Subscribe to Inc. magazine
COPING WITH FAILURE

How to Deal When Your Startup Burns Through Your Mom's Money

Tommy McClung, the founder of CarWoo, has been through the brutal process of seeing his company fail and lived to tell the tale. Here's what he learned.
Advertisement

Nobody likes to talk about failure, but often in entrepreneurship it cannot be avoided. Tommy McClung believed so much in CarWoo, the online car-buying startup he founded in 2010, that he was unwilling to see past its flaws and acknowledge that it was time to give up. Having $16 million in the bank was a nice thought in theory, but it wasn't enough to keep CarWoo alive, or competitive. 

"Our space is extremely capital-intensive," McClung said by phone this past weekend. "As a group, we really had three options on the table: first, to raise another round of funding, second, to sell the company, and third, to shut it down. We obviously pursued all those avenues."

Here, he reveals what closing CarWoo on January 20 was like and how he managed to cope with the gut-wrenching process.

On Closing Down

"In a way, you're glad there is an outcome. Anytime you're working on a big deal or an investment or acquisition, there's this period of time where you think you have it done and you're doing all the things to get it finished, but you still have this level of uncertainty that it could potentially fall through. You're in this ambiguous state, which is really challenging for a small company--it is do or die. I was extremely sad and disappointed, but I felt like, 'Hey, at least we have an outcome.'"

On Trying to Get Acquired 

"It was a good 10 months or so of working through a strategic investment, which turned into an acquisition. Then it was an investment, then it was five months of negotiating to get the terms of the deal worked out. It was a year of anxiety. When we found out one deal wasn't going to happen, it was a rush of sadness."

On His Sounding Boards

"My co-founder Erik [Landerholm] was in the middle of it, and he and I were talking constantly. I reached out to Brandon Watson, who runs Kindle apps for Amazon and was CEO of the company we founded before this [IMS Safer]. He and I talked a lot. It was just good to have someone who wasn't affiliated with [CarWoo] that I could talk to. Another friend put me in touch with a handful of CEOs he had worked with in the past, and it was really useful because you could give them the scoop and they could help you think through everything in an unbiased way."

On Hurting Investors

"My mom was an investor early on in the company. There were a couple moments when I felt more responsible for the earliest investors in the company who were either angels or friends and family, because this isn't something they do all the time. I remember my mom calling one day and saying, 'Hey, don't worry about it. Don't think you have to do things that are unnatural just to make sure we're okay.' I think those things are harder on founders than anything. These are people who gave you a piece of themselves. The venture capitalists, you can rationalize it because this is what they do for a living."

On Dealing at Home

"I've got four kids. Making sure there weren't issues at home [was important]. My wife would always bring the kids by work if I had to stay late so I could see them, and she was just super-supportive of the decisions I made. She had been kind of passive, knowing this was a pretty anxiety-ridden time. You don't need to drag everyone through all the anxiety because as a founder, you're going to have massive ups and downs and that's the burden that you bear. The co-founders you can commiserate with all you want. But it doesn't produce any positive results [to expose your family to it] because there's so much uncertainty."

On CarWoo Regrets

"We raised the $16 million, but I wish I would have raised it all up front. What I did was raise enough to take us through 12 months at a time, which put me in a perpetual state of raising money, and that's really difficult. We were trying to raise a VC round in 2009 and the economy was so much different then. We were lucky to do that. [But raising it all upfront] would have freed me up to focus on running the business and not raising money. 

On Following Your Gut 

"There will be a moment when you know it's time [to close it down]. When you have that gut instinct, react to it immediately. I probably waited six to seven months longer than I should have … Your gut instinct is right 99 percent of the time and you should follow it. And don't listen to what everybody else has to say about it, either. You're the one who knows. You have the most insight, more than your investors, more than your employees, more than your outside advisers, and you've got to trust yourself. Do what got you there in the first place and follow your instinct. You're generally going to be right."

IMAGE: Getty Images
Last updated: Feb 4, 2014

JILL KRASNY | Staff Writer

Jill Krasny is a staff writer for Inc. magazine, where she covers the intersection of entertainment and startups. Prior to Inc., she was a writer for MTV and Esquire and an editor at TheStreet. She is a graduate of the University of Southern California with a degree in communication. She lives in New York City.




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: