Shareholder updates can be hard, particularly if you have bad news.
There are basically three ways founders tend to approach this: they can pretend everything is fine (a lie by omission), they can rationalize their past decisions and find a way to shift the blame off of themselves (aka: “our timing just wasn’t right”), or finally they can own the situation and focus on the future.
So it always makes us feel good when we see an update of the third kind, like the one we got recently from Jakub Havej, Founder and CEO at StartupYard Batch 5 Alum ClaimAir. With his permission, we are sharing the bulk of his end-of-2017 shareholder letter.
As you can tell, ClaimAir had a tough year. Things didn’t go the way Jakub hoped, but on the other hand, his team and the business both matured remarkably in that time, and today they are on a stable footing, looking to grow again.
It takes a lot of courage to admit when things aren’t working, and Jakub showed that courage to his shareholders. The feedback he got was incredibly positive, and his letter is something any young startup can learn from.By the way: You can help ClaimAir by using them to get compensation for flight delays, lost baggage, and other flight issues.
At the bottom, we’ll talk about what makes this letter special. Now, here it is:
Last time I wrote you, ClaimAir was in the middle of fundraising. And it seemed very good, around €100k was hard-committed at that time.
And you know what?
It didn’t end up working out. It turned out that one of the interested investors faced credibility issues. The other one revoked his commitment without stating any reason.
And then, hard times began.
The company was running out of money. I continued with the fundraising, but after a while I realized that it needed time… time we didn’t have. I felt I couldn’t control the fundraising process. I was just sending out emails and was eagerly waiting for any replies that often never came.
I felt desperate.
“ClaimAir seems very interesting. Please keep us posted about the progress, so we may consider the investment in several months.” – the most common response.
Fortunately, it didn’t last long until I changed my mindset.
Instead of only pursuing investment for the sake of faster growth, I primarily started focusing on the profitability of the company. My inner engine has become fueled by motivation to make ClaimAir independent of external financing.
It was a pure instinct of survival, supported by opinions of people like Jason Fried, founder and CEO of Basecamp. It shortly happened that I liked that approach.
“If a restaurant served more food than everybody else but lost money on every diner, would it be successful? No. But on the Internet, for some reason, if you have more users than everyone else, you’re successful. No, you’re not.” – Jason Fried
Businesses must generate profit
A growth of acquired cases, our most important metric until that moment, had become irrelevant overnight. I didn’t care about new cases, because they didn’t bring immediate revenue. It wasn’t the case with more than a thousand existing claims, whose total sum of requested compensation exceeded €700k.
As a result, my team refocused on the management of legal cases, those that were handled by our legal partners. We needed the enforcement to be done much faster and we needed our lawyers to understand that.
We started playing a tougher game with airlines.
Just in a matter of few months, our activities have started bearing fruits. In summer, our monthly net revenue was averaging to €6,500. Three months later, we’ve doubled that!
Keep costs under control
We’ve been increasing revenue while cutting costs significantly.
“When running a startup, costs are the only thing you can effectively control” – Cedric Maloux
Reducing costs was necessary. Even though it was hard for me to dismiss some people, it was inevitable. Being always transparent about the company made this much easier.
This step also forced us to optimize our activities even more, avoiding the reductions of having a devastating impact on our daily operations. This approach needs to be sustainable.
Finally, by the end of November, we made it.
For the first time in our short history, we ended a month with a positive cash flow. We generated €3,300 net profit, which completed our short-term mission.
It’s not easy to enter this market
I remember my discussions with investors. Many of them claimed that it’s easy to copy our business and enter the market. Well, it’s not true at all.
Not only do you have to find smart team members, develop an automated platform, put all operational processes in place, but you must be also successful with enforcement of the rights of air passengers. To achieve this, you must establish a network of legal partners all around the world. Last but not least, it’s a matter of fact that lawyers won’t take you seriously and won’t accept favorable conditions until you’re big enough and deliver a tangible volume.
Our industry is so specific and you need to combine a lot of aspects to get the ball rolling. As long as we’re motivated and innovative, I’m not afraid of newcomers.
We’re still raising funds
It’s interesting to realize that “profit first” approach, which is much closer to my personal attitude, almost naturally attracted both our existing and new investors. Thanks to our results, we were able to raise money for a cash-flow cushion at a very fair valuation from new and existing investors in the past few months.
For a few upcoming months, I’m going to insist on generating profit together with securing a slight organic growth. We’re going to take on only as much work as is comfortable for the team.
As it has been planned for quite a long time, we’re going to prioritize the baggage segment. It’s still our unique value and the acquisition is much cheaper due to the missing direct competition.
Last but not least, we’re going to improve the product for travelers. B2whatever… we’ll design the service that works for the person on the other end. I’ll share more details in my next update.
In November, we’ve been awarded a “Scaleup of the month” by EBAN (European Business Angel Network) – read more.
I was interviewed by Roklen24. I spoke about startups, aviation trends, and our recent product updates – read more.
CEO – ClaimAir
What We love About this Shareholder Update:
A great shareholder update hits a lot of bases. Here are the ones this letter covers very well:
- It tells a human story, covering past, present and future.
- It admits problems, and offers solutions.
- It acknowledges and answers shareholder concerns.
- It asks for help.
- It argues in favor of the business and the team.
- It provides solid data.
Really, in the world of speculative businesses, we see only one viable way of dealing with the inevitable challenges you face. That is to be frank and honest, first with yourself, and second with the people who put their trust in you. What is most important about this note is that it is part of a consistent pattern of behavior. If you make a habit of telling the truth, your life ends up significantly easier to manage. In the short term, a lie or even an omission might be convenient, but in the end, it will create more pain than it is meant to avoid.
So if you’re a founder who is facing similar challenges (and you probably will at some point), do yourself a favor, and take a page from Jakub’s experiences.