Debt Free

I turned 30 last week and as a birthday present to myself I paid off the last chunk of the nearly $60,000 in debt I accumulated trying to build a software startup. I thought I would write a little about what that’s like and whether I’d do it again.

In the Summer of 2011 — four and a half years ago… dang — I quit my job.

I saw an opportunity at the intersection of cleantech and software. I’d read just enough books and blogs to believe that building a tech startup was my path to independence from corporate bosses and a way to make a lot of money.

I worked at a consulting startup straight out of college for three years and after another nine months at the big company that acquired the startup, I was ready to move on. The options to me were pretty straightforward, get hired by one of our clients, get an MBA or start something myself.

Startups do not pay great salaries and Living in DC, New York and London had left me with little in the way of savings. Ok, let’s not totally blame the sub-par salary. A penchant for tailored suits and craft beers didn’t help with accumulating the financial buffer I probably should have had.

I felt confident I could earn some side money consulting for cleantech companies, but eventually I figured I would need to work on the business for quite some time without earning an income.

I would fill the gap with credit cards.

I didn’t have much in the way of debt from college so I felt comfortable taking on, say roughly one year of grad school tuition, in credit card debt to try to build a startup. Even if the business failed, I would have learned more and spent less than an MBA. That may be true but it is a hell of a lot more stressful than an MBA.

Building the startup took much, much longer than I expected. I stayed in NYC for way too long, burning through tons of cash just living there. I cut my costs and worked remotely from South America and Southeast Asia at times, but everything took years longer than I expected. I paid for travel around the country, attending meetups, hackathons, investor pitches and demo days learning a lot but making essentially no progress toward a company that could pay me a salary.

I went on a spree, applying for and receiving several new credit cards at once with the double benefit of greatly expanding my total credit limits and winning me some 150,000 airline miles to make travel cheaper. Early on I started paying for things with the cards, carefully managing my existing cash. The balances started to slowly creep upward.

Somewhere along the way I taught myself to code. I started to do a little freelance software development and earning a little extra cash on the side. Eventually I got good enough at coding that I built the first version of the product (ending the 2+ year search for a technical co-founder).

Raising money took forever and in the end we didn’t raise nearly enough. Salaries just high enough to pay for rent and food for my co-founder and I, would last about six months and use up probably half our investment budget.

We had already launched the product before we raised money. Everything we learned from the market said the same thing to us. The opportunity was very large and we were the team to attack it. But each new bit of data told us that an incremental strategy wasn’t going to work, we needed millions of investor capital to execute a Go Big or Go Home strategy.

Fortunately for us this was late 2013, one of the frothiest markets for startups in human history. Startups left and right were raising millions in seed funding with mock-ups of an idea. Venture accelerators were expanding, NYC was funneling money and marketing into competing with Silicon Valley. VC and angel money was everywhere.

Unfortunately for us, the money was everywhere but cleantech. Over and over again we got the same response from investors, “Great team. Great product. Great presentation. But we don’t invest in cleantech.”

Then the investment money ran out. In December of 2013 we stopped paying ourselves. By March 2014, after desperately trying every avenue we could think of to secure funding and keep the business running, we had to call it quits.

Nobody ever thinks Go Big or Go Home will actually end in go home… but most of the time it does.

We called our angel investors, who were fantastically supportive throughout the whole process, and told them we were putting the business on ice and we needed to focus on other things to pay the bills. I found myself with no salary, no company, a few thousand dollars in a checking account and a whopping $60,000 in debt.

I googled “personal bankruptcy” for the first time in my life, genuinely wondering if it was the right move. Ugh.

But I had a few assets. Through the process I had learned to code and even proven my ability to earn some freelance income as a software developer.

Also, my side-side-side-project Storemapper had started generating some decent recurring income of around $1,500 per month — still less than the total minimum payments on my credit card debt, but it was a start.

Lastly, I was flexible. Thankfully I didn’t have a mortgage, car payment, student loan debt or any other long-term liabilities besides my mobile phone bill. My apartment in Brooklyn was a month-to-month lease, so step one was to get out of New York and cut my expenses massively. I put my few possessions in storage, moved out and booked the cheapest ticket I could find to Southeast Asia. I set myself up in Thailand, where my total cost of accommodation and food could be as low as $500 a month and got to work decompressing and recovering.

Just over a year and a half later things are looking up. I own a profitable business and have multiple streams of income. My net worth, at a bit over zero, probably put me in the top half of my peers when you factor in real estate and student loan debt. I’ve got the scars and lessons learned from my first foray into startups, freelancing and business. And I managed to pay off that mountain of debt primarily while traveling the world and generally enjoying myself. I would be lying if I said I wasn’t feeling pretty good about how things have turned out so far. My anxieties have switched from panic about how I’m going to get out of my situation, to fretting about things that could cause me to lose my business. When your primary concerns are loss-avoidance, things are going alright.

Ok, some things I learned.

You do not ever want to be reliant on investor money to pay your living expenses. Raising money is all about confidence. Or at least it seems to be, I can’t exactly call myself an expert on the topic. But I can say that if you go into a pitch with the knowledge that you really need to close this round to pay your rent in a month or so — your odds get a lot slimmer. Pitching to investors is a psychologically challenging exercise to begin with but it can really break you if your livelihood is on the line.

Having your bills paid is critical to being productive. Pretty much the same as the first one, but an important angle to it. Entrepreneurship is filled with stories of founders supposedly living off Cup’O’Noodles in their parents’ basement until they struck it big. While there are a few genuine examples of this, the myth is largely BS. Most entrepreneurs who built big important companies had either 1) a comparatively small exit, say a few million dollars, that gave them enough money to not have to worry about paying rent or 2) a supportive partner or family wealth that supported them while the toiled away on the business.

Paying down debt is really tough. I paid off my credit card very fast considering where it started but I was still constantly amazed at how tough it can be to pay off debt when you have to earn the money, pay taxes on that income, pay your living expenses from that income and then only what’s left over can go toward the balances. Pretty obvious facts but I underestimated how psychologically tough it is to see your hard-earned invoices getting divvied up between Uncle Sam and Uncle Citibank.

Would I do it again?

Yes. My startup failed. I had to look my investors, all of them friends, in the eye and tell them I lost their money. I ended up with a mountain of debt. Do I wish I’d spent $150,000 on an MBA instead? Hell no!

I learned an immense amount about the strategy and nuts and bolts of starting a business. Launched two businesses, one of which actually made it. I dealt with some level of financial hardship and realized it is completely survivable.

I believe more firmly than ever in avoiding long-term debt and liabilities that limit flexility. I learned to live a minimal mobile low-cost lifestyle that I’m not sure I would have done otherwise.

Would I advise others to do it?

This is a fundamentally different question. First of all I can’t recommend it to anyone with any long-term liabilities or dependents. Hefty student loans or a family-member that was reliant on me would have made this situation a disaster.

Second, I got very lucky. I had never written software before but it turned out that I had a natural aptitude for it right at a time when demand for it skyrocketed. I was able to charge $80/hour freelancing in a skill I had literally learned three months earlier. In what other context is that possible? I’m not sure. Things might have turned out very differently if the only remote job I was qualified for was churning out blog posts for $10/hour.

Lastly, somethings I told myself before took the leap turns out not to be true. You’ll often hear entrepreneurs, or more commonly would-be entrepreneurs, say, “Well if it doesn’t work out, I’ll just be that much more experienced and more employable.”

At various times over this journey, I have interviewed for full-time jobs. Sometimes just to test the waters out of curiosity, sometimes to learn more about the companies and occasionally because I was genuinely interested. Based on my experience there I do think that if you compared someone who quick their job and had one failed startup under their belt to someone who took two years off to get an MBA, the MBA is going to have much better employment prospects. Whether it works out better in the long-run to be worth the cost of an MBA is something I can’t comment on. But presently-unemployed entrepreneurs are definitely viewed as riskier hires in my experience.

But if you read all those caveats and you are still really thinking about it… fuck it, go for it.

Good luck.