Um, so I, so I stepped in and I was like, I'll take the assets. I'll do what I can to pay off the debts, just, you know, ghost running it and came to discover it wasn't just, I mean, it was in a much worse state than when I had left it.
There were multiple, multiple bills that had not been paid because there was no money. And those contracts, they were month to month should have been walked away from in the first place. Um,
Lance: so. So would you say that one of the lessons of this, it was radical cutbacks needed to happen much earlier?
Abby: Yes, absolutely.
Um, but then one of the lessons was
self awareness in what your limitations are and choosing co founders. Cause, and one of the setbacks is your CEO, you make one of the, one of the lessons is your CEO, you make the decisions. So even if you're getting pushback and excuses. Yes, a startup is different than a big fortune 500, but you're building it with a co founder But if if there's if it's about cutting back or not cutting back to make the company survive You're the CEO you make the decision, you know take responsibility for those decisions, but Ultimately stand up for yourself and do what needs to be done.
Lance: Yeah Once you reach that point where you're
Abby: when you're suicidal and depressed right so like
Lance: For sure, and I think that's very common that when people are getting into That situation the run into the runways coming up. The pressure is It's inconceivable and, uh, you know, you're, you're beating yourself up more than anyone else is beating you up probably and, and, you know, you're trying to carry everything yourself.
Uh, I mean, I, I did a whole episode literally named my worst day as a founder. And just kind of walking through one of those sort of dark moment of the soul situations. Um, and I did it just because I think we, we need to talk about how rough these situations are and having, uh, some kind of a support network around that can, can help you through that.
That isn't the people you're butting heads with. It's incredibly important.
Abby: Yeah.
Lance: Yeah. Yeah. So what's, what's next? What are you, what are you working on now?
Abby: So. I've been doing a lot of, uh, consulting and advising, uh, taking these lessons and teaching them or bringing awareness to other founders when they go out to fundraise.
Um, the other thing that I learned is truly my network invests in me. So I have not come across a company. I sort of evaluate having dealt with investors for so long. Pitched investors, one pitch competitions, etcetera. I evaluate pitches. I mentor for the Founder Institute, but I evaluate founders and their pitches for better or worse from the mindset of what an investor is looking for.
Um, and I've not come across one that, you know, this was a decision I had to make with with the three month contract I had. Do I want to Do I believe in this? If I'm assessing it as an investor, do I believe in this founder or do I believe in this product enough to bring my network along because they're going to invest in me and make this happen?
And I've not I would like to find that or I will come up with my next thing, but I need a little time to recover. Um, so I am always open to fractional work. Um, as a startup founder. I bring not just the greater strategy and and vision, but execution as well. Because in a start up, it's you, you got to get it done, right?
Um, so that's what I say. Differentiate differentiates me as a consultant. It's not just coming and saying you should do X, Y, Z, but saying we should do X, Y, Z. I will execute it for you. Um, Um, because I can do all of these things now. Should I do all of these things? Is the question
Lance: that's a whole nother one.
But it's a really interesting point. You talk about of your network because reputation capital is so important and so easily spent, um, you know, and it's, it's, it's funny. Like, I get it all the time. I'll say no to some founder in terms of that's asking for investment. And they're like, can you refer me to anyone else?
Can you make an introduction? And I don't sort of want to say to their face, but No, the first question they're going to ask is, why didn't you invest?
Abby: I mean, I think it's easy if it's a, like you and I, right, you invest in Software. Right. And so you are not investing in a physical apparel product because you're not investing in physical, like that's easy , right, right.
Yeah, yeah. No, exactly. Exactly. Yeah. Yeah. Right.
Lance: You're, you're not even vaguely in my, my investment thesis, so, right. Um. You're right. Yeah, if, if that does make a difference. So if it's, yeah, you're a wrong stage for me, I'd be happy to introduce you to someone who might invest at the right stage. But if I'm saying no for more fundamental reasons, uh, but even, even yeah, just making that introduction, you want to be, I am very, very careful about who I endorse because if they look at it and they're like, what were you thinking bringing this person along?
They don't take my next call. And, and it is, you know, the, you're, you're counting on, and you're only as good as the last recommendation you made. So you're always trying to shepherd that along. Well, thank you so much for, for coming on feel the boot and talking. I always feel like I could talk with you for hours and hours every time we get on a call.
But you know, I'm going to have to edit this and have to keep this under some control, but thank you so much. It's been a great pleasure as usual.
Abby: Thank you so much, Lance. I'm so. I'm so grateful to have been able to do this conversation with you.
Lance: Thanks for watching this episode. I hope you took away some actionable insights from the conversation with Abby. And if you found it useful, please do the usual. Like, subscribe, and ring that bell. It really helps the channel, as well as making sure that you will be alerted to new episodes when they come out.
However, keep in mind, YouTube's algorithm is not great at that, so you probably also want to head over to feeltheboot.com and sign up for our newsletter bootprints. In addition to getting notified of absolutely every episode that comes out, you also get access to my free members only office hours, and that'll be explained in your welcome email.
Until next time, ciao.
