Edu: Knowing When To Quit - Is It The Right Time To Shut Down Your Startup?

Edu: Knowing When To Quit - Is It the Right Time To Shut Down Your Startup? w/ Gabor Cselle

Gabor Cselle: There's lots of little things. And you have to do all of these little things while you're also going through the emotional journey of oh crap, now I'm shutting this thing down that I really cared about and that I really wanted to succeed. So, it's just kind of like a bunch of busy work while you're also mourning a loss.

Yaniv:  Hi, I'm Yaniv.

Chris: And I'm Chris,

Gabor Cselle: And I'm Gabor,

Yaniv: And in today's episode, we're going to discuss when is the right time to shut down your startup? How do you know if it's just a road bump and you should keep going or whether it's really time to call it? today we have Gabor Cello on as a guest to talk about this. I remember Gabor as a ridiculously precocious and ambitious intern at Google's European engineering headquarters in Zurich.

He went on to found and sell several startups to companies, including Google and Twitter. Gabor was then a director of Google's Area 120 internal product incubator, leading the development of 20 new products. Then, when Elon Musk rode his sink into Twitter's HQ as their new owner, the entrepreneurial itch struck again.

Gabor founded one of the highest profile Twitter alternatives, T2, later called Pebble. The story didn't end in a glorious exit, though. Instead, earlier this month, Gabor and the team made the decision to shut down the company. All of which makes Gabor absolutely the perfect person to discuss today's topic with us.

Thanks for coming on the show, Gabor.

Gabor Cselle: thank you for having me

Yaniv: So first things first, this must've been a very hard decision. How are you doing personally?

Gabor Cselle: I'm okay. I'm, it took me a little while to process it. I honestly think that the hardest part of this was the fundraise that we failed to raise additional funding in. And, just, it felt like, multiple weeks of getting punched in the stomach every half hour on the half hour, and slowly coming to the realization that this isn't going to fly.

Yaniv: Yeah. One of the things that we talk about on this podcast quite a lot and we've had. dedicated episodes on it is founder mental health. I think, first of all, the founder journey is one that takes large toll on mental health. I think it also attracts people with a certain personality profile who are quite intense.

And then, When things go wrong, or when, when things don't go the way you want them to, it can be difficult. And, think one of the other things to note is you've had this incredibly stellar career, like I said, with a number of successful exits. but I guess it, never gets easier, right?

And, can always be a time when it's just not going to work out.

Gabor Cselle: Yeah, that's right. I think it's the name of the game.

Chris: So,

Gabor, think this topic is really timely, right? With the downturn and with VC rounds. Moving from down rounds to no rounds. I think we're going to have an even, larger percentage of companies sadly, failing. And so I think this is a really the right topic, but maybe let's talk about the macroeconomic climate just a little bit, Gabor.

I think you had some perspectives on that.

Gabor Cselle: Yeah, so, on Monday this week I was at a party that Product Hunt threw, which is the platform where you launch your startups, and they invited me to be there. And, the mood seemed very, very... Unlike what it would have seemed two years ago, because 2021 was like the drunken party where everyone raised a ton of money on great terms.

And now it feels like the downturn is upon us. and while I was talking to people about my startup shutting down, they mentioned, yeah, they have a bunch of stuff in their portfolio. That's also looking pretty dire and might shut down the next couple of months. So I'm expecting that T2 and Pebble shutdown won't be the last that we hear of in the next couple of weeks to months.

Chris: Yeah. And it's also, in terms of the microeconomic climate, that space got very crowded very quickly. Right. And that could happen to any founder running any, great company. If you're solving a real problem or noticing a gap in the market. Maybe other people are noticing it too.

Right? So, you ended up being in a very competitive space, which would have been interesting.

Yaniv: the

Gabor Cselle: Yeah. So, the story goes, I had left Google in July of 2022 and for four and a half months, I was in ideas land and thinking about what to start next. I wanted to try consumer social. I had worked at Twitter before as a product manager working on the main consumer product with Twitter. And I decided that I absolutely loved working on consumer social.

It's such a fun space to work on. You learn a ton. It's very dynamic. And, Twitter was a really fun product to work on. It was not a fun company to work at. it was even back then a pretty difficult company with a bunch of politics and a bunch of things not going so great.

 It was late 2022, I was in ideas land thinking about like short form video and how can we make, podcasts really good in short form video formats. That was my leading idea at the time. And then Elon walks in with his sink and pretty soon after, I think it becomes pretty clear to everyone that he doesn't have a master plan.

And that there wasn't a like grand plan of how to get from here to the super app. And on Friday, that very first Friday, he lays off half the staff, including my very good friend, Sarah, who had worked on journalist safety at Twitter, who had worked on trust and safety as Facebook as well, working on the Myanmar genocide, for example, and, I was like, wow, now maybe is the time. What would it take to build another Twitter? And I asked myself that question. I put together a Google sheet and I shared it on Twitter and got thousands of likes and retweets and, all that good stuff. And I said, oh wow, this is getting a lot more traction than any of the other ideas that I had, because at that time, this like.

Hashtag RIP Twitter meme was trending, and I said, maybe that's what I should try. I put up a wait list and got like 2000 signups on this wait list within a few days. And, so I went about then with Sarah and then Mike, who later joined us as our third co-founder from Discord, where he had ran much of the product engineering team there.

we started building. T2 and Pebble. And, initially things were looking, I think, really good. A lot of interest.

Yaniv: And then what happened?

Chris: Yeah, that's a, that

Gabor Cselle: was setting up your question.

Chris: And then what happened? talk about the rollercoaster a little bit. Right. So when you say things are looking really good, Give us some of that, peak of the rollercoaster. What were some of the exciting things that were going on besides that initial reaction to the initial idea?

Gabor Cselle: Yeah. Well, it turns out if you launch a competitor to a big app like Twitter that is then in, a story of like, Hey, it's not going well. , .

Maybe there's a new owner and they made a controversial decision .

Then suddenly you have the forces of the people that dislike that decision, uniting behind you, signing up for your waitlist expressing a lot of interest in joining your product. So initially we were kind of riding the enthusiasm wave of that and we then decided to do. Something that I think Google would never let you do, Yaniv can probably tell you that as well, is like, just built the simplest frickin thing in two weeks.

so we launched, about two weeks after I had committed the first Git commit into our code base, a very, very simple version of the site to six users. And then what we did was we iterated the site every single day, like Monday through Friday. two user feedback. So we added all the features that people wanted one by one.

We made the product better by resolving bugs. We tagged people in their bug reports like, Hey, at Chris, we, solved the thing that you reported. And there was just a wave of that enthusiasm of like, Oh, this new thing is, actually getting better every single day.

So that was a great start. and iterative mindset initially was I think exactly the right decision for the kind of product we were building.

Chris: Very cool. Very cool. And so obviously then things started to turn. what, were some of those early signs that things aren't going exactly right?

Gabor Cselle: I would up until January things seemed pretty good. we had raised about 1. 1 million later was 1. 4. after I collected all the checks, but we announced that on, TechCrunch. They wrote about the story, and things look pretty good. We had enough money to kind of build something and get to, what it seems to be the universally agreed upon seed metrics, in the venture capital industry in Silicon Valley in 2022, which is, every VC that I spoke at that was a professional consumer space investor said, you need to have at least 3000 DAU.

and then the retention numbers were a little bit different per person, but they range between 25 to 35 percent day 30 retention. If you meet those criteria, that would qualify you for a seed round, like a 4 million, 5 million round from, a top tier investor. And so that was very much the goal. We just want to get to those 3000 DAU with those retention metrics.

And then what happened was that it turns out we were not the only people with the idea to build a Twitter alternative and even back in December, there was a bunch of talk about Blue Sky, but they've been Working on that for years, I'd sort of filed them as they won't ever launch. there were some rumors around which then later launched CK notes and we can talk about that as well.

and there was fable. There was a little bit of early rumors around what I think was called P92, which was going to be Facebook's project. And there was Mastodon, which suddenly in those couple months after the takeover, just dramatically boosted its user base to, I think we went from a couple hundred thousand to maybe over 5 million, monthly active users.

And so we weren't alone and the field felt pretty crowded pretty early, but we were still like, okay, we're just going to get to those metrics.

 I think working with users was really satisfying and also really good for our metrics because they saw that the product was improving every day and, I would advise any startup founder to improve their product every single day and to message their users that it just got better.

That worked super well.

Our positioning was we're going to really invest in trust and safety. And so we're going to not let misinformation. Hate speech, et cetera, happened on the platform and we had started kind of investing in that, and we built a couple of moderation tools pretty manually into the platform,

and then all of the competitors launched and suddenly everyone was like, Oh, how is this going to be different? And we leaned even harder, I think, into our trust and safety positioning. BlueSky, if you remember, maybe this was February or March of 2023, there were a bunch of, headlines. I think Wired wrote an article saying BlueSky has a nudes problem.

so, there was, pornography, there was hate speech, all kinds of stuff on BlueSky. So we were pretty differentiated from that. Substack Notes came, and I think they had actually a really good product. But their, CEO or one of the co founders failed the question of what are you going to do about, I think it was racist content on Substack notes.

And he said, I'm not going to answer any questions about moderation, which if you run a UGC platform, you should be able to answer questions about moderation. so they tanked like very, very early, Mastodon was still on the rise, and then looming on the horizon was Facebook's P92, what eventually became Threat.

Yaniv: At least from the outside, as an observer, you're like, okay, Elon came into Twitter and launched a nuclear bomb there, right? And everyone was down on Twitter. felt like there was this open space for a change in the, social media landscape.

And there were a few, players, including T2, which I think, like you said, was really quite high profile, covered in TechCrunch and so on. then Threads came along. What did that do to the space?

Gabor Cselle: I think it changed the entire space because they went from zero to a hundred million downloads in a matter maybe one week, which was faster than the previous fastest, which was ChatGPT just six months before that. So, they were suddenly the new 500 pound gorilla in the Twitter alt space. And, they had positioned themselves as the sane alternative.

That's the wording that you use to also pretty heavy trust and safety positioning. and that just became the default, at least in everyone's head. all the investors that we talked to were like, but how are you going to beat threads? Their product is so amazing.

And I'm like. Have you used it? It, like, doesn't scroll on desktop or if you post a new thing in reply to yourself, it doesn't show it after you posted it. It's, like, quite clunky around the edges. and so I think the product is so so.

And retention, was really, really poor, but the question was always in investors minds, in the public's minds of like, okay, well, where do I go if I can't go to Twitter slash X, which was renaming itself shortly thereafter? well, I go to Threads. Threads is now the default alternative and it doesn't have the kind of weirdness problems that Mastodon and BlueSky have.

Chris: we spend a lot of time on this show talking about product. I'm a product guy. I love my product. And typically the first place I go when I'm thinking about a startup and how to improve the startup. But it really goes to show you that in a social network or any, business with a network effect.

the network effect is part of the product and so, Threads is an incredible product insofar as it has network effects already built in, and distribution trumps product, right? If you have a massive, massive distribution advantage, then it really doesn't matter how crap your product is in many ways, especially if it depends on network effects.

and so this is a real masterclass or a perfect case study in how, I won't say monopolies, but let's say incumbents have a super advantage over startups, when it just comes to just straight up raw numbers and brute force distribution.

Gabor Cselle: For sure. Yeah, very hard to overcome that.

Yaniv: Very hard to overcome. And, you know, I think we'll talk a little bit about lessons learned, , once we're finished with the story. And I'd love to dive into that a little bit more. but, let's get to the last phase of the company, I guess, which is... you have these, North Star metrics that are relatively standardized you're trying to hit.

I take it you're not quite on a trajectory to hit them. You've got a 500 pound gorilla that is making your narrative more complicated. so what's happening right near the end, the last few months?

Gabor Cselle: All right, so there were a couple of different phases.

As we opened the product up more widely, our retention tanked.

And so we were putting more people in the top of the funnel, but they also churned pretty quickly. so now we got to maybe about 1000 to 1500 DAU. So the goal is in sight. We got to get to 3000. And so we were, in this time giving out some like the premium handles, like at Yaniv, or at Adam, people really, really care about their handles And I was like, okay, now I'm going to try the thing I was always wanting to try, which is that everyone who had signed up with a short handle 8 characters,

If for 30 days they were inactive, we were saying that you would then have to go back to your backup handle,

So I set up this beautiful email test that sends out emails to 10 users and I set it up beautifully in my SendGrid console.

And, uh, then I choose the wrong contact list to send it to. And I send it to every single person on the platform.

Those happened to be the two days where we were solidly over 3, 000 DAU for the platform. right after what I call Handlegate. we had two days, about 3000 DAU. we thought, oh, we now really have it nailed. And then everyone churned again because.

There wasn't enough good content on T2 to come back every day. now with hindsight, I would say that we did two things wrong.

One, we didn't clearly define our, core audience. And two, we didn't really define what was good content, the type of content that we would boost on the platform. If you know who your users are, you can find them more easily. And if you know what good content is, you can boost it algorithmically. So, those are two.

Key problems that led to poor retention and the poor retention then led to us not being able to raise our next round.

Yaniv: Maybe let's, talk about that very final bit, Gabor, because I think in a sense that's at the core this episode, which is the decision to shut down. So, I mean, you said it led to us not being able to raise our next round. But of course, I imagine more goes into it than that. Like, when did the idea that maybe this was not something worth continuing first come into your head?

Gabor Cselle: well, I still think it's worth continuing.

Yaniv: Hmm.

Gabor Cselle: We just can't.

Chris: That's actually a really interesting cause again, this episode is entirely about. When and how to shut down your company. Right. And I think what you're alluding to is, is there's potentially two reasons. One is you think it's not viable. Your original hypothesis is not real. And the other is

you're not able to continue the company.

Right. So it sounds like you're saying it's the second one. You still believe that the business and the idea and the product is viable, but you weren't able to continue.

Gabor Cselle: I still think there's something in there and I think that someone's going to be able to succeed in this space. Because it's not like Twitter has Had a dramatic turnaround and suddenly everyone has just come back to Twitter and they love it as much as they did before because, the path that Elon set it on of, we're going to take a less aggressive approach on trust and safety than Twitter.

arguably had before. We're going to dramatically reduce cost by letting go a majority of the company. I think that has had real implications in how good of a platform. It can be and can become and it started a vibe where I don't think like the most talented people Want to work at twitter on this problem anymore.

So I think there's something there I don't know what it is, otherwise I could have maybe put that in the pitch deck. and

so, we went through, in the very final bits, which she asked about Yaniv. what happened was, we needed to resolve one more item that many VCs had flagged. Let's say we could have gotten to 3000 DAU. I think the second problem that everyone had flagged was Hey, we can't invest in something called T2, it's too derivative. So, we wanted something that had some of that trust and safety vibe of like it's softer and kinder. was not grandiose. We didn't want to be grandiose.

because Elon is grandiose enough, I think, and non grandiose positioning is a little bit better. So we didn't want to call it like ultra mega super anything. So we decided on Pebble, after going through trademark and domain acquisition,

And actually the, user feedback on the new name was great, people really loved it, it's small, it's cute, they get it, it's pronounceable, it's spellable,

so here we are, and we're like, we're ready to, to do our fundraise. We have 3, 000 DAU. And we have a new name, it's no longer T2, and now we can raise, and then I started scheduling conversations. And what happened was, many people that I'd known for like 10 years would be like, Oh, sorry, I don't want to look at this.

And, why don't you talk to some other VCs? I don't want to take up your time. So we got many no's even to meet. And then, all the conversations that we had had, I was shocked to not even get a second meeting. And I think it was partially the climate. just the investment climate has declined.

Second, our metrics weren't there. Our metrics were declining literally as we were having these VC conversations. and then third, it still felt too derivative. So one of the kind of top tier VCs that I talked to. within, 10 minutes of launching into the pitch, she said, look, I want to stop you right there.

Like I don't invest in anything in consumer social that doesn't have a new format because, that's what you need in order to be defensible. So, this was kind of the, spirit of the fundraise. And so a couple of weeks saying, we decided that we weren't going to be able to raise the 4 million that we needed.

I'd over and over with a fine tooth comb on the budget that, we would have needed to get to like building out the full product, building out the app, building out the community, and so on. And so I think that was really the moment where we're like, Oh crap. Maybe this is not going to fly.

Chris: I'm always interested in VCs who are like, let me just stop you right there. I don't invest in anything that hasn't got a new format. Well, you've got a killer team and you've got, a product with all the, fan out and all the subscribe and follow and what have you.

And it's like, it's not a magical leap to imagine you could create a new format to add mix, right? Did you not even ask you like, what's your opinion or thoughts on a new format or behavior before she said, get the hell out of my office?

Gabor Cselle: Well, it was a zoom call, so that was, she didn't hang up. So was nice.

Yaniv: That's polite.

Gabor Cselle: Once someone actually tells you what they really think. You're not going to change their mind. I'm not going to change the mind of someone who has looked at this space for like literally 15 years, has invested in a bunch of companies, including Unicorns.

And then I think what the right thing to do is to use the remaining 25 minutes of the call or however much time you have, to actually turn it into a conversation about, well, what do you think we should do? And if you were us, where would you take it? Because trying to convince someone to change their long held beliefs is just not work.

That's just not gonna happen. So for me, I was like, you know, in my head, I was updating our fundraiser spreadsheet of like, no, but let's try to learn something out of the time that we have.

Chris: that's really great advice, by the way. I think that's a mistake I would have made. I would have tried to convince. investor about, how there's a small gap between here and there or what have you, but I love that you turned it into a learning thing and I think that if there is any chance of changing their mind about you or the team or your agility, it's in the questioning and in the curiosity.

So that's great. to get back to very heart of this here is like, , sounds like you went through the process of trying to raise money. Even your closest friends connections were not even potentially taking the second meetings or pausing you midstream mid pitch. did it just ultimately come down to pure black and white math calculation that there is no money in the bank to keep the lights on past next month?

was that final thing like we're going to now turn off the lights?

Gabor Cselle: Okay. So we couldn't raise 4 million. Then the next one down from that is like, let's raise a bridge round. But we had raised from angels. So going back to angels who are not institutional investors and asking them to, pull up the money truck again, I don't think was the right decision. so we, considered that, and then the last thing was the math of, okay, can we do a community fundraise?

Substack, I think, did one of these where, they asked members of the community to, essentially buy shares in Substack. And so, for us, the math then turned out to be, okay, if we need a few million dollars, and we have a thousand DAU, who I think were, like, at the end, the core user base for Pebble slash T2, that would require at least a thousand dollars from each person, so that is not gonna fly either.

and then I think the competitive environment didn't really help in that, The Zeitgeist was very much, well, Threads is gonna win, and if Threads is not gonna win, maybe BlueSky can win. but definitely not something that has such a small user base. So, we were just too small in a, forest of giants, to really make it work.

And I think in the end, the decision was pretty logical. We did have sort of a bargaining phase of the five stages of grief that I think every founder goes through. And the bargaining phase. before we made the decision, it was like, okay, let's just add random stuff to the product, so we added like, hashtag mayors, which was, basically, if you use the hashtag more than anyone else, then you could be the mayor of the hashtags, kind of a Foursquare type, mechanic, and yeah, that was a great user bump of like 3 percent retention for one day, but like the churn continued.

So we tried a variety of things that were relatively cheap and didn't require like paid marketing, for example, but we were down to the last couple hundred thousand dollars. So, it was going to be really, really hard. We would have had to really find a magical growth hack that no one else had found before.

Yaniv: It's, a difficult environment out there, and frankly, I'm shocked that people wouldn't even return your calls, and I'm not blowing smoke, but you're a multi Exited founder in Silicon Valley.

You're well known, you're well connected, and you were not able to raise capital. And so of course a lot of founders who don't have your pedigree, are going to find it even harder. but I think one thing that I get a lot from people is this sense that as a founder, it is your duty to fight to the last breath, right?

There's nearly this, honor of like, never give up and keep trying to do what you're going to do. Cut your costs savagely. If you can't raise four million dollars, but you can raise half a million dollars, can you see what you can do with that? And that's nearly like, the agency has taken away.

 There's that old joke when someone's about to be left by their spouse, where it's like, they're always the last one to know.

And I think it's a similar thing for founders, right? Which is, any objective observer can look at a company and say, this company's fucked. It is not going to succeed, but the founder is just in there day after day, grinding, grinding, hustling, trying to make something happen. And feel that you have had the ability to see the writing on the wall before it came and hit you in the face.

Sorry, that's a very mixed metaphor. how did you do that? What's your advice for how can one be as objective as possible about one's own startup?

Gabor Cselle: Well, what is it going to take for this to be a huge company? What are the things that have to be true, in order for this to become really really big? And we make those things happen? for us, the answer was, well, we would need, we would need this 4 million then a bunch of things would have to go really really like, Twitter has to continue

to shed users and shed the sort of viability of their brand the brand safety of their brand for advertisers as well. Maybe threads would have suddenly shut down like Hobby and Lasso and, Poke, the Snapchat clone, were shut down by, by Facebook. So, a number of things would have had to really go right.

And, the likelihood of all of those things happening was together, really, really small. And so think you have to ask yourself as a founder, what is my opportunity cost? If this thing goes to zero, after I've put another two years of my life into it, how else could I've used those two years?

So my first startup, called Remail, which was a YC startup in the similar climate, maybe slightly worse of 2009. So I was, in the cockroach batch, Paul Graham had named it the cockroach batch and the other, perhaps more better known company in the batch was Airbnb. I'd raised 120, 000 with Remail and I really made it last all the way to the final outcome.

So, we launched a product, it failed. We launched another product, it failed. We launched another product and then a kind of like maybe a little bit succeeded and then Google bought us in a talent acquisition. So was that really worth it? Well, that Google buys us in talent acquisition was like a little bit of a fluke because the economy was coming back just as we were running out of money.

and then, you know what I should have done obviously in hindsight was to go over to Brian. and Nate and Joe and be like, Hey guys, can I get a job at Airbnb? in hindsight, I think a lot of that effort was wasted on remail. It was like, small, maybe two X outcome for investors.

So sure. They're happy that they got their money back, but it was a rounding error on what YC made with Airbnb. So I think the opportunity cost question kinda just lingers. Do you want to really duke it out for another year to have sort of like an okay outcome with this? or maybe you can take whatever money you have left.

You can do the right thing for your users and shutting this down with some advanced notice. With the ability to download your data and then kind of your merry way

I maybe you can refund the investors some of their money if it's not looking, that good. I think many, logically, that is the better outcome.

And I was once that founder who was like, I'm going to make this work at any cost. And it wasn't the right decision to make it work at any cost.

Chris: Yeah, I think this is the crux of where our podcast specifically can add the most value in the community. Right? I think for many in Silicon Valley, what you just said is the obvious answer is not obvious. Outside of the valley. There's this sense of small business syndrome, as we called it in the very first episode, which is you claw and beg and borrow all the revenue you can possibly get, and you keep those lights on and you grind and you grind for years and years and years, and your measure of successes are the lights on. and failure should be avoided at all costs, or at least delayed at all costs that is the traditional business thinking . and I think what you're describing is the ideal mindset, the abundance mindset, and the mindset that, factors in all costs, including the most expensive cost, which we've talked about on this show a number of times, opportunity cost, personal opportunity cost. I've also mentioned on the show before, I had this startup that I was working on for six years, and it was probably about two or three years too long. and I really regret those last couple of years, right? and so, I really resonate with what you're saying and hopefully the audience is listening carefully. the goal is not to keep the lights on at all cost, the goal is not to mitigate risk and maintain optionality, the goal is to race as fast as you can to venture scale, and take the oxygen out of the room and create area under the curve and, raise real money, to do all of those things.

and if it's looking like it'll be a meddling outcome. where a lot of things have to go right for it to be interesting scale, you need to be making these hard choices earlier, when they're , a little less obvious.

Gabor Cselle: One thing I'd add is that I did call many of our angel investors and I was like look here's how the fundraise went, what should we do? we have this little bit of money, we can refund it to you, or, you know, we could try to like... Get a talent acquisition type outcome. And some of them said, yeah, you should try to get a talent acquisition type outcome, but most of them said, dude, like, don't worry about it. Just like pitch me your next idea. This was a consumer social investment. I know that it's risky. I invested knowing that it's risky. That there was a tiny chance that this was going to be the next billion dollar public listed company.

But there was also a really big chance that it wasn't going to be. And I accepted that risk. And so, I'm not surprised of how it turned out. And please don't worry about me and trying to like, cents on the dollar. just tell me what your next thing is going to be so I can take a look at potentially investing in it.

Chris: really want to highlight that for our audience, right? Because I just described was the founder story, right? Of making your. Choices in a really clever way thinking about opportunity costs for yourself. But oftentimes it's the investors who are injecting fear of failure recrimination and angst.

And they're not taking the position you just described, which is like an angel investment is a high risk investment, and it is more than likely to go to zero. We want you to. Race towards an outcome, do your absolute very best, as long as you tried your best and worked your ass off, there's no need for recrimination or, suffering.

There's just, pick yourself up, dust yourself off, pitch us your next best idea. now we know who you are, and you know who we are, and now you're more seasoned. Operator. let's do this again. And this is an attitude also that is not widely accepted or widely understood by people who call themselves angel investors, broadly across the world.

Yaniv: in fact, would go even further and say there's a weaker version of the opportunity cost thinking at play here, which is that a good founder is a hell of a thing to waste on something that's not working. So if I believe in a founder enough to have invested in them once... I would love to have another chance to invest in them as soon as possible in something that's got a better chance of working rather than watching them waste their life force on something that I think is a bad idea.

So I think that is the fully realized investor that the money is gone, who doesn't have any recriminations, because that is the game that they're playing. If you're an angel investor, if you're a pre seed investor, and you get pissed off... When your money gets zeroed out, then you are in the wrong game.

What you want to do is say, okay, when's, when's my next bit of good deal flow coming from? And who better than a founder who believed in once, who's got that extra experience under their belts. So absolutely, I think that is what you want to hear from your investors.

Chris: Yeah. I raised, a couple of syndicates here in Australia from who are high net worths, have never invested in tech before. And my pitch to them was, Hey, I'm getting you access to this really great Silicon Valley style company. Chances are your money is going to go to zero.

That is the high probability outcome. When you give me this money. You need to forget about it. Encounter is lost. and you need to assume it's going to zero and then it might come back, as a surprise one day should be expecting a zero or massive outcome. I said that expectation very explicitly in this market because they're just not used to that kind of thing.

Yaniv: So think the inside story is one of things we've been asked for a lot. It's like, what does it feel like? And what is the actual process like of shutting down a startup? So the decision has been made. You said, okay, we are closing Pebble.

We're closing T2. what next? what happened after that?

Gabor Cselle: At the time that we made the decision, we were eight people, four contractors. obviously the first thing that you do is you let the contractors go, and so those need to be all, In person conversations or over zoom And you have to tell them why and I think they need to go through their own journey as well So that was the first thing we did the second second thing we did is just like All the little tiny little bits of all the things that you had built up over the past year, plus you now need to tear down all of the contracts, your HR system, your vendors, your, Delaware incorporation certificate, all of those things will have to get Canceled, amended, changed.

actually, shutting down a Delaware C corporation, which is the type of corporation that most, startups are the U S is a non-trivial thing and it costs by my current accounting about 20 to 25, 000 in legal fees and accounting fees and all of that stuff before you can really wrap up a Delaware C corporation.

There's lots of little things. And you have to do all of these little things while you're also going through the emotional journey of oh crap, now I'm shutting this thing down that I really cared about and that I really wanted to succeed. So, it's just kind of like a bunch of busy work while you're also mourning a loss.

Yaniv: Yeah, I know we touched on it at the start Gabor, but if you're willing, would love to go a bit more into that. emotional journey because I really do think that is the hardest thing. like I said, I think founders go through difficult emotional journeys, even when things are going well.

but I think, you know, this, decision, which is type of grief, I think that you go through, it's one of the things that makes it harder to make the decision, you know, I think there's a lot of questions. I don't, I don't know if this is something you experienced, but something that you hear about, you know, the self doubt, the questioning yourself, the feeling of failure, potentially, I think is all things that people grapple with that, when you start a startup, you put so much of yourself and your own identity into it, that, it's nearly a type of death, when it ends.

So. Yeah, I mean, I'd love to hear from you, you know, how you've dealt with it.

the advice that you would well, I think I'm still,

Gabor Cselle: Well,

or like, what if we had like, done the user signups in this other different way, and maybe then that could have been interesting and different, and I wish I could learn that, but now I'm not gonna be able to learn that.

Or like, you're like, Oh, what if we just like revived the whole thing? And then you could just like, if you change these two things and we use this particular channel and requiring users, like a lot of like, I'm still going through like, Oh, what if we did that thing? even though the product gone. We have deleted all the user data. We have a copy of the code, but we don't have those users anymore and I can't email all of them. So, I think I'm still in my head kind of like resetting to, okay, what I really need to start thinking about, like getting a job, I guess, figuring out the next startup idea.

so I'm still in it. I think what has helped me specifically here is that my previous job was at Area 120, which was Google's internal incubator, where we incubated kind of zero to one projects, but many of them were actually shut down typically at six months or 12 months when we sort of checked in with the team and made decisions about whether to continue that product or not.

And often I was people's manager and I would have to tell them that, we've decided to shut down their project and to shut down their team and they're gonna have to do something new. And so I have had that conversation with other people at least 10 times. And so I have a little bit of data of what happens and how to communicate it, what the initial reaction is, how people will often go through like these phases of, Well, initially you don't, you can't believe it.

And then you start bargaining and then you're angry. And, then sometimes you get reset to an earlier stage of grief. So, I've seen that happen in a lot of startup style environments and manage people through them, or hopefully help people through them as well. So I was able to kind of spot that in myself as well of like, Oh, now you're bargaining, you're literally bargaining of whether you should shut down your startup.

Yaniv: Thanks so much for sharing that. A thought occurred to me as you were speaking, which is, you know, we talk about the importance of failing fast and simply of the importance of failure and nearly celebrating failure when we want to have big successes. but perhaps what you are saying here is that failure is a skill, right?

And that the, emotional aspect of failure is a skill, right? That, you have through your experience, with all of these other, I don't know if you call them founders in Area 120, but you know, the folks who are, who are leading the zero to ones, that you've been able to take that experience and use that to be better at processing this yourself. would you say that's true?

Yeah, for sure. I'm, I'm on this podcast and not sort of quietly in the corner of my house mourning the loss of my startups. I feel like was able to intellectualize it a little bit then I could've done with my first startup. I think if my first startup had straight up failed, that would've been, Yeah, pretty destroyed.

Yeah. I mean, one of the things I talk about is, caring a lot, but not too much when it comes to a startup and the danger of fusing your identity with the startup. do you feel that as you become more experienced, I think we could safely call you a serial founder now that you've been able to, have that, Little bit of distance, that little bit of separation that has allowed you to maintain your own identity separately from your startup in a way perhaps you couldn't when you were, earlier in your career.

Gabor Cselle: as we're going through the race, for Pebble and T2, the failed fundraise, after we had hung up after yet another rejection call, I often thought of this piece of advice that someone else had given me a while back, which is that they're not judging you.

They're judging the business opportunity. The VCs are judging your metrics. They're judging your startups revenue. They're not judging you as a person. And I think that helped me a lot in sort of distancing myself a little bit from all the rejections that we were getting.

Chris: Now, Gabor, you know, you've mentioned you've been involved in making the decision and shutting down. Quite a number of these zero to one projects, right? But, shutting down your own company, your own separate entity, right? Outside of Google is, probably a lot more painful and a lot more logistically challenging.

And you've mentioned some of the steps you've gone through. What part of that was maybe the most surprising to you? and or what would you have done differently the next time? of advice for the founders listening who maybe need to go through this soon?

Gabor Cselle: Did you know that Rippling charges you a 1, 000 fee if you want to end your Rippling account? That Rippling is kind of the most common HR software that, startups could use. Maybe Gusto is kind of similarly, Um, but it's like, you know, all of these hidden fees and all of these like filings that you have to make that we're still in the process of making, that has been surprising just how much I've never shut down a Delaware C Corp before because the previous two I sold to Google and to Twitter and they had their own organizations dealing with that.

So, that is just the. I think it's just like the, many, many little things, any of which you could do incorrectly. Shutting down a company that is registered in Delaware is one of the few things that if you do it wrong, you can be personally held liable as the founder.

So it is, uh, don't do it wrong. And it's just like these, many, many little steps

 I was like, here's how much money we have to do the shutdown.

Here's the spreadsheet and, I think one good thing that I did is I asked very early on all of our vendors like Rippling, our lawyers, et cetera, how much it will cost. Because if I had not asked them, I would have dramatically underestimated the cost. Like, I think it's going to end up being 25, 000 to shut this company down.

I would have told you it's like 2000, maybe. How difficult can it be? turns out pretty difficult.

Yaniv: Wow,

Chris: Wow. All right. Well, maybe let's, let's switch gears entirely. we've talked a little bit about threads and I think they're probably the de facto second place. by actual size, by brand awareness, by momentum, by people's assumptions. firstly, do you believe that to be true?

and what is your analysis threads now and, the landscape more broadly in terms of alternative Twitter clients? Yeah.

Gabor Cselle: so yesterday I did this little experiment where I shared, the same content on three different platforms. I called it my tinker day. So I was like, okay, I'm going to train a... Image classifier that will identify fonts, like give me an image and it will tell you what font it is.

And so at 9am I said, okay, I'm going to start building this. I don't know if it's going to work. I don't know if I can get it to work, but like update this thread on Twitter slash X and threads and also Mastodon, on our little Mastodon instance that we started. by far the most engagement was on Twitter slash X.

Then second was Mastodon and threads was third. So either I don't have the right followers or they're not doing, I think they might just not be doing the right things and getting the right content in front of the right people via the algorithm. but I think the engagement is not there. And I think partially it's, they're making the same mistake that we made.

with T2 slash Pebble, which is, they haven't said what is great content and they haven't figured out how to algorithmically boost it. They haven't said how do you win on threads as a new creator? other than saying, well, if you've already won by having the blue check mark for your notability on Instagram.

Then you can get that same blue checkmark on threads, and we're going to boost your visibility through that. So, it's just not there yet. I'm not getting the engagement that I was expecting on threads, and they need to do a better job at the algorithmic need, and they need to do a better job at defining what's good content so that they can boost that.

Chris: It's surprising, that Facebook Can't get the engagement signals and algorithms right, on a social product.

Gabor Cselle: Their social products are about images, which is Instagram, which is a fundamentally different format. And the way you get attention on Instagram is very different. And Facebook, which is about your friends, versus I think like a. Twitter product requires a different style of algorithmic feed than what they currently have.

Or maybe what's really happening is the retention is actually much poorer than anyone is expecting and I really only have five people looking at my posts on threads every day. But I doubt that that's the case. It can't be that bad.

Yaniv: , I take your point, Gabor, it doesn't seem to be working amazingly now, but one of the things that you see is just the, power of distribution. And, you know, you mentioned it. At first, right? So you get to a hundred million users straight away.

That's one of the powers of distribution. But the other thing is just that ability to stay in the game for a long, long time and keep using your distribution over and over again until you get it right. and it doesn't even have to be an amazing product. there was that famous graph that was doing the round six months ago about like the active user base of Slack versus Microsoft Teams and Microsoft Teams. it's still a pretty inferior product. It used to be very inferior and then slowly it got good enough. And, the point at which it went good enough, Microsoft could just push their distribution behind it and everyone ended up using it. And when I say everyone, it can easily be in that bubble here of startups and so on where Slack gets used, but most companies in most places now use Microsoft Teams.

And I wonder if there's an element of With threads that might be the same, which is like if Facebook just stays in the game long enough, they will build something valuable, or if it's a different dynamic in social where that doesn't apply.

Gabor Cselle: I think staying power is absolutely the name of the game in social. You have to stay long enough so that people will have the chance to come back and will have the ability to follow others and see their content and experience it. So it's, not, maybe the only thing, but it is a big thing.

And obviously what we feel that with T2, I think for startups, which is your audience, the moment You doing productivity or consumer. Product quality really, really matters. And I learned this the hard way myself. So I was the VP of engineering at a startup called Zomni. This was my first job.

after we met Yaniv, in San Francisco, I was the first employee at this company and I led the engineering effort and, we launched at TechCrunch 40, which later became TechCrunch 50 and later became TechCrunch Disrupt and within two weeks we had a million downloads. So we had a ton of, initial usage.

We were building this Outlook plugin that when you went and read an email in your inbox, it would show you essentially data about who it's from, the profile of who sent it to you, what the previous emails were that you'd exchanged with that person, the previous attachments and so on. This was a new concept in 2007 and people really loved it and they downloaded the product and then they churned.

And they churned because the product quality was poor. And I remember this like moment. I think about this all the time. So, it's like late 2008. Actually, we're walking Out of Zabni's office Sutter Street in downtown San Francisco, we're walking around the corner to our friends who work at this new company called Dropbox.

We're walking out of our lobby where we have a chart on a monitor that's like, Downloads! And it's going up and to the right and it's going great. We walk into Dropbox's lobby and on their monitor is recent stack traces. That their client has thrown and things that they want their engineering team to fix.

So no vanity metrics. It's like, let's make the product better. And I think the rest of the story, kind of tells itself. You probably haven't heard of Zodney, but you've definitely heard of Dropbox. And for consumer and productivity, product quality really matters. And this is why with T2, I was so obsessed with making at least one visible product change every single day that I could go back to the user base and be like, we improved this today.

And that actually works really well. I wish we could have done it for longer. but I think that's one of the key learnings. That's my career so far.

Chris: And again, you know, in my advisory work, I encounter too many startups or companies that call themselves startups where they're these thin layers of marketing or , lead gen or they're technology backed services companies. And they're just far from having an obsession about the product.

They have no product. They're not working on anything that any user could pick up, use, inspect, get to an aha moment that they're iterating on, that they're obsessed about, that have any product telemetry on. and there's just a real absence of product thinking, in a lot of these ecosystems and a lot of these companies.

And so, yeah, we know we can talk about network effects and distribution and what have you, and those are really important, especially in social. But, uh, it's the product stupid. You got to make your product great.

Yaniv: so folks, you might be currently struggling with your startup wondering, is it worth it to keep going? Or maybe I should shut it down.

You want some outside objective advice. And I know nobody better to give that advice than Chris. So Chris, if folks want to work with you, how do they get in touch?

Chris: Well, yeah, Yaniv, hopefully they contact me before they get to the decision of shutting down their startup. But, uh, I do work with a small portfolio of companies, and help them avoid the dreaded shutdown, but, if I can be helpful, feel free to learn more about that over at chrissaad. com slash advisory. And Yaniv, I just launched an AI Chris Saad, bot trained on all my content.

Yaniv: what does the bot think about the conflict in Gaza?

Chris: have not told it about that yet. Uh, I should, I should do, but, uh, if you go to chrissaad.com/startupAI, there's a link over to the new GPT powered version of me and my brain. I'm just tinkering with it, but it'll be fun to get feedback on that. So go check it out and see if it's helpful.

and also don't forget, if you are listening to the startup podcast and getting a lot of value from it, we ask you to please honor the startup podcast pact, which asks that you please share the show on your favorite social network and subscribe and rate us in your favorite podcasting app. It helps us grow the show and helps us help more founders like you.

Yaniv: Chela, thanks so much for joining us, for sharing your story. I know it's a, personally, a bit of a difficult time. And like you said, you're you're still going through the process. So, I actually followed the journey with T2. And, I was really inspired by the way you just pulled together a team of true believers and, and started building.

so, I'm sorry to say that the story ends here, but, thank you for trying. And I'm sure that whatever you do next is going to be pretty cool. So, all the best.

Gabor Cselle: Thank you.