"We shouldn't celebrate it because it involves people losing jobs and money. It's painful. But by the same token, we do need to talk about it, not to be ashamed, so I hope people try and learn from me," says Robert Tregaskes, who cofounded startup Shnergle, which closed in 2013 after a year. He now works for heart health tech company Qardio as their head of logistics.
Tregaskes set up Shnergle with partner Jonny Bull in November 2012 while they both worked at RBS full time.
They had an idea for an easy-to-use, free smartphone app that let you check out a place you wanted to visit in real-time, to help decide if you wanted to go.
"We raised a small amount of funding, hired developers and got started at the end of February 2013," Tregaskes explains.
However after about eight months it gradually dawned on the founders that while it was a great idea, the business model was unproven, it would cost "a fortune" to scale, and there was very little guarantee of success.
"We basically realised: you'd be insane to invest in this. That said, never underestimate the number of people who know full well that they are peddling complete shit," he says.
The moment of realisation was when the founders saw customer acquisition costs and conversion rates. For Shnergle to be a success, you'd need lots of people within the same area (say, Shoreditch on a Saturday evening) to have the app.
"In order to get that density you figure out how many people in London have iPhones, how many iPhones you need it on, and how much it would cost per user. We figured we'd need 1.2 million just in London to get it to the level of saturation to work," Tregaskes says.
One of the main issues, according to Tregaskes, was that the revenue model of Shnergle was untested. Although they had promotions at venues and events to drive people to them, there was no proof of pricing or proof venues would sign people up.
"We couldn't justify putting capital in in the first place. It was an area of huge naivety on our part. We learned a lot as we got going," he admits.
This issue became increasingly clear as the team met and exchanged emails with VCs.
"A lot of people at the time said the idea is great. Everybody understood the value…but fundamentally the business model just wasn't going to work.
"We couldn’t just pivot to something adjacent because there wasn’t really anything adjacent. I am all for pivoting but in a lot of instances pivoting is used as cover for going from one shit idea to another shit idea, but 'oh don't worry this new shit idea is better than the last shit idea so just give me a wee bit more cash'. It's actually cleaner, easier and you'll lose less by just shutting down and moving on".
The founders were finally forced to admit defeat in October 2013, having spent £76,000, of which £18,000 was put into the company by Tregaskes. They had £2,000 left, which was distributed among investors.
"Basically we got completely wiped out. I was left with some pension from RBS and about enough money for one month's rent," he says.
"It's extremely painful. I went broke which wasn’t fun. It's extremely traumatic. I used to be in the army and did a few tours in the Middle East. In terms of personal stress and trauma and self-esteem, this was as significant a life event," Tregaskes adds.
'A lot of it is BS'
A lot of people fundamentally do not understand the dynamics of how to run a successful startup and so rush in without properly thinking it through, according to Tregaskes.
"Part of the problem is that most information you read in the press about startups is very light on detail and heavy on spin, you can very easily get the wrong end of the stick," he says
"It's so easy to get wrapped up in the hype and glamour, not that you see much of that at the coal face. A lot of it is BS and fairydust," he adds.
Lessons for startups
Tregaskes has a number of lessons for potential startup founders: do lots of research and speak to your users, try to work for a startup before launching your own, figure out your risk appetite and spend your money wisely.
"Talk to the people who'd be your potential customer before you do anything else," he says. "The biggest learning from my perspective is it doesn't matter about protecting 'your idea'. We did the whole secrecy thing which was ruddy stupid in hindsight. If you stay secret when you launch there's no one there. So the biggest advice I learned is: get out there and talk to people."
The next lesson is to try to get some experience within a startup before plunging headfirst into setting one up.
"If you want to create a startup go and work for one first. That way you can learn from someone else's mistakes.
"You might not get a huge salary but you can compensate that by learning, seeing stuff happen first hand. Even then it's a huge challenge to make sure you pick the right startup. Plenty work out, plenty won't – but you'll learn a lot from all of them," Tregaskes says.
It's also vital to step back, take a deep breath and consider whether you are really in a position to take the risk of launching your own venture.
For example, although "literally no one cares" if you start a company that fails when you are 23, as you get older you may have a mortgage or dependents, which makes it harder to cope with financial difficulty, he says.
"This is the fastest possible way to eradicate your personal wealth if you don't know what you're doing and trust me, most people don't know what they're doing," Tregaskes says.
"Understand your own risk appetite. Any friend who's thought about starting a company gets in touch with me. In the vast majority of cases, and I don't mean to be nasty, they are inevitably out of depth and have no idea what they're doing. Or they are too old and have too many people depending on them to be playing this game," he adds.
Finally, Tregaskes advises startups spend money wisely, even if they have raised a lot of funding.
"In your personal life you can waste money going out to dinner or to parties and burn through cash quickly. Now imagine not just personal expenditure but running a company paying salaries, paying for services, paying for lawyers and so on.
"You can start burning through some serious cash extremely fast. It doesn’t matter how rich you are, you can burn all of it if you're not careful. Even if you're minted I'd take a very cost conscious approach. Because if you don't you are either reckless or you're an arsehole," he says.