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Ask HN: Clients are gone, lots of debt, what would you do?

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Ask HN: Clients are gone, lots of debt, what would you do?

#1

Post by patryn20 »

Last October I left a comfy job at a marketing startup that had become very profitable (Inc 500, NY Times articles, and all that jazz). I had stopped taking classes full time to work with this company, so I never completed my CS degree. After leaving my job, I started my own company to develop some consumer site ideas. My partner bailed early to go to law school, so there was a bit of a gray cloud overhead from the start.

In order to get money coming in I began running lead generation and online marketing for a few clients. Over time, that grew to consume my entire working hours. It peaked at about $70k in revenue in July and has been steadily declining from there to a low of $15k in November, thanks to the economy and increased online ad competition.

On Monday of this week, without warning, my last two clients pulled the plug due to economic conditions. The deals were profitable, but they had too many account defaults. One client has seen his annual bad debts total double in November. So, to free up cash flow, they cut me loose.

I poured my entire savings into the company and had up to $50k in credit card debt at one point. Running online campaigns and lead generation, you pay for ads up front and invoice in arrears.

As the company made profits, I paid myself as little as possible to cover my bills. The rest was used to pay down debt. Early on, I tried doing contract work on the side to pay my personal bills. This worked until I was stiffed on a large project. Since the business was making money by this point, I focused on it full time.

As it stands, the company has about $13k in credit card debts. I have an additional $17k in personal credit card debt from living off of credit before the company was profitable.

The corporation is getting one last $6k check. There are no finished products to show for the last year, no remaining savings, an incomplete CS degree, and $30k in debt between the company and myself. The corporation also has contracts to keep its rack space until the end of January at a cost of $600/month.

I just sold my old (expensive) car and got a Toyota. I am vacating my apartment and bumming with parents and friends.

The corporation has an internal advertising and lead management system that I am tempted to lease to customers. There was talk with some local Austin marketing guys of launching that as a product a few months back, but it never worked out. There are currently four servers sitting idle that could be put to use. There are also three consumer sites in various stages of completion.

If you were in this situation, what would you do? Dissolve the company, get a job, and move on? Go back to school? Launch the advertising product? Launch the consumer products while bumming around to avoid rent? A combination of the above?

Has anyone been in a similar situation? I am seriously stressed out and likely not thinking clearly, so I would love an outside perspective.

Re: Ask HN: Clients are gone, lots of debt, what would you do?

#2

Post by cschneid »

Evaluate what you're good at and start a new company? You have run a successful company, only got screwed by the economy. You basically have 13 + 17 - 6 == 24k in debt. If you go bankrupt with the company, that drops to just 13k (assuming that it's not secured with your private finances).

You say there are no finished products, then go on to say there's a good advertising/leads platform. Can you spend a few weeks pounding pavement and looking to sell or lease that platform? Start a new company, and go for it. Remember to sell both the platform and your knowledge as a consultant. You only really need to find one or two decent clients for that to work out well (rather than a dozen for just selling blackbox software).

You'll be in for a rough time, but a part time job would help smooth out the financial bumps while you get a new company up and running. It sounds like you have the experience in a valuable field to make something work.

Re: Ask HN: Clients are gone, lots of debt, what would you do?

#3

Post by randomwalker »

Austin, huh. Nothing concrete to offer by way of advice, but a couple of friends who recently graduated from UT launched an advertising startup. Maybe I could put you in touch?

Are you at conjunctured? I've been meaning to check out that space. I can swing by in a couple of hours if you're going to be there.

Re: Ask HN: Clients are gone, lots of debt, what would you do?

#4

Post by patryn20 »

randomwalker wrote: post #3

Austin, huh. Nothing concrete to offer by way of advice, but a couple of friends who recently graduated from UT launched an advertising startup. Maybe I could put you in touch? Are you at conjunctured? I've been meaning to check out that space. I can swing by in a couple of hours if you're going to be there.

Actually, I am sitting at Conjunctured right now. Probably my last visit, can't really afford to renew the membership. Come on by, I have visitor passes.

Re: Ask HN: Clients are gone, lots of debt, what would you do?

#5

Post by patryn20 »

cschneid wrote: post #2

Evaluate what you're good at and start a new company? You have run a successful company, only got screwed by the economy. You basically have 13 + 17 - 6 == 24k in debt. If you go bankrupt with the company, that drops to just 13k (assuming that it's not secured with your private finances). You say there are no finished products, then go on to say there's a good advertising/leads platform. Can you spend a few weeks pou…

Thanks for the reply.

The corporate debt had to be secured on my finances since this was a new company and had no credit history. That makes it hard to get away from.

The advertising platform is currently pretty specifically for internal use. No support for client data segregation and so on. Wouldn't take too much to fix that, though.

My main stumbling block is that I have no savings and no credit to fall back on while getting something ready for launch. I have mentally really been leaning towards starting a new company, but not sure how to pull it off right now.

Re: Ask HN: Clients are gone, lots of debt, what would you do?

#6

Post by ksvs »

Joel Spolsky was in a similar situation when the last bubble burst. Maybe his example would be useful to you.

You must have had something that worked, if clients were paying you. Could you turn that into a product instead of a consulting operation? I.e. something larger numbers of lower-paying customers could use, without much involvement by you?

Re: Ask HN: Clients are gone, lots of debt, what would you do?

#8

Post by jamess »

There are things you should do right now to deal with the debt. First off, the rack space contract. You can almost certainly get out of it by phoning the company and explaining that the choice isn't between cancelling the contract now or getting paid for another two months, but rather cancelling the contract now or fighting other creditors over the non-existent assets of the company at liquidation. As long as you can talk to a real human being who is authorised to make a decision, then that one is a no brainer for them.

Secondly, I think you'll probably find that declaring the company bankrupt won't free you from liability for most of the debt it owes. You should try your hardest to deal with both the corporate and personal debt through some route other than bankruptcy. It isn't a totally unmanageable sum, but it could quickly get that way since we're talking about credit cards here.

I guess your best bet is to look for a full time job as soon as possible. In the mean time, phone your creditors and explain the situation. If they're nice you'll probably be able to organise some form of payment holiday until you're earning again, with a more reasonable rate of interest. With the current economic climate, my guess is lenders are just happy if their customers intend to pay back what they owe, and they'll bend over backwards to help you.

Anyway, sorry to hear about your situation. Its a tough break becoming victim to the economy through no fault of your own. Hope some of this helps.

Re: Ask HN: Clients are gone, lots of debt, what would you do?

#9

Post by hopeless »

Ok, so this isn't the situation that you wanted to be in but, equally well, it hasn't all been for nothing. You have had a huge life experience that most people will never have. The trick here is to capitalise on that experience and to learn from it. You're also young enough that isn't the end of the road for you. Indeed, I'd say most successful entrepreneurs have at least one failed startup behind them so you're in good company.

My advice? Don't waste this time. Work out a plan to repay the personal debt (I would consider this the top priority) probably by finding at least a part-time job. Tackle the personal debt first, in an upfront and mature manner, as it has the biggest long-term consequences.

Business debt? I'm not so sure what to advise but those servers shouldn't be sitting idle. Try renegotiating the server contracts for just one server over 6 months instead of the 4 servers over 2 months. Then get the consumer products out there, visible and some (really cheap) promotion. If the consumer products are up and running, even without a large volume of users, you can show that the company has assets and potential, which may allow the business to raise money or be bought out. I'm not sure about the advertising product as it doesn't seem like the best market right now.

And thanks for telling your story. There's far too many happy, smiling, this-will-make-me-rich, everything-is-fine, what-could-possibly-go-wrong startup founders telling their stories and it's good to hear the other side of the coin.

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