A CEO's Confession of His Failure

This article is long overdue.

Partly because of my dissatisfaction with my startup Rewardme and partly because I have been busy developing my new business in the Gamification Framework segment in recent years. I also wanted to clear up any misunderstandings with the majority of law firms in Silicon Valley before sharing my experience with the public, but in reality it was too time consuming that I ended up giving up (in fact, I might have paid at least US$13,000 for writing this article).

However, my failure may be a very valuable lesson for the thousands of entrepreneurs out there, so I ventured to share my experience and the lessons I could take from the process.

Overview of RewardMe

I started developing RewardMe from 2010 to 2012. The service I developed introduced the concept of gamification to offline restaurants/retailers through a loyalty program. Currently, many companies offering this concept have sprung up, but we are the first to do so, outside of the “Majorship” system that Foursquare offers.

Our product metrics are great (10 times compared to competitors) based on what they write in their respective releases), consumers love our products, we are covered by several media giants like Forbes and Business Insider. Towards the end of our business, we successfully completed a US$1.5 million collaboration with one of the largest chain stores, allowing us to offer our products across the country. We also managed to attract the interest of many other big names, where we met several times with dignitaries from Carls Jr., Subway, Swarovski, and many more.

We decided that a door-to-door selling system was not the right choice for growth (I still believe in this concept, even after seeing many leaders in the industry who have spent tens of millions of dollars but only have thousands of customers). The best option is to collaborate with a large chain of stores from the start and expand stores across the country (because one chain will tend to follow another). This gave us a huge advantage, because when new competitors realized that they had to work with existing networks, we were already one step ahead because we started early.

Runway is everything

We didn't get a massive investment. While our competitors raised more than US$10 million in funding, we only managed to raise US$1 million. I wish I had created the Octalysis Framework and an 8 Core drive at the time, but since we're not under a big incubator or have a well-known figure, it's really hard to get funding (so I think the lesson to be learned is : join a well-known incubator if possible. It will increase your bargaining position. The equity offered will be nothing compared to the reduced potential for bankruptcy).

Due to the results we have shown, many investors/VCs are impressed with our execution, but they prefer the door-to-door method because the concept results in “predictable growth” such as “next week, 30 parents will buy the product.” They said that even though we had met with the VP of the giant chain stores a few times, that didn't mean they were going to give us funding.

So towards the end of our journey, we finally booked a US$1,5 million partnership with one of the major national chain stores. At that time we thought that it would be easier for us to get the next stage of funding. The problem is, the contract will only take effect six months later and the income has to flow in shortly after.

Most investors are interested and want to meet soon, but then they want to see “predictable growth” and wait until we get the second and third biggest deals before deciding to commit. As a personal responsibility, maybe I wasn't a good salesperson and didn't reach my sales target at that time (now I understand – at that time I didn't use motivational/Black Hat Gamification techniques by creating an urgent condition, but rather a White Hat technique that made people... people believe in me without giving reasons to act).

During that time, my attention was distracted by the problems posed by a “top law firm in Silicon Valley.” Although I believe it was a misunderstanding at first, it managed to keep me under pressure for months and completely out of focus on securing the funding that might come in. Honestly, I know there are many entrepreneurs who have worked with the law firm, but based on my own experience and the way they handle the problem, I don't recommend anyone to work with them (you can email them if you want to know more about this law firm). them – I'm too afraid to describe them here.) What are the lessons to be learned? Don't believe a word even if it comes from a reputable firm. Always double check and use your common sense.

At the same time, when we still had a few months left, we realized that VCs like predictable growth, but we didn't think that the door-to-door selling technique could be further developed (in fact we rejected small shops because we only had limited resources so only focus on big chain stores). We started setting up our industry's first freemium program expecting business opportunities from our day-to-day sales activities.

At this point, we're at the end of our journey, and since we (I'm more precise) can't secure Series A funding with the traction we have, we're in big trouble. However, our investors at the time were quite impressed with our growth and execution, so they were willing to put in even more money to help us seal partnerships with the big chain stores that were interested but still plagued by bureaucratic problems. Literally, our investors are saying, “What did you want to pursue at that time? I can't find it anymore but I'll still give my money once I get it!”

Unfortunately, it was at this point that our company finally began to go bankrupt.

The anti-climactic fall of RewardMe

Please remember that all our team members at RewardMe are hard working, smart and passionate. They are examples of the best people I have worked with. But to reach multimillion-dollar funding, many of them work well over 100 hours per week in a stressful environment, and most of them are only paid 30 percent of the market price (I remind you that the amount we achieved was much smaller than what we were looking for). which other companies receive. I myself have NEVER received a salary while running RewardMe). We all believe that, once we get big funding, we can move on to the next round of funding, people will receive better salaries, and we can grow faster like our competitors.

When I wasn't fast enough to get the funding, it demoralized some of the core members of our team. They felt that they were in an endless pit. Even if they continue to work a stressful 110-hour week for the next four months, and even if we are able to seal the partnership with the big network a second and third time, they no longer believe that they will be able to convince VCs to invest.

Their doubts were quite reasonable. I have many fellow startups who repeatedly exceed targets but are always under VC pressure to keep doing more for YEARS, even until they sell their company (of course investors regret that they could have left earlier). My teammates also refuse to accept more money from the existing investors because it will only drag them deeper into an endless pit with no chance of getting out. As a result, several important people finally decided that they should withdraw after struggling together for so many years.

Even though their actions were quite reasonable, they created big problems for the company. Remember when our investors asked us to give them assurance so they can invest more? At that point I was faced with a moral conflict with myself. I could just give them the assurance they want, take their money, and see what I can do in the next few months (I'll most likely hire employees we can't pay even though we've earned more money). Or, I could just tell them the truth of what happened and accept the consequences. I thought, “What would I choose if I were an investor?”

In the end, I decided to tell them the truth, and said that it was much more difficult for me to get Series A funding. They thanked me for speaking the truth, and agreed to hold on to their money a little longer to see what would happen. .

At that point, we didn't have enough resources to keep going, as we were no longer funded and several key members of our team had also left. The conclusion at that time was, to avoid prolonged debt, we decided to close the company as soon as possible. We don't have the resources to do anything, including serving our customers or selling our products.

This was indeed very unfortunate, because our freemium products were ready to be marketed at that time. In the years since, even though we have slowly gone bankrupt, some companies still come to us and say, “Based on our research, we believe RewardMe is the best. How can we join?” At that point all I could say was, “We're still developing the latest version, so we need more time. We'll let you know when we're ready” because I still hope that we can revive this company even if it's just a few part-time volunteers. But it never happened.

Even without any marketing or other efforts (except to keep customers away) for a whole year, as many as 40,000 people/companies pressed the “Get RewardMe Now!” on our site, illustrates that in fact there are still many who are interested in our products. To this day, I still believe that at that time we had the best strategy to win the market, but unfortunately we lacked the resources. As I said earlier, even though other companies have spent tens of millions of dollars, they only have less than 8000 active customers on average (of course, I also respect the traction they are gaining because I know how difficult it is to compete in this segment – ​​I wish them success! I think they still have a chance to be bought by a bigger company).

Calculations in closing the company

The period after the bankruptcy was one of the darkest in my life. In the midst of confusion and despair, I realized that I had A LOT of things about success, growth, and funding that I could teach startups – but nothing that taught how an entrepreneur should fail (or… fail quickly). There is no service, literature, or even moral support for entrepreneurs trying to resurrect a dead company. I am completely alone. Many of my co-founders have moved on to other opportunities, but as CEO of that company, I still have to think about the organizational structure, corporate debt, and disappointed investors. I am secretly envious of my co-founders (who are still good friends with me to this day), because if we were successful, we would be paid the same amount, but because we failed, I had to bear the consequences.

I've also spent time liquidating assets to pay off the company's credit card debt (because I'm trying to stall for time for a possible bounce back). One interesting thing that happened to me at that time was when one of our investors showed an intention to buy RewardMe. However, after several discussions, he finally said, “Actually, we are more interested in your employees [who continue to work as volunteers]. If we can hire you guys for a big fee, then we'll be happy to do so."

I again had to make a difficult decision. At this point, I had no savings, just got married, and I found out that the team members were also in financial trouble. Can we receive compensation for our years of hard work? In the end, I told the company, “Never will we allow investors who have believed in us to lose while we take profits. If you are interested in us, please make us an offer with our investors in mind.” They replied, “We appreciate your loyalty to your investors. However, you will receive MUCH less because you have to think about your investors.” We replied, “No problem. Please come back after you find the best solution for all parties.”

Unfortunately, in the end, the company refused to pay our investors just so they could hire us, so nothing happened (I shouldn't have done that!) The funny thing is, even though we protected our investors desperately, some of them be very aggressive towards us. They hired lawyers to fight us and added to the pressure I had to face. Fortunately, I assured them that they would gain nothing by doing so. They finally backed off.

On the other hand, some of my investors are AMAZING. When I have to meet them and tell them I've made them lose money, my head burns, I even keep hearing the static buzzing in my ears. When I finally met some of the investors, I expected them to scream and blame me for losing their money. Instead, they said, "Are you okay, Yu-kai?"

I didn't expect anything good at the time, so I silently cried when I found out that I was fine and had done the right thing by admitting my mistake. Those words may have changed me forever. I am very, very grateful to DJ Martin and Vicki Young for being the best investors I have ever met. If you can make them your investors, then you should not hesitate to make that decision.

Now let's discuss the lessons to be learned. You can see that I made some big decisions in this case, which didn't really end well. The question is, is it good or bad? I'm not so sure because everyone believes in different things and values. All I can say is, even though I have had an incredibly successful company, if I had known I was lying and cheating in the process, then I wouldn't be happy. Sure, I would have a big house, lots of money, and the best car, but it would all be for nothing. For me it is not worth it. I'm better than what I have. Of course, because I'm trying to be a devout Christian, I'm also accountable to God and believe that everything will turn out fine in the end (in my case, you'll see the evidence later), despite the pain I went through to get there. .

I think that's the best answer I can give to the struggling entrepreneurs out there, but everyone has to find their own answer and find peace in their own heart. Being a leader means being able to make difficult decisions and bear the emotional consequences of them. That's why not everyone can be a leader, and sometimes I'm also not sure if I myself deserve to be a leader.

Life after RewardMe

After all the hardships with RewardMe, I finally sought enlightenment – ​​what people who have experienced failure do. I realized that in my entire life, my biggest problem was knowing all the ideas I had were too far ahead. Even when I was in college, I founded my first business and went to VCs, although in the end they laughed at me and said my business would never work. I then gave up and tried to get into another business (the VCs were certainly smarter than me, so I followed their lead). Three to five years later, all the VCs are scrambling to fund companies with the exact same concept I offered them before, but unfortunately I've changed direction.

When I went up to them again and offered my new company, they said, “Yu-kai, your previous business was just right! But what you're offering now… doesn't make sense.” And of course, the same thing happens again and again. If I were a well-known entrepreneur, I could raise a lot of money from crazy and nonsensical ideas, and stick around for several years until the market finally caught on to the idea. Unfortunately I am not a successful entrepreneur, so I have to follow the rules of the game. This is important for entrepreneurs who have read on TechCrunch about how companies raised tens of millions of dollars in funding before launching their products. In general, if you can't raise money from your previous records, then you need TRACTION before you get big funding. The hardest part is, you have to be able to gain traction with limited money.

After understanding my tendencies and problems, I realized that I can adapt and adapt to them...namely not to start a startup based on a crazy idea. Focus on what the market needs, not what they deserve (I take this realistic thought from the Batman story haha).

I also think about the things that make me happy, and I realize that I am happy when I create gamification designs. The term “gamification” came into vogue in 2010, but in reality I've been working on a prolific gaming app since 2003 (yes, one of those silly “never work” things). I certainly have more experience and passion in this field.

The Enlightenment of Gamification

I studied the gamification industry at the end of 2012. At that time, there were a number of well-known “gamification experts”. Even though I spent ten years working on several related projects, I don't make a big name as a gamification expert, because all my effort and attention was devoted to my startup, not my individual abilities.

But then I realized something interesting: the “gamification experts” have different backgrounds: some are game designers, some are software developers, some are from the education world, some are from the marketing world. And I realized that I had one advantage over them all – Personal Branding. This is what you learn if you work at a startup for years: when you start a startup, you have no background, name, and resources at all, and you need to get to a stage where everyone knows you.

So I decided to use my strengths to promote my other strengths. As a result, the number of visits to my blog increased dramatically, from 1,000 undirected visits to 25,000 directed visits, within a year and a half.

I created a gamification design framework called Octalysis that I created in college, and the product skyrocketed. Octalysis has been translated into sixteen different languages ​​and many students from all over the world contact me to ask further questions. The design is indeed unique in the sense that it far exceeds existing limitations, thus motivating me to create 8 Core Drives.

Some Core Drives are associated with White Hat Gamification (things that make you feel powerful, but don't create urgency), while others are Black Hat strategies (things that make you feel pressed, obsessed or addicted, but bitter to done), and some are left brain (focused more on extrinsic motivation) while some are right brain (focused more on intrinsic motivation).

In conclusion, my life has gotten better lately and I am very excited to wake up in the morning. I am currently recognized as one of the leading figures in the industry, I have also spoken/lectured at Stanford, TEDx, SxSW, Accenture and other places on almost every continent. Many VCs have asked me to help their portfolio with my design knowledge (some of them call it behavioral engineering). Instead of working on one project for 100 hours each week, I can now work on dozens of jobs I'm interested in at once (while accumulating some equity).

This year I even published my own book, Actionable Gamification: Beyond Points, Badges and Leaderboard which summarizes what I have learned over 12 years.

It may sound weird and cocky, but it's very easy to get the above results, especially when compared to running a tech startup. Based on the lessons I've learned in the past, I've had much more success in reorganizing what I did years ago, compared to trying to pursue things in the future (trust me, I refrain from doing the things I've never done before). I think I can change the world).

I think the lesson here is, no matter how much success or failure you experience in your life, the key is to make sure that you know yourself, understand your position in this world, and do useful things that you enjoy.

Wounds can be treated. Success doesn't come easily, but if you spend your time pursuing what you love, it's the journey that makes it meaningful, not the destination. Few people I know have finished the first Super Mario game, but they all have memories of playing the game. Life is not about winning (once you reach your goal, you then look for another goal), but rather whether you use your time to maximize the things you enjoy or not.

Yu-kai Chou is a pioneer in Gamification (which he has started since 2003) and a partner of Enterprise Gamification Consultancy (EGC). He is a renowned Gamification speaker/teacher around the world, including major organizations such as Stanford University, SxSW, Accenture, TEDx, and Google. Yu-kai is known as the inventor of Octalysis, a gamification framework, and was listed as number one of the 40 best gamification experts based on data from UK Leaderboarded. He has also been interviewed by the Wall Street Journal, CBS, PBS, Nielsen Online, and many more. Previously, he was the Co-Founder and CEO of RewardMe, a loyalty platform that introduced the concept of Gamification to the offline environment.

This article is republished from original article with the permission of the author and translated by Rifki Aria Nugraha