Focus On Founders: Jakub Havej: Failing to Scale

Over the next few months, we’ll be publishing a series of interviews with alumni founders from StartupYard. We’re calling it “Focus on Founders.”

These are personal stories from alumni founders about critical moments in the history of their company. Some of the stories have happy endings, some don’t. Our hope is that our alumni, current, and future members of the StartupYard program will benefit from their experiences, and hopefully recognize in their colleagues, positive examples for themselves.

Jakub Havej: Founder of ClaimAir on Failing to Scale

To kick off this series, we’re going to start with Jakub Havej, founder of the legal and travel tech company Claimair, which helps travelers request and actually receive compensation for flight disruptions, delays, and baggage issues.

As Jakub will attest, the past few years have been bumpy for him and his startup, with big swings in the size of the team, and the overall strategy and direction for the business.  Over the past half year though, the company has managed to stabilize, and record a steady operating profit, and begin to reinvest in itself.

I sat down with Jakub to talk about his failed attempt to scale his company faster:

Jakub, Claimair is cash flow positive. How does that feel?

First I have to say, It was not just last month, but for the first time we had a cash-flow positive month was in November 2017. Then from February to June this year, we were also cash-flow positive on average.

So I would say today we are able to break even on a monthly basis, and steadily invest more into the business. That’s the difference today: we’re steadily generating more operating profits.

Our goal isn’t to generate profits right now, but to bootstrap the company’s growth. So profits will be reinvested for the foreseeable future.

Claimair had a lot of ups and downs to get here. Tell us about the decision to go for break-even.

It was all about the realization that we had to survive. We really struggled with fundraising last year, and had some bitter dissappointments in that regard. We ended up having no other choice but to tighten up and focus on becoming sustainable, which we can now say we did.

In summer 2017, part of our “roadmap” was to raise a seed investment. As it usually happens, we had some very promising leads, and it seemed to me it would really work. Then at the last minute, with our cash running out, investors backed out without really giving a reason. Then we really had to struggle to survive.

Unfortunately, and this not a new story for startups, we had been planning too much on the investment, and had already started to operate as if we had it. We were too ambitious in that regard, and the shock of having this stop suddenly was hard on us. At the end, you could say I’m glad that happened. It forced me and the team to make decisions we had delayed too long.

The truth is, I was always focused on generating profits. I didn’t create ClaimAir to burn money on a monthly basis. I want to create a viable business. So with investment dissappearing, I got back to my initial mindset: “Wat are the necessary steps to generate positive cash flow?” Within the next few months, we reduced our expenses, got a much clearer vision of our future revenues, and had a target.

In that time, when we were operating in “emergency mode,” we learned how long it really takes to convert opportunities to revenue. We had to cut expenses in half to keep going. Finally revenue did start to grow, and we hit break even.

How is it to let people go for the first time, as a founder?

It sucks to let people go. It was really hard. We had a team of developers working on a great product. I didn’t want to lose them, but I also knew that the product was ready. The significant work was done, and the company had to focus on execution.

That is so hard also because these people helped you to get to this moment when the product (in our case, our claim processing systems), really works, and you have to let them go. It doesn’t feel fair at all. It isn’t fair.

However, we had to make that choice. Continuing to develop the product was in conflict with our vision at that point. It became unsustainable. We lost some other team members as well, and that also shows you who people are. The ones who stick around despite all this uncertainty are people you really come to value.

It’s important to go through these changes because you end up with a core team you can really count on, who have been with you in your worst moments, and you know can hang on and stick with you. In that way, the process is healthy.

Knowing how things turned out with the seed investment, how would you handle it differently today?

To be honest, there is a part of me that says I would change nothing. We learned a lot from this that made us the team we are. I can’t replace that. Ok, if I am giving advice to the next founder in my situation, then I can say a few things, and maybe they can do better than I did.

Our mindset was always to generate a decent profit, and I’m not a really greedy guy. I didn’t really intend to build a huge startup from the beginning. Over time though, I got distracted by the excitement and potential that some of my investors and mentors saw in the business. The upside just keeps getting bigger, and your eyes just keep getting wider.

When you are in an accelerator, you are getting a lot of advice about “low hanging fruit,” and about scaling fast and take charge of the moment. That is absolutely valuable, but on the other hand, many of the “low-hanging” fruit that you can get excited about turn out not to be so low hanging. They turn out to each have their own unique challenges. You can run around as an early stage company and keep trying to reach all these opportunities, and never get any of them.

You can run out of time doing that, which is what we almost did. If you’re raising money to try and capture an unproven market, as we were trying to do, you’re under immediate pressure. You have to prove the value as fast as you can. We ended up working on scaling instead of getting the core activities right. and we didn’t manage to actually scale that way. The big opportunities were always just out of reach.

At the same time, our B2C business kept growing steadily. And we kept ignoring it, because it wasn’t as big as any of the opportunities we were seeing. At some point though, suddenly you realize you have a core business that is something worth focusing on, and getting right.

How would you avoid getting distracted next time? How would you keep focus?

Honestly, from the beginning, I would not have tried so hard to define who our product was for. I know this is blasphemy for StartupYard! It’s just that in our case, our customers were finding us, and telling us who they were. We needed to listen more, and not just try and listen for what we wanted to hear.

In the first years, you get hundreds of suggestions and recommendations, and you have to get through those quickly and evaluate whether they are worth your time. You want to hear about “multipliers.” You want to work with businesses because of the upside potential, and you don’t want to just plug away every day working with small customers.

I was always sure about what our product should be, right from the beginning. I wasn’t sure about how we should acheive growth. So we got focused on these big opportunities that always seemed closer than they really were. You find out that no matter how valuable some deal can be to you, that does not make it the priority for the other side.

Literally, as a startup you can be living and dying by one person’s decision inside some corporation, and that person just forgot to write you their answer a week ago. They’re on holidays. It’s that kind of disconnect in priorities. Too many of these disconnects, and you are at risk of losing your way.

 

So nothing you tried to scale quickly worked?

Some stuff works. It has to be repeatable and it has to be sustainable. You can push through a quick deal for a little bit of money with a B2B product, but the question is how essential you become to someone else’s life and ultimately their job and how well they can do it.

The truth is we never found that sweet spot in the B2B space. We were always nice to have, but not essential to anyone.

Yet again, we were slowly becoming this kind of product for B2C users. They really were relying on us more and more. We weren’t focusing on making their lives easier, as we should have been. We were focused on making our company bigger.

As it turned out, we should have focused on what was working from the beginning, which was simply PPC advertising that was profitable. We ignored things that were working in order to go after “opportunities” that were not as likely to happen as we thought.

So you’re profitable, but it’s not a gold mine… is that your feeling?

Maybe you can see it like that, but I feel great! I feel we did everything we could and tried to scale faster, and we didn’t find that fit. At the same time, we have a nice and growing business, we have customers who love us, and each month we’re able to invest in doing our jobs better. Making our service better for those people.

It’s so fun to talk to investors right now, because actually I’m raising money again. This time though, it’s to do this: to make our company better at what we have proven we can do. So investors will buy into a different vision than we tried to sell before.

It’s a great feeling, because now we can interview an investor and see if they are interested in helping us do what we do well. It is less about their ambition, and more about ours. Defining our ambition in this way, and accepting it, took a lot of reflection and changes in our team. I’m glad we went through it all.

Now I don’t need to beg. That’s something I learned about myself. I hated to beg. And now I don’t have to. Agree with me or not today, because my company makes money. I don’t need anyone else.

So you’re an SME for good?

Actually I still see huge potential for growth, but what I realize is that the shortcuts everyone hoped would be there aren’t really there.

Today I believe in a different kind of growth than we were trying to achieve before, and I think our advantage in this is that we have already tried everything else. We aren’t distracted anymore by the “pot of gold” at the end of every rainbow. We know where the money is, so to speak.

I won’t say more today, but we have some interesting ideas we are working on.

What would you tell our current teams and other alumni about your experience? What can they learn from you?

Listen to yourself. You will simply not achieve things you don’t believe in yourself. Don’t let an investor or anyone else make you do something you don’t think will work. It will be a self-fullfilling prophecy. Maybe that will work with some other founder somewhere else. Just don’t sell out your vision for the money. It won’t work.

Be good at what you actually do well. We came back to being a product company. At the end of the day, maybe there were other ways to grow, but I knew we could do this, and have a great product that makes us unique. So that’s what we’re doing.

Also don’t take money because of fear. The doubt that you’ll grow as fast as you need to is always there when you are talking to investors. It’s always “this other player can do this tomorrow,” so you always feel you need to hurry. You feel dependent on the investors because of that. Just know you don’t have to. You can stop. You can go into safe mode. You can cut costs.

Now that I’m fundraising again, I’m not so susceptible to this thinking, and it feels really different. The fear part of it is gone. You can’t be experiencing fear when you’re talking about investment.