Season 1,

3: How Entrepreneurs Can Take Their Licks and Keep Going with James Carbary

November 20, 2016

James Carbary, Founder of Sweet Fish Media, had an unmistakable entrepreneurial spirit. But going back to rock bottom is really hard after you’ve made money.

You have to be willing to take your licks, get up, and keep going, as he learned all too well with his first entrepreneurial venture.

Listen in to hear James tell the story of how his first startup was doomed from the day it launched—and how you can avoid the same mistakes.

Green Flag: Smooth Sailing

The setting: July 1999.

I had already started tech companies that had done well. The current was high, the energy was high, the market was ripe. I came up with another idea and quickly raised $30 million, still owning 25% of the company. I was looking at $250 million dollars in personal equity value in this one deal.

Our major investor said we’d never have to worry about raising capital again. We were told to just go as fast as we could. We had a vision to IPO for $1 billion within four months, which we would achieve in three stages:

  1. We sold to global 2,000 companies only, so we wanted to get as many logos of Global 2,000 companies on our website as possible.
  2. Grow to 500 employees.
  3. Go global.


There was so much creative energy around the Internet. It was going to change everything, after all. The entire environment was crazy, and in many cases the normal rules of business, including profits and cash flow, didn’t matter. It was all about how many eyeballs were looking at your B2C site or how quickly you were growing.

I literally had one of the largest investment banks in the world tell me, “Wade, don’t worry about profitability. Grow your revenue as fast as possible. Forget about earnings.”

And that would help my company explode. At least, that was the plan…

Red Flag: The Bubble Bursts

About a week after closing the last $25 million of the $30 million, the “.com” bubble burst.

It affected B2C first. But we were B2B; our customers were companies like American Airlines, Carnival Cruise Lines, and Hilton Hotels. We felt protected, but the market was jittery in the spring of 2000.

By August, our lead investor who said we’d never have to worry about capital again suddenly said, “We don’t think we can get you public by October 1,” which was the plan. Not only that, but we needed another $50 million desperately. And not only did we need $50 million: our lead investor wouldn’t invest anymore. We basically got a “good luck raising it on your own.”

Thank you very little.

Black Flag: A Horrible Look in the Mirror

The next six months were grueling. We teetered on the brink of bankruptcy and had to let go a ton of great employees, many of which I recruited myself. It was a horrible time.

In the midst of that, I had a mentoring session with Michael Dell, who had invested $3 million in the business. As he talked about Dell’s cash cycle, and I started to sketch out our own.

What I found wasn’t pretty.

We invested a lot of money in sales commissions, in buying servers, and in paying highly skilled IT professionals, and we only charged the customer a year later when the solutions went live. We had an enormous problem: no wonder we were burning so much cash. Every time we sold a customer, we were committing to $600,000-$700,000 of cash investment for about a year before we saw the first dollar from the customer.

That was the moment I knew that our whole business model didn’t work.

White Flag: Last Hope Fades

We struggled for months and finally got another $45 million of desperately needed funding, mostly from one huge company. About $20 million of that went right out the door for our accounts payable. Still, we thought the investment would save our company.

Then 9/11 happened. The big billion dollar company that invested with us was in the travel leisure sector, and that was a huge part of our target market. When I called the CEO of our partner and said we weren’t getting any traction on our alliance, he said, “Wade, I’m just trying to stay alive. Assume nothing from us.”

25-30% of our entire customer base blew up too; it was a mess. And I had been diluted to almost no ownership in the company.

Then our sales pipeline was melting away, and that was the white flag moment. All we wanted was to conserve the money we had and to get the thing to a soft landing. We needed to sell the company.

Total damage = We’d raised a total of $75 million, and we sold it for $4 million—obviously a huge disappointment for everyone.

Checkered Flag: What I Learned

There are so many lessons to be learned here. There were three core violations in this particular company:

1) The cash cycle issue – You always prefer to collect cash up front and pay for your service to the client later.

2) Scalability – We had a model that required a lot of customization for each client. It took six or seven people working for almost a year to get a solution “live.”

3) Concept risk – Today, software as a service is a well-known market, but back then not so much. The Internet was fairly unreliable, and we asked for their most important asset—their customer data—so we could stream it back and forth over that unreliable Internet. Plus, our value proposition itself was new . . . we were too far ahead of the market.

50 Ways to Predict Failure


Based on my experiences, I’ve amassed a list of about 50 principles that are predictive of failure, for any startup. I call them inviolable.

When you have a bubble people think the rules are suspended, but they’re really not. Those chickens always come home to roost.

The vast majority of all business opportunities fail. We tend to only look at data that supports our decision and dismiss data that doesn’t. We have to bring in a more rational and logical framework to guard against that typical optimism and emotion. That’s where the 50 principles come in.

In the wise words of Simon & Garfunkel, “A man hears what he wants to hear and disregards the rest.” Don’t be that man.

Failing Forward

In each episode of How to Lose Money, we’ll be asking our guests to answer a few questions about failure. Here’s what came out of this episode:

  • In your opinion, why did this failure experience happen to you?

Hard to say, but I do know that every entrepreneur will fail, and how you respond to the failure is really important. Do you learn, grumble, or blame?

  • What is the single most important lesson you’ve learned from this experience?

To be coachable. To listen to good advice. To not let your optimism outweigh the actual data.

  • Who do you turn to when you need help?

I surround myself with a lot of business partners. I have advisors and co-investors to help.

  • Given the experience you had, how do you strengthen your business to protect it from failing in this way again?

It’s really all about the 50 principles and applying them every time.

  • What advice would you give to someone who wound up in a similar position to you?

Check your optimism at the door. Surround yourself with good advisors, and take quick action. It’s only going to get worse if you don’t correct it.

This episode is based on an interview with Wade Myers from Boldmore Growth Partners. To hear this episode, and many more like it, you can subscribe to How to Lose Money.

If you don’t use iTunes, you can listen to every episode here.








Leave a Reply

Scroll to top