A gazillion things can wrong at the office: Websites crash; accounts get hacked; an entrepreneur may decide to suddenly close shop; investors can fire a CEO; or in horrific, outlier cases–as seen with the Craigslist killer and the vandal-robbers of Airbnb–customers and their families suffer material or physical harm.
When it happens, is there a good time, or a right way to break the bad news to employees, investors, customers, or the board? Fast Talk explores the topic with entrepreneurs, artists, and innovators who have had to deliver dastardly details.
In this installment, we spoke with a CEO who had to bear this bad news: An industry giant released a product that did almost exactly what his company’s did. Oh, and while his company charged a premium price, the competitor’s nearly identical offering was free.
His current startup, Unsubscribe, backed by Charles River Ventures, First Round Capital, SV Angel, DFJ Frontier, and Ron Conway, helps people unsubscribe from unwanted emails or social media applications with the click of a button. It’s not profitable yet, Siminoff says, but the plug-ins and site are winning accolades from tech sector cognoscenti.
They say that Unsubscribe.com could remedy problems with email and social media spam that federal law enforcement agencies and legislation like the CAN SPAM Act could not. The company’s taking a “freemium” approach, offering the app for free to quickly gain users then planning premium paid features down the line, Siminoff says.
But in a past life, he started the other way around. PhoneTag, a voicemail transcription tech firm he started without the support of venture investors, offered its services for a premium price. It generated about $19 per month per direct consumer.
About three years into the startup’s life, search and telephony giant Google unleashed a service (Google Voice) that included a voicemail to text transcription feature that was very much like PhoneTag’s.
Instead of abandoning ship or holding a fire sale as soon as this Goliath moved into town, here’s how Siminoff broke the bad news to his team and kept his business moving toward a strong exit. PhoneTag sold for $17 million to SimulScribe in 2009 (now part of DiTech, a publicly traded company).
What was the moment when you knew you had to break some bad news?
We had a product in the market for a few years, at PhoneTag, that was generating about $2 million in annual sales. We had a lot of customers, 20,000 direct consumers and big names like Vonage, Birtish Telecom, and Keyfax, among others using it and paying to do so. They represented about a quarter million users, overall.
Then, Google announced they had a free service that was basically like our product. It wasn’t the same quality per se, but it was free, and we were premium. That was the day I had to decide how to deal with this. We had about 30 full-time employees, then. I had to decide if we were going to fight how would we do that. Or should we get out?
How did you approach this with your team? Your board, employees, and customers?
You always hear it–Google could release this. Or Apple could release that. I actually had a kind of “Google Plan,” or a folder. Not literally, but I’d been preparing for a scenario like this anyway. I woke up at like 6 a.m. that day, and thought O.K., I don’t necessarily want to do this but here were the steps I had in mind:
First, go super hard, be almost insane in communicating with the press. I went out saying look, Google’s product kind of sucks compared to ours. People didn’t want to write about some startup that was saying oh, a giant just validated the market. They wanted to write about the nimble startup where the CEO was dropping F-bombs. We got in the news right up next to news about Google Voice, saying and providng we’re so much better than them in terms of accuracy. Our customers would say you’re ahead of the curve and support us, so this was our approach.
Second, I knew if we were going to go down we had to go down swinging. That meant keeping everyone focused on customer service, on sales, reaching out to customers pro-actively and making this a positive non-negative.
With employees, I sent out a group email, then talked to key employees each individually. I was in a unique position in that I didn’t have a board or outside investors really. Some angels who were silent, really. But I had complete control and the trust of my team.
I don’t think anyone knew how scared I was, internally. I thought we were toast. But I didn’t really show it ever.
What were the results of this giant moving onto your turf?
We lost 25% of our customers in the first five days. While that was troubling, we were able to get 80% of them back, from our corporate customers and win another 30% of direct consumers by being vocal in the press.
Investors in technology like Brad Feld and Fred Wilson came out in support of us. Press and compliments like that were critcial for us. It’s funny, I worried about starting some all out war with the Google Voice team. But now, I’ve become good friends with some of the guys that started it. And I’ve met VCs who noticed how competitive we were in attitude and in quality, as a result of making that noise.
First Round investors are now backing me with Unsubscribe.com. I met them because of this situation with PhoneTag.
Now, it’s like “Thank you, Google. Thank you.”
Why did you decide to sell the company and start another if things were going well?
The market itself was just not as big as I hoped it might be. There was going to be a long slog of a build to stay competitive. So, when we got to a decent price, and could be part of a bigger company’s technology portfolio, I knew it was time to leave. It was almost five years!
Did anything go wrong with your approach?
Looking back, the stuff I thought would be a problem–being so vocal, ranting about they’re 82% accurate and we’re 87% accurate–nothing whatsoever backfired. I wouldn’t change a thing.
What did you learn in that venture that you’ll apply at Unsubscribe.com?
For me personally, raising smaller amounts of funding and going step by step appeal. It is harder to get big returns on $30 to $40 million series investments. It’s a “lean” approach I prefer.
[Image: Flickr user spaceamoeba]