A quick cautionary tale

Since one of my older blog posts mysteriously disappeared (ack!), I thought I might take this opportunity to add one more about an experience I had a few years ago.

At the time, I was working with an online music start-up in Austin, Texas, run by recently graduated MBA's. Their business plan described the venture as a website where users could mash up their own music videos from live concert footage taken at multiple angles. It was under this plan that the entrepreneurs acquired investment to launch their operations.

However, the technology to let users mash up music videos on the web turned out to be more difficult to implement than originally anticipated. The entrepreneurs pivoted admirably, transforming their music-video mash-up website into a wide-angle concert footage website where all the angles were placed side-by-side in a beautiful panorama. Not only was this visually arresting, but it was fairly innovative. The number of visitors to the website grew substantially, and the strategic co-marketing efforts the entrepreneurs were arranging with local promoters began to take off.

Unfortunately, our entrepreneurs never vetted this bootstrapping plan with their investors. One day, a meeting was called to discuss progress, and lo and behold, the investors went into a state of shock when they discovered the original plan (which they were passionate about) had been put aside for the new plan (which they couldn't care less about). They decided to pull a substantial amount of funding, and those who remained invested demanded that our entrepreneurs return to the original plan at once.

Our entrepreneurs came to their few employees, explained that pay would be in short supply, and asked if we would like a percentage of ownership instead. Personally, I declined, not because I thought it was a bad business opportunity--they were amazingly industry-savvy, passionate about their venture, and brilliant on the pivot--but because I feared they would not be able to regain the trust of their investors, or that a similar incident could happen again. Well, that, and I needed to eat!

This brings us to the moral of the story, at least for me, which is, Don't shoot yourself in the foot! Talk to your investors (if you have any) whenever you plan to bootstrap or make any major changes to a venture plan. Otherwise, you may wind up executing that exit strategy a little earlier than intended!