Three years ago, I sold my startup because I was an idiot

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30Jul2010

Three years ago, I sold my startup because I was an idiot

Three years ago today, I sold the assets forming Feed Digest to Informer Technologies, Inc. It has since been rebranded to Feed Informer but is still operating mostly as it was.

I made a nice amount of money from it and I don't regret the sale, but, ultimately, I was dumb for letting Feed Digest to get to a position where it was better to sell than not. I need to go into some background for you to see why.

The genesis of Feed Digest

Feed Digest was a pioneer in "serious" RSS (and Atom!) feed manipulation and syndication services. It wasn't the first, but it was the first to seriously try to capitalize on the idea rather than offer these services as an "extra" on something else.

Users included NASA, the Smithsonian Institute, MIT, and, most importantly, the Denver Post, one of America's top 10 daily newspapers, who used Feed Digest widgets all over their site. About 250 million "digests" were being served per month by mid 2007 and from the outside, it looked like a promising business.

Feed Digest spawned from a side project called RSS Digest whose main goal was to take my Delicious links and automatically put them onto my blog. After hundreds of others though it was a great idea, I started to take donations (several thousand dollars in a few months - not bad for 2005!) and let people use the tool too. From this, enough promise was shown that I decided to "go pro" and a month before launch, Kelly Smith structured a deal for Curious Office to make an angel investment in my idea (for this gamble on his part, I will always be grateful).

A popular service, headed by a business dunce

The nascent business had a problem though - me. Though I'd been working for myself for 7 years before launching Feed Digest, it would be an understatement to say I was naïve about the concerns of "running a business." Feed Digest's pricing was ridiculously low (even the biggest "enterprise" customer was only paying $200 a month - most users were $25-50 a YEAR) and while it was in profit from the third week and had a flood of customers throughout, it was only making several thousand dollars a month after 2 years. Enough to keep it going as a "job" for me, but not a serious business that warranted further investment.

As with most webapps, a lot of hope was put into developing an all-magical "version 2" and I made good progress with it. In 2006 I got an e-mail from Michael Arrington who wanted to write about Feed Digest for TechCrunch (yes, one of the biggest and most influential tech blogs in the world). Being a closet perfectionist, I asked if I could hold until the magical version 2 was released. A crazy mistake. Michael has been kind enough to follow me on Twitter and occasionally throw a comment my way in the years since, I hope I can make up for my stupidity by giving him a good story one day ;-)

Service was always a massive deal for me. What I lacked in business acumen, I made up for by delivering the best service I could. Every e-mail got a response within hours, every criticism either resolved or accepted gracefully. I forget the exact numbers but in well over 1000 transactions there were certainly fewer than 5 refunds ever requested (and all were given). Users genuinely loved the service.

The sale

Service is only one leg of the stool in any business, and without a serious idea of how to grow the business it was destined to stay small fry unless someone else took notice. In mid 2007, I got a terse e-mail from a Russian guy asking if I wanted to sell Feed Digest and, if I did, his company would be interested in buying it. Negotiations were quick and my angel investors - who were supportive, but a little forlorn over my inability to drive it as a "real" business - gave the thumbs up, since the number mentioned ensure they'd get a healthy return on their investment. The deal was sealed by the end of July 2007 (no big story here, both sides did due diligence on each other and a good escrow was used) and the money hit my bank account in mid August.

It wasn't a lot of money. Well, it was for me. It wasn't a million dollar acquisition, but certainly more than most of the population will earn in a couple of years. A low six figure sale. For something merely making "a living" and keeping me up all hours of the night, I think it was a good deal. It turned into some healthy savings, a wedding, a car, and a chunk of the house we live in now, so I can't complain.

The contract I signed with the buyer meant that I was contractually obliged to defend them against any third party claims over patents, copyrights, and the like, for three years, ending July 30, 2010. Today, then, is truly the day all ties with the service are severed. It's the final period on the last page of the book.

What I've learned since

A benefit of having some savings is that I've been free to do mostly whatever I like since then. I've tried a lot of crazy ideas, got into pro blogging (with Ruby Inside), read a ton of books, worked on open source, and devoted a lot of time to learning and experimenting with business. I've got to know a lot of people in business and get a feel for how things really work, if just at a high level.

One finding is that many people running startups are no smarter than I was when I started Feed Digest. The difference, though, between me and the successful founders are that they are good at delegating responsibilities for areas they're not strong at, whereas I took a strong DIY approach, building not only the technology, but keeping books, design, marketing, and so forth. Not only that, but I wasn't brave enough to charge a sensible rate for the product and didn't understand that I should define my market rather than sell $11.99 annual accounts to people adding widgets to their personal homepages.

I've not become a Donald Trump, but I can now see what I was doing wrong and how I could have turned Feed Digest into a "serious" business (where "serious", at my kindergarten level, means enough revenue and growth to scale to multiple employees and make serious inroads to enterprise deployments of our services).

Not quite the end

Despite my Feed Digest story ending, it has caused me to reflect. I've written about the business side of things here, but the technical opportunities have changed significantly since early 2005 too. Building a Feed Digest style service now is incredibly easy.

Making something seriously powerful and sellable at an enterprise level is no longer prohibitively expensive, just dependent on having the right know how. Which.. I have. I've been building feed processing and manipulation systems in the background for other projects (such as coder.io) in the interim. This has only just made me think: am I crazy for not getting back into the feed processing and manipulation industry again?

So, I'm investigating it - slowly. I know what I'm doing tech side. I have enough contacts now to get things rolling. And I have a lot more grace and life experience to actually ask for help and be brave in making business decisions than the 23 year old me ever did. The industry is still small but, importantly, still growing (Superfeedr is a notable new player) and still considered important by the right people behind the scenes.

Should I get back to what I know and build a "serious" high quality product or service on my existing knowledge base? Honestly, I don't know, but it's going to be interesting trying to find out. After three years, it no longer feels like an unethical thing to consider.

Added: I want to take this opportunity to thank Marshall Kirkpatrick - now of ReadWriteWeb - who championed Feed Digest quite a lot in its early days. He is easily the most RSS-obsessed person I know this side of Dave Winer.

Comments

robgleeson says:
July 31st, 2010 at 12:12 am
I think you should try again, and take your past experiences with you into the future.
It sounds like you've got good expertise in that area, and you can really make a product successful(as shown in the past).

I can relate to you because I really know nothing of business.
I like creating stuff, that is all I know, so if I ever get into that position I'll remember this post.

Thanks
Rob
Dave says:
July 31st, 2010 at 12:29 am
Thanks for posting.

As someone who is in a similar position you were, what advice do you have? I have a website that generates a few thousand dollars a month. Like you said, it's enough to live by, but I'm doing everything myself and I'm not sure how to scale.

You mentioned being able to see what you were doing wrong...what was that? Do you have any tips?

Thanks again for posting, good stuff.
pjammer says:
July 31st, 2010 at 12:43 am
Curious Peter, did you have to sign a non-compete agreement? I guess the patent portion of the contract had expired, so it sounds like all of it would have expired, even if you did.

Anyways, best of luck.

I'd have made you sign one, had I bought Feed Digest lol.
Peter Cooper says:
July 31st, 2010 at 12:44 am
@Dave: I only had to see your URL to know who you were. I think I was the one who recommended you check out Flippa. I just had a look and noticed you've had a rather typical Flippa experience so far ;-)

It's hard to come up with any gems of advice for you specifically because you're in an area I really don't understand - entertainment. Humor, games, and other sorts of light entertainment are obviously a big business (CollegeHumor, Break, Sickipedia, JibJab, Kongregate, et al. show this) but I haven't got a grip on how they work at all. I've kept my focus on software and technical content and I could write quite a bit about that.. that sounds like it should be one of my next blog posts ;-)

It's generic, but my best advice to you would be to figure out who is using your site and why, and optimize heavily to that demographic. Once you know who's using your site, you can make them keep coming back by optimizing the experience. Once you keep people coming back (or new people coming in), you can target money making products and services at them. It seems to me that entertainment sites are heavily focused on sponsorships and advertising as their main revenue streams with subscriptions and products coming a way behind. CollegeHumor, for example, are running a Converse sponsorship right now, and they can sell this sort of package because they have a strong grasp on the demographic of people hitting their site. It's like how Rolex and Prada always advertise in the glossy fashion or "wealth" magazines.. they want to stay in the consciousness of a certain demographic. With weed smoking, you might have an uphill struggle with that.

Another approach is to find existing successes that relate in any way to your own site and see how they are making money. Even if you can't get any numbers, people's sales channels are usually quite transparent because that's how they get people in to make money. How are other sites related to marijuana making money, if at all?
Peter Cooper says:
July 31st, 2010 at 12:47 am
@pjammer: No, believe it or not. I think it was clear to them that I was burnt out on the concept at the time so it probably didn't cross their lawyer's mind ;-) That said, I have a weird ethical system coupled with a small shot of anxiety. It wouldn't have felt right to compete directly against them within at least a couple of years of the sale and I'd have only worried they'd find a way to bust my balls over it anyway.
links for 2010-07-30 « Daniel Harrison's Personal Blog says:
July 31st, 2010 at 2:01 am
[...] Three years ago, I sold my startup because I was an idiot (tags: startups entrepreneurship) Leave a Comment [...]
Don Werve says:
July 31st, 2010 at 3:27 am
Respecting the terms of a contract is the kind of 'ethics' I can get behind.

Many people who start companies never get even close to payout that makes them a hundredaire, much less few hundred thousand dollars. So, no matter what your naïvety at the time, you really did manage to accomplish something impressive. That alone is a good reason to try again, and build something new.
Julien says:
July 31st, 2010 at 4:59 am
Thanks for the mention Peter! Aside from this, it's beautiful to read about your story. I wish more people would write this kind of "post-mortem". If you want to chat feeds, and their future or anything business (and even Ruby), please reach out, I'd love to meet too, one day, if we happen to be in the same city for a couple of hours! Anyway, congrats on closing down this chapter... Let the rest of your life begin!
Peter Cooper says:
July 31st, 2010 at 5:09 am
Thanks Julian. I'd love to catch up one day. Don't worry, I won't be competing against you any time soon! You need big iron and I'm a big tightwad ;-) I'm hoping to do a business related tour of SF and the Bay soon, so you never know.
Ricardo says:
July 31st, 2010 at 8:19 am
Thanks for sharing, your post is both educative and inspirational. If you do decide to try it again, please let us know, I am sure you'll create a successful business if you really want to.
Joe Grossberg says:
July 31st, 2010 at 12:40 pm
I appreciate that your title is "Three years ago, I sold my startup because I was an idiot" instead of "... because I am an idiot".

We all make mistakes, my man; the key is to learn from them. :)
macournoyer says:
July 31st, 2010 at 1:27 pm
Why you think selling was a mistake? If you were bored w/ it and it has supported you to try new things for 3 years.

Thanks for sharing! I always enjoy reading your business stories.
Mugil says:
July 31st, 2010 at 1:27 pm
Thank you for sharing your experience as most people wont come forward to share the mistakes they did.

Quite useful.

All the best for your future endeavour.

Regards,
Mugil.
Doug says:
July 31st, 2010 at 1:39 pm
Loved the post. Very inspiring. I think you should go for it. You have more to lose if you don't try.
Ben says:
July 31st, 2010 at 4:26 pm
Great article!

We're starting up something, too these days and working hard on it since a couple of weeks (www.buddybeers.com). I think we can learn a lot from your experiences even if we're still far away from selling our business :)

Thanks!
Ian says:
July 31st, 2010 at 9:59 pm
Thanks for your honesty, Peter. For a young guy like me starting a tech company in the next few months (CityFit.com), your story allows me to believe that the mistakes I make will make me and my company better in the end. Thanks.
Indeshaw Adenaw says:
July 31st, 2010 at 10:39 pm
Great post. Thank you for sharing your experiences.
My “Best Of The Web”, July 2010 | Move The Stars says:
July 31st, 2010 at 10:46 pm
[...] Cooper: Three years ago, I sold my startup because I was an idiot. This entry was posted in Web Roundup and tagged Links. Bookmark the permalink. ← [...]
peterc.org/blog/2010/257-three-ye… | Too Much Lor3nzo says:
August 1st, 2010 at 2:01 am
[...] peterc.org/blog/2010/257-three-years-ago-i-sold-my-startup.html [...]
jim says:
August 1st, 2010 at 4:15 am
How did that Russian know you would sell?
Peter Cooper says:
August 1st, 2010 at 4:25 am
Thanks for all the comments, guys!

@jim: He sent me a one liner asking. I hadn't publicly stated any intention to sell. I think they were just looking for a route into the market Feed Digest served.

@macournoyer: I don't think selling was a mistake. I think that my decisions that led to selling being a good idea were mistakes. That is, I didn't run it like the business it could have been so selling turned out to be the best option.

Also, some people on Hacker News had a problem with the word "idiot." I don't mean it as harshly as some people think. It's a pretty casual word where I'm from, like "doofus" or "fool." I think I was an "idiot" in business, not a total idiot in everything ;-)
Jason Cohen says:
August 1st, 2010 at 3:16 pm
Good insights.

I would argue against you that "delegation" is the hallmark of successful entrepreneurs; in fact most (me certainly included) are too controlling, too perfectionist, and can't abide anyone else working more slowly then they.

Admittedly knowin nothing except the high level description you give here, it sounds like it was really about the pricing. If you could have been charging 10x as much, you would have had the profits to hire anyone and it's not crazy to think you would have made reasonable choices about how to distribute the effort.

Put another way, with better delegation skills and still just $2k/mo to support all those customers, you still don't have a company.

But even this modest exit is an excellent result; that combined with your introspection and ability to communicate means you could easily do sosomethibg new and even get angel finding easily.

I know I would be immediately inclindled to work with you already!
Ric Roberts says:
August 3rd, 2010 at 11:13 am
Hi Peter.

FWIW, it sounds to me like you made the right choice in 2007 to cash-out. You hadn't managed to fully exploit the business yourself, and it was the right time to cut your losses / quit while you were ahead.

There's no reason why you shouldn't be able to make things work better this time round, though, with what (and who) you now know.

I think you should definitely a new venture another go. I'll be following developments closely. Good luck!
Andrea says:
August 3rd, 2010 at 12:37 pm
thank you for this post, there are a lot of lessons to learn from ;)
Peter Cooper says:
August 6th, 2010 at 4:04 am
Just a test. Ignore.
Michael Kowalchik says:
September 1st, 2010 at 10:13 pm
Hi Peter.
I don't know if you remember me, but we exchanged some blog comments a while back about the viability of the feed business (many, many, moons ago now :) ). I was the original author of the Grazr feed widget and feed applications platform.

I wouldn't be too down on yourself, at least you ended up on the positive side of the equation! That's more than can be said for some of us. I feel some of your pain, Grazr has recently shut down all of its products, including the feed widget in the past few months. Even though I left Grazr over a year ago, it's still painful. I've also had this bug to "do it right this time", but felt I couldn't act on that impulse due to similar ethical concerns. After a bunch of people kept asking me about the fate of Grazr, I wrote a little about it here: mikepk.com/2010/07/the-grazr-widget-will-stop-functioning/ Now that Grazr is officially shuttering, it does free me up some to think about this space again.

Let me know if you decide to start hacking on feeds again, at a minimum maybe we could collaborate on some general ideas. :)