81. My worst day as a founder 😭 how we pivoted, survived, and eventually thrived

Creating and growing a company can be an incredible experience, but you will have days that seriously suck. You will probably experience situations that challenge your determination to carry on.

Because I frequently talk about how challenging launching a startup can be, I want to share my worst day as a founder. I hope it helps prepare you for some of the trials you will experience on your journey.

I founded Anonymizer in 1995, but my worst day happened in the summer of 2000. That was the year of the dot-com collapse.

Leading up to this, tech companies became insanely overvalued. Angels and VC were snapping up ridiculous companies at absurd valuations.

In early 2000, investors started to realize most of these companies had no chance of ever making money, and the fundamentals could never support the stock prices. People began to flood out of the market, and valuations crashed. Many companies went out of business, and users became more cautious.

Despite all that, we were feeling good about Anonymizer. We had a lean organization and two different paths to success.

First, we had a term sheet from an angel investor who wanted to put a million dollars into the business. That would have given us enough runway to weather the downturn and grow our solution and user base.

Second, we had an acquisition offer from one of the world’s biggest security companies. They offered a very attractive valuation and would have been a big win for all my shareholders (including me).

Between the two options, we felt like we were safe. However, we needed something to happen because we were running out of cash, and our user growth had stalled.

Then, during the summer of 2000, three things happened.

First, our investor got cold feet. He saw his investment portfolio shrinking rapidly. The $1m investment was no longer money he could afford to lose. He rescinded his offer and walked away from the deal.

That left us in a difficult situation. We only had weeks of working capital in the bank. But we still had that acquisition offer to provide a safe exit.

However, shortly after the investor backed out, personal tragedy struck. Almost exactly a year after my mother-in-law passed away, my father-in-law died suddenly and unexpectedly. I was an emotional wreck and had to focus on supporting my wife and dealing with all the details and complexities of handling his modest estate.

Fortunately, I hired a CEO earlier in the year, and he was able to keep things running while I was off dealing with the situation.

Then, just a couple of days later, while I was still deep in the throes of grief, we got a call from the security company. They wanted to kill the acquisition deal. They had offered an all-stock transaction. Unfortunately, their stock price dropped from $30 to $3 over the summer. We would have owned a significant fraction of the company, and there was no way they could go through with that.

So, I was a basket case. We were hemorrhaging cash, had no prospects for raising money, and no one interested in buying us. I thought we were toast. Anonymizer would crash and burn, and I would lose everything. The only upside I could see was that my father-in-law died thinking we would succeed and would not have to see his daughter suffer through this disaster.

That was my worst day.

However, we were all too passionate about our purpose (and maybe too stubborn) to give up. We focused on survival with the hope that things would eventually improve and we might be able to find interested investors or other opportunities.

It was a rough 18 months before we were relatively stable. We laid off a significant fraction of our team, and we did not have any fat to begin with. We eliminated all unnecessary expenses and some we previously thought were essential.

We focused single-mindedly on revenues. Anonymizer sold subscriptions, so we started billing renewals a few weeks earlier to generate a few thousand dollars immediately. We needed all expenses to generate returns within 30 days. This was not a time for strategic actions. The only priority was to survive another day, another week, another month.

Anonymizer was always a lean organization, so our burn rate was modest. In a few months, we hit break-even and transitioned from being default dead to default alive. But we came very close to failure.

During that transition, our board members and previous investors stepped up to put in small investments that kept us alive. Without their support, we would not have made it.

This triple catastrophe was not our only close brush with corporate mortality. Over the next year or two, we had several others; all made more dire because we still just had weeks of working capital on hand.

These situations are nerve-wracking. You feel like things are hopeless and begin to question why you are suffering so much for a lost cause.

Eventually, things did start to turn around. In 2001, after 9/11, we discovered that the government needed anonymity solutions. We had just enough resources to cobble together an MVP for a local office. That led to other government customers, and within a few years, they generated over 95% of our revenues.

The government needed our solutions far more than consumers ever did. Our margins were far higher, and business exploded. After we settled on this new course, we never needed to raise funds again. But, if we had not survived those dark months, we never would have had the opportunity to pivot. The dead don’t get lucky breaks.

It’s during these trying times you realize the importance of passion. When, not if, you hit a dark patch, it’s the passion that keeps you going long enough for an opportunity to show up.

And maybe it never does. Without question, we were incredibly fortunate. Most companies that come within a whisker of death go on to die. After all, most startups fail. There is a good chance that you will struggle through these times, and it will not be enough. I can’t imagine going through that for something I did not care deeply about.

The startup journey brings stratospheric highs but also comes with abyssal lows. If you go in with your eyes open and a realistic understanding of the likely challenges, you will be ready when they inevitably appear.

Until next time, ciao!