20 ms·

Mistakes You Should Never Make

• carlesfe 12y ago
  Despite the amount of similarly titled articles that appear on HN weekly, this one is really, really good. Don't miss out on it.
• jlas 12y ago
  Wait, so are you telling me that in 3 years no one noticed that taxes weren't being deducted from their pay?
  • IceyEC 12y ago
    I suspect that it was deducted from their pay but didn't end up getting sent to the IRS.
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  • hapless 12y ago
    Employees probably paid their half automatically, but the other half is on the employers' books. The employer's half is what is commonly referred to as "payroll tax."
  • sethbannon 12y ago
    The Bank of America payroll system we used was automatically withholding the payroll taxes from all of our paychecks every two weeks. It then just left that money in our company's bank account instead of sending it to the government because I never discovered the "submit tax" button.
    • paulhauggis 12y ago
      even so, didn't you notice extra money in your business bank accounts?
    • govindkabra31 12y ago
      wow.. so did you wonder, in each statement in those 3 years, what that money being put in your account is for?
• plehoux 12y ago
  Taxes! It is never too early to setup something like xero.com and bring outside expertise. Knowing how much money you really have is the most important thing to know when you run a business. At ConferenceBadge.com I spent a few days automating our accounting process with Xero API and brought some help from Xenaccounting.com (Montreal firm) to manage our books. It really helped us bootstrap the company and manage or tight budget month to month. Accounting dept (not knowing where you are) is really dangerous and stressful.
• methodover 12y ago
  > In the early days I would often let potential customers think we already had a feature they wanted What. How is this even remotely acceptable? If discovered it destroys your credibility. Among your employees it destroys your credibility. If I was an employee and found out that this was happening, I'd be extremely upset. I wouldn't trust a thing you say. If you'll lie to customers, you'll lie to me.
  • octo_t 12y ago
    This is incredibly common behaviour amongst sales people. Or what is also common is 'oh, funny you should mention that, we have a team working on that feature as we speak'. 90% of the time it is fine, contracts tend to be organised for several months in advance, long enough for you to get a feature in place.
    • SheepSlapper 12y ago
      As a developer, I've been on the receiving end of "we promised the client we could do this, and they've already paid us, so get to it" more times than I can count... it's my least favorite salesman trait, by far.
      • ovulator 12y ago
        And the salesman gets a nice commision from the sale while the developer gets to work an extra 20 hours that week at no extra pay.
        • nitrogen 12y ago
          New rule: developers, let's demand 50% of the sales team's commission for contracts sold on promised features.
        • rwallace 12y ago
          While I'm not defending the practice of vaporware, it's not the root of the problem here. The root of the problem is that if you have a policy of working unpaid overtime, unless you are lucky in finding only wise or scrupulous employers, your life is going to be trashed. To you, it is completely irrelevant whether the reason your employer ordered you to trash your life was because the salesman sold vaporware, or because of the phase of the moon; the outcome for you is the same regardless of the reason the order was given. You have to change your policy of obeying such orders.
• matthewmacleod 12y ago
  Wow - "Oops, we forgot to pay payroll taxes for three years" isn't good. How does nobody notice that? But lessons learned and all that. I can't stress enough (at least from having run a small business) that accounting is the number one thing to get correct from the get-go. It saves such an immense amount of time, money and stress later on.
  • personZ 12y ago
    It's rather surprising that the IRS wasn't dramatically more aggressive about this. Every year they had people submitting tax returns claiming taxes paid that weren't paid, for years. I would have expected the IRS to have searched the Earth for this company.
    • jacquesm 12y ago
      The address was wrong. Probably a mistake, but that trick has been used on purpose as well.
      • personZ 12y ago
        I understand that they sent some mailings, but at some point...months in, or even years in...you would expect an investigator to be tasked with hunting this company down. That ultimately is not a difficult task (aside from obvious and trivial web searches, contacting one of the employees who claimed to have paid tax, the government getting none of it). This seems like the sort of oversight that in most cases would leave the government holding the bag.
        • jacquesm 12y ago
          The way the tax office works is simple: the biggest holes get plugged first, the smaller ones can wait until they've become either big holes or until they've been resolved. Usually they are resolved. By the time a small company has developed a big enough hole for the tax company to start tasking people with plugging the hole you're in very very hot water. It's a resource allocation problem like any other.
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• smalter 12y ago
  Amazing article. As advertised, it's not a self-aggrandizing "mistakes" post that points you at the end to the author's next venture. It's full of the kinds of things that keep me up at night. It reminds me of something similar that happened to me: I was running Adwords for the first time. The dashboard wasn't showing that any of my ads had run, and it kept telling me to up my bid amount. I kept upping it and upping it, and I wasn't seeing any ads running. I said screw it and forgot about it. When I happened to look at the dashboard 3 weeks later, I had blown $6k on Google ads. I had to get my team together and tell them what happened and apologize. ($6k was a lot of money to us.) Like Seth, this hurt a lot because I paid myself less than anyone in the company to save money. Seth, if you're around the iDoneThis office at Great Jones and Bowery, hit me up. I'd love to buy you a drink.
  • sethbannon 12y ago
    Thanks for the kind comment, Walter. I'm based in NYC but I'll drop you a line next time I'm back in SF.
    • mattangriffel 12y ago
      Great Jones and Bowery is in NYC ;)
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    • nicholasjbs 12y ago
      From the first paragraph of the post: On the way, my co-founder and our CTO stopped me and said “I’m resigning. And I’m going to tell the team why.” He then told me that he had lost trust in me as a CEO and as a person.
      • deleted 12y ago
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• dreamweapon 12y ago
  Mistake 1: Taxes This thing about not noticing that you weren't paying payroll taxes wasn't a "mistake." It was pure head-in-assery. How can you "miss" the fact that you weren't being subtracted for payroll taxes? One quarterly / annual review after another, for 3 years? It's like running a personal budget, and "missing" the fact that you aren't paying rent.
  • SilasX 12y ago
    Except that if you miss paying rent, they let you know, and quickly.
    • reborn426 12y ago
      they notice that? ;-)
    • coderzach 12y ago
      They do with taxes as well. But from the article, the IRS had an old name and address on file.
    • dreamweapon 12y ago
      Oh, the IRS and other tax authorities will definitely "remind" you, eventually. But yeah, it tends to take a bit longer. And if you don't have visceral awareness of this fact -- you shouldn't be hiring people, and handing out salaries.
    • jgreen10 12y ago
      Making sure your bills are paid is the responsibility of any adult. If you're running a business, messing up your taxes should be one of your deepest fears. The general sense I got from the story was: We were young and stupid, but instead of doing drugs, we convinced VCs to give us $3.8 million, which made us believe that we knew what we were doing.
      • SilasX 12y ago
        I agree completely! I was only speaking to the point of "how long until it's impossible to miss this", and how the comparison to rent doesn't work because it's much shorter.
• jasonlaramburu 12y ago
  Wow, sorry to hear about all this. Are you going to return the remaining investor money?
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  • budu3 12y ago
    I don't think he's out of business yet.
• DanielBMarkham 12y ago
  Seth, Thank you so much for posting this. We all make mistakes, and for each of those, there could be ten thousand HN'ers who would come along behind us and say something like "But how could you do X? That's stupid!" Everybody wants to read business porn. Nobody wants to sit down and hear the ways they will likely screw up. Guess which one is more effective. We need this. This took guts to do. It is one of the more useful posts I've read, and it will have a positive impact. Congrats.
  • sethbannon 12y ago
    Thanks, Daniel.
• tptacek 12y ago
  Of all the financial mistakes you can possibly make running a company, withholding payroll taxes and then failing to remit them is probably the worst. Be thankful you caught this before the liability exceeded your available funds, because company operators are apparently routinely held personally liable when there's a shortfall, and I'm not sure that debt is even dischargeable in bankruptcy. What's worse, minor versions of this mistake turn out to be easy to make; I've seen (much smaller, much more easily fixed) incidents in multiple companies with things like state taxes and unemployment insurance. So: you can't assume this is a mistake that won't happen to you. Without making any value judgements about the operations of this particular company, one valuable lesson from the post is: do not ever use the Bank of America Payroll feature. Unremitted payroll taxes can come with a one hundred percent penalty, and you can be liable for that penalty even if you had no knowledge of the failure to remit. Payroll tax screwups are the scary story big startups tell to baby startups at bedtime. Shudder.
  • Aaronontheweb 12y ago
    We've had issues with our state taxes because we changed from an LLC to a C-corp and even though our lawyers took care of everything at the Delaware and Federal level (as far as new tax IDs go), they completely forgot to do this in California where we operate. They're not large liabilities thankfully but it's been a persistent headache for going on two years.
  • DanielBMarkham 12y ago
    You can even get in trouble when you don't owe anything. Moving in and out of W-2/Corp-to-corp status many years ago, we set some consultants up on W-2. Then we changed up the mix, went back to just me, and I went on W-2 with another consulting firm for a while. Got a letter from the state tax guys. Even though nothing was owed, we were supposed to file forms with all zeroes on them. There was a fine, yadda yadda. Unfortunately, logic, reason, and common sense are not a reliable guide here.
    • vonmoltke 12y ago
      > You can even get in trouble when you don't owe anything. Yep. I recently got a Texas sales tax certificate for my unincorporated side business. Even though I am not doing anything yet, because I have the certificate every quarter I have to log in to a state website and check a box that says I had no sales. Not doing to on time will cost me $500 per incident (I think).
• UVB-76 12y ago
  Although a valuable cautionary tale, is it really wise to make a post like this, associated to the company name, for the whole world to see? As a post-mortem, I would understand, but surely not a good idea when your company is still trading. Existing/prospective customers are going to read this, and it's not going to fill them with confidence.
• ajb 12y ago
  Really uninformative headline. Hmm, what would be better? Maybe "Management Mistakes Founders should never make" (not all of use are reading this for the startup stuff, believe it or not)
• thom 12y ago
  You shouldn't really be able to go through a startup accelerator without someone hooking you up with an accountant... much less raise millions of dollars of investment.
• fredsters_s 12y ago
  "I’ve come to realize that “technically true” is a terrible ethical measure for a (non-technical) statement. I should have held myself to a higher standard. I’ve also learned the importance of overwhelming honest" So true. There is an immense amount of pressure within startups to 'bend the rules', and I think this hits the nail on the head.
• jacquesm 12y ago
  This is why you pay an accountant the big bucks and pray they don't mess up in turn, very frequently if they do the responsibility is still yours. Running a company comes with a lot of responsibilities that tend to keep you awake until the small hours of morning. Details like these can get you, especially because they are retro-active and hardly anybody is in a position to absorb an instant loss of say 7 years remittances for the 100 employees they have. Be very grateful that it wasn't a huge amount of money, bigger companies have failed over things like this. Also, if you are conservative you'll have a spreadsheet that models your worst and best cashflow prognosis for the next 6 months to a year out. If you find yourself consistently outperforming the 'best' case in spite of an unchanged business outlook then it's high time to start checking things.
  • Qantourisc 12y ago
    This practise is in my opinion SO wrong. There is a saying: "... as humanly possible" in other words people make mistakes !
    • jacquesm 12y ago
      In the eyes of the tax man there are no mistakes. There are only audits and fraud. Better have your stuff in order when that audit rolls around anything more than a few pennies out of line and you'll be looking at months of extra work even if you're a small company. Looking back at a decade or so of your paperwork will turn up a ton more that you'll have serious issues documenting if you didn't take care of it at the time. That gets expensive in a hurry (tax lawyer, fines, interest, surcharges).
• mhartl 12y ago
  First I'd like to thank sethbannon for writing this valuable article. As someone with two failed startups under his belt (including one through Y Combinator), I think entrepreneurs being more open about the challenges of startups is a good trend. FedEx, Evernote, Intuit, Zappos, Airbnb – I’m endlessly inspired by those founders who faced near collapse but simply refused to give up. These stories can be inspiring, but remember that they suffer from survivor bias. The companies that do go under don't get as much attention in the financial press. Sometimes the reality is that it's time to shut down. Give up on one thing, move on to the next thing.
• ajaymehta 12y ago
  Kudos, Seth. Really refreshing to see this kind of bare honesty, and takes a lot of courage to know that this post will probably be seen by all friends/family/coworkers. Thank you for writing this.
  • sethbannon 12y ago
    Thanks Ajay.
• danielweber 12y ago
  No matter how smart you are, the only way it makes sense to do your own taxes is if your business is taxes. Otherwise, hire the woman who spent years learning this stuff and devotes her entire cognitive load to the task to do it for you.
  • jacquesm 12y ago
    Absolutely. And then you still check on them to make sure it is all done 100% right. You are responsible.
• bellerocky 12y ago
  On the co-founder thing, being a "co-founder" doesn't mean you're also endowed with as much authority as all the othe co-founders. In most circumstances one of the co-founders should be designated as the one in charge, given the responsibility of making the hard decisions. Being in charge doesn't mean you get to win every argument, as you don't want your co-founders to quit, but it definitely shouldn't be a thing where all the co-founders have equal decision making capabilities because that may lead to never-ending strife. Most decisions shouldn't be arbitrary anyway, a decision should come with a convincing argument. It's those hard decisions when none of the answers seem perfect where you need someone to win out even though it may not feel right. The leadership structure should be determined when the founding team forms, so there's no ambiguity later and each person needs to decide then and there if they can live with the setup and thereafter stick to it.
• jakejake 12y ago
  I actually enjoyed this article and it's definitely reassuring in a way to read about other people's struggles. I have to take minor issue with the "entrepreneurs don’t talk about their most difficult moments publicly" part because it seems like there's an abundance of articles lately from founders who write about their stress, depression, failing startup, etc. I feel like I see more of these articles than success stories. Even the success stories I've seen lately are more of the tone "we had to really go through some shit to get here." I do respect that it's difficult to write about, though. In addition to just wanting to not feel like a failure, you don't generally want your employees and investors to feel like everything is about to go down the toilet. I'm glad to see more people writing about their real, honest experiences.
• tomp 12y ago
  Can someone clarify why dropping out of Harvard Extension School is a subset of dropping out of Harvard University? I checked out Wikipedia, but it's not very clear about Harvard's system and the different colleges (Harvard College, Radcliff College, Extension School, ...) I've always assumed there was just one "University of Harvard", but apparently it's more complicated...
  • pjungwir 12y ago
    Harvard Extension School is an adult education program, like night classes. Your teachers may be Harvard faculty (but never were in the 7 classes I took there), and the other students are not Harvard undergrads. Also there is no application: they take anyone with a credit card. (There may be an application if you want to earn a degree rather than just take desultory classes; I don't know.) That's all not to say the classes aren't very good, but it's not the same as "getting into Harvard."
    • tomp 12y ago
      So what does "getting into Harvard" mean - getting into Harvard College? What about the rest of colleges besides Harvard College and Extension School?
      • jacquesm 12y ago
        It means being accepted on your merits, rather than on your ability to pay a few hundred dollars. It also makes you part of a relatively small crowd that tends to use that particular fact as a credential. At least they earned that, the OP did not.
      • lambda 12y ago
        Harvard College is the undergraduate institution. It is one of the most prestigious undergraduate colleges in the US. However, it is but one of several schools that make up Harvard University, which include graduate schools like Graduate School of Arts and Sciences, and professional schools like Harvard Business School, Harvard Law School, and Harvard School of Medicine. There is overlap between the different institutions at Harvard; the Faculty of Arts and Sciences teaches undergraduate classes at Harvard College, graduate classes at the Graduate School of Arts and Sciences, and performs research. Harvard Extension School differs from many of the other schools in that it is not selective; anyone can simply pay to take a class. That means that merely attending Harvard Extension School confers considerably less prestige than attending Harvard College or one of the other schools at Harvard; all it means is that you paid for some courses. Saying you "dropped out of Harvard" makes it sound like you were really brilliant and had a lot of promise but founding your own company held even more promise than finishing your degree. Saying that you dropped out of Harvard Extension just says that you took a few night classes and never really got around to finishing anything. I took a few courses at Harvard Extension in high school. Some of them were really good, some of them not so much. A top notch school tends to offer a much more consistent program than Harvard Extension school. I've also attended another Ivy League school (group of very prestigious, fairly selective schools in the Northeastern US) as a full time student, as well as a flagship state school, and I can say that based on my personal experience, I'd rank Harvard Extension a little below the state school (which also had some really great classes and some mediocre classes), not up with the Ivy League school. More info on all of the schools that make up Harvard University: http://www.harvard.edu/schools http://www.harvard.edu/schools
• slg 12y ago
  I know this is a minor point of the article, but as someone with a degree from Harvard Extension I need to weigh in on that part of the story. I hate people who make this lie of ommission. Harvard Extension isn't Harvard College or Harvard Business School, but it still provides a very good education with great flexibility at an even better price. However, there is a small minority of people that continuely try to pass off their degree (or in this case a lack of degree, which is an even bigger crime considering that both the admission and graduate rates of the College and Extension School are roughly inverses of each other) as something more than it is. This isn't a fabricated credential on a resume; it is a lie that makes other people guilty by association. Everytime someone confesses or is caught doing this my degree becomes devalued. It establishes a repuation for HES students and alumni as unethical Harvard wannabees that are looking for any way to cut corners. The lesson to learn is not about managing your own reputation for ethics and honesty, but to also remember that you are a member of community. You don't only represent yourself. You represent yourself, your company, your friends, your family, your school, your industry, your hometown, your gender, your race, your sexual preference... Obligatory [semi-]relevant xkcd: http://xkcd.com/385/ http://xkcd.com/385/
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  • pjungwir 12y ago
    I also took a few Harvard Extension School classes (mostly Greek and Latin, but also Distributed Computing). I didn't earn a degree, just took a few things that interested me. It's on my resume as Harvard Extension School, and I have to actively correct people who think it's more than it is. My jokey way of putting it is that HES "takes anyone with a credit card." What's really embarrassing is when someone introduces me as someone who "went to Harvard." They were great classes, especially the ancient Greek, and I'm very grateful for the opportunity to learn what I did, but it's not like I did my undergrad there. I fact I applied and didn't get in. :-)
    • afarrell 12y ago
      As long as you put "Extension School", It seems strange that someone would think you went to undergrad there. Then again, I ride the Ⓣ every day. Maybe people just have no clue what "Harvard Extension School" is.
• SomeCoolName 12y ago
  This was a very useful read, thank you!
  • ugh123 12y ago
    That was a very useful comment, thank you.
• _RPM 12y ago
  Seth, I really enjoyed reading your article. It was extremely insightful, and I hope to read more articles posted on your blog in the future.
• ChuckMcM 12y ago
  That had to be a tough article to write, thanks Seth. The thing that really stuck with me is the 'technically true' aspects. Growing up in various places around the world I encountered a number of people for whom their motto was 'its only illegal if you get caught!' The advantages of this motto were very apparent as a teen, you could run a stop light at 11:30pm, there was hardly anyone around, and you could be home by curfew. You could use your parents car if it was back where they expected it to be when they next needed it. Sort of the ultimate Ferris Bueller. And then I had as an influence my Grandfather, who was a US Attorney, and who valued his integrity over his own life. I think of him as sort of the other end of this spectrum. I asked him about his unwillingness to do what others have done (at the time it was drive faster than the speed limit on an empty road) and he said, "Charles, the world is full of pain and anguish, when a man lives by a code he can walk among that pain and anguish and help right its wrongs without being burdened by having contributed to it." (well that is how I remembered it, there was probably a story about hunting in there too) and I didn't really understand it until much later.
  • sethbannon 12y ago
    That's a beautiful quote from your grandfather. Thanks for sharing.
  • curiousDog 12y ago
    Great story. Reminds me of this scene from the wire: https://www.youtube.com/watch?v=VyoqNyH7HZA https://www.youtube.com/watch?v=VyoqNyH7HZA
  • matwood 12y ago
    Interesting about your grandfather. Mine taught me a similar integrity lesson when I was a kid. Back when there were payphones I would always check them for spare quarters. One time when I was with my grandfather I checked a phone that has broken and dumped ~ $6 in change out. I pulled all the money out super excited about my find. He explained it wasn't mine and when we got home he mailed the local phone a check for the exact amount.
    • larrys 12y ago
• jakejake 12y ago
  We had a deal with our landlord for paying a reduced rent amount for one year, after which it would go up by $1,500 per month. Well, we had quite honestly forgotten about the deal and the same automated rent payments just kept going through without a word from anybody. About TWO YEARS later our landlord came to us and said "oh yea, remember that rent deal we had? You guys owe us about $36,000 in back rent!" That sucked but we don't blame anybody but ourselves. It goes to show that you do need to keep track of your own finances and not expect somebody to tell you when you are not paying things properly.
• rdl 12y ago
  83b elections and payroll taxes are the only two things which are really really critical from an administrative perspective, in my experience, and can't be fixed later with fairly minimal cost.
• krebby 12y ago
  I interviewed at Amicus last year and they were clearly some of the nicest guys in tech. It's always hard to read stories like this but it's especially tough to see a good idea go under. Best of luck to everyone involved.
• danielbraun 12y ago
  That's a lot of meta-work talk. What about the product itself? It's hardly even mentioned in your remarkably honest post. What was your job as a CEO? What did you bring to the table? Is it possible you have failed because your product wasn't good enough? Is it possible you focus too much on being a CEO rather than take care of your customers and employees?
• rmcfeeley 12y ago
  Thanks for the brave post, Seth. Glad to see all of the support here, deserved, and appreciate your honesty. Best wishes for the days ahead
• lowglow 12y ago
  I'd like to hear the co-founder's stories as well. I think this would give us a complete story of the situation.
  • lowglow 12y ago
    I love that "hearing the full story" got downvoted. hah
• deleted 12y ago
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  • tptacek 12y ago
    This is probably not great advice, because the state and federal IRS (reasonably) get pissed when you misclassify FTEs as contractors, and there are penalties if they decide that's happened.
    • jacquesm 12y ago
      Not only are there penalties, it could be construed as an attempt to shift the tax liabilities onto people that thought they were employed, not freelancers.
• subdane 12y ago
  It would be really interesting to hear Seth's former co-founders response to this well written piece.
  • simonebrunozzi 12y ago
    Yes, but at the same time, this is not a trial or an execution. Let's not bee too harsh (some of the comments above clearly are).
• xcubed 12y ago
  This is just awful. There's owning up to mistakes, which is very "trendy" right now, and then there's being a straight up terrible, unethical, incompetent person. It's a bit gross to reference Ben Horowitz, to try to make this seem like a "classic" startup moment that every startup goes through. E.g., "most companies go through at least two, and sometimes over a dozen WFIOs in their lifetime." 1. "And so I learned that we hadn’t been paying payroll taxes for almost 3 years – a particularly painful thing given I believe in taxes as a means of giving back to society." It's weird and manipulative to throw in how much you believe in giving back to society here. You majorly screwed up oversight of how investment money was being spent to not notice the difference in financials given no taxes were being paid! "This hurt even more because I’d been paying myself one of the lowest salaries on the team to maximize our runway and support our mission." Again, you're the founder. If you're going to make that statement, at least include that you have a much larger equity stake in the company - you're not sacrificing yourself completely! 2. "Mistake 3: Not being explicit about hacks" should be re-written, "Being Dishonest." Cloaking the language as "hacks" and again referencing PG to make your behavior acceptable - (he says it's ok, it's just really a grey area!) 3. "Mistake 7: Telling a half-truth" should be called "lying." If you still think it's a half-truth, you have NOT learned your lesson. It's not "rule bending." Everyone knows that when you say you dropped out of Harvard, the assumption is that you were some form of degree earning student. Seriously, it wasn't a half-truth if the people you're talking to were assuming something else - it was a lie. Lastly, NOWHERE do I see remorse for the lives of your employees who you laid off. These people trusted and believed in you, and you let them down. Did these people find new jobs? Did you help them find new jobs? How did you structure their layoff packages? Are any still struggling? Were you able to support their next career moves in some way if not monetarily? Not really mentioned, which suggests you don't really care. You're much more focused on you.
  • lifeisstillgood 12y ago
    I can't really agree with you - I have made many of these mistakes (taxes! Paperwork! Forms!) and it's not out of innate evil intentions. This sort of article is important - if only to remind the next generation not to be so damn stupid. And I can't blame him for his lack of remorse - He seems to have built a valid company employing real people - society has a net win. Did it cause pain on the way - yes. But the people he laid off had a job for the time they had a job. That's about how I measure work these days - it's no less stressful but at least it's fewer nasty surprises.
• krytork 12y ago
  This guy is totally irresponsible. The thought that he had the financial well being of other people in his hands makes me sick. There should be a law that prevents people like this from starting another company.
• michaelvkpdx 12y ago
  Poor founders and your VC-funded pain. How about some empathy for each of those employees you are firing, who have to go home and face families and lives that they've shared with you and you have essentially shat upon? They are not "resources". They are people, humans, and their lives and loves are just as important as yours. They shared a piece of their humanity with you to help you in your dream. A dream which, make no mistake, isn't making the world a better place. It's you yourself getting rich. You used these people and now they have to deal with their lessons learned. Which aren't "lying is a bad thing" and "not paying taxes is bad" and "I need to network more with rich people." They are- "I need to find a new job and/or draw unemployment, I need to cope with this shock to my system, and I need to figure out how I'm going to pay the bills". All the "libertarians" in this business lose sight of social agreements and safety nets, until they get screwed by someone who shares that approach.
  • JabavuAdams 12y ago
    > They shared a piece of their humanity with you to help you in your dream. ... and got paid for it. Your company is not your family.
  • lutorm 12y ago
    You really skimmed the post so quickly you didn't notice any empathy with the employees?
• dayjah 12y ago
  I often find myself saying the following: "We are the sum of our mistakes, though to re-offend is to not have learned". So much is made of out and out success these days, it sets up society to be an incredibly unforgiving place and feeds a loop of setting unattainably high standards for ones self or for those around you, and from that comes a fear of mistakes, if you cannot make a mistake you are denying yourself an opportunity to learn. Context: I was a manager of a software dev team dealing with high scale, and am now a technical non-management leader. Prior to that the founder of a few companies. Throughout all of that I've tried to fail a little less each day.
• mrgriscom 12y ago
  This guy sounds like a complete sleaze. I appreciate that he wrote the article, as it did contribute a few moments of my day's HN entertainment, but I don't understand the praise being heaped on him. Simply "coming clean" is not commendable, in the absence of any discernible remorse. In the end you just feel like someone is still being played. Yes, people can make mistakes. But for a pattern of mistakes, and for a person who seems to have such a casual relationship with the truth, you start to wonder if some of the mistakes were... not necessarily willful, but just plausibly-deniable enough.
• todayiamme 12y ago
  Given, that the dominant comments over here are in some shape or form pointing out deficiencies of some sort in Seth, I would like to point out something. You're forgetting how hard it is to start something new. I'm sure that some of us might have avoided some of the items on the list, some might have even managed to avoid all of them. However, I'm also pretty sure that all of us would have made a lot of other gigantic mistakes along the way. I'm in the process of starting a non-profit in the field of medicine and I've been taking a lot of pain to do my homework. I've spent my evenings quizzing people, reading books, talking to the friends I'm working with, and just trying to get something out of the door, but I wasn't even remotely aware that things could go wrong in half the permutations Seth mentions. In fact, in his list alone, I spotted at least 3 things that I would have inevitably messed up if it hadn't been for an hour of inspired reading based upon his post. It's hard to make something new, sometimes it feels that you're trying to push through the improbable, shift the odds to your favour, and achieve what seems to be so impossible. In that world, in that arena, it's easy to mess up. It's easy to make mistakes and it's very hard to fix them. At the end of the day, the truth is that everyone messes up. Everyone has that one time where they should have done X, but did Y / nothing and that then resulted in bad thing Z, which could have dragged / or did drag them under. This is why - in my mind - the right question to ask over here is, what does it take to handle a crisis with Seth's grace? After all, not dying is the difference between crossing the finish line and pausing along the way.
• MortenK 12y ago
  It's absolutely astonishing to me that SV investors and incubators pass along ~4 million USD to a team of people with so little business experience, as to neglect hiring an accountant. End result being unpaid payroll tax for almost 3 full years! No one ever asked what accounting firm Amicus used? No one ever just glanced at the finances and thought hey, where's the frigging payroll tax? Is valley capital so readily available as to warrant this kind of extremely low investor engagement in funded companies? No written founders agreement either. I mean this is basics, and it should have been caught or taught by the accelerators and the investors. This is not a shot at the OP, who I think is exceedingly brave to write such a public, honest and informative account of their screw-ups. Competence comes from experience and everybody in business has been incompetent at some point. Rather, this is a massive failure on the investors' and accelerators part. With all the talk of "funding the team, not the idea", you'd think there was a bit deeper understanding of team experience and competence, than just some degrees from an ivy. It's mind blowing that investors can be so careless with their cash. I wonder if it's a common occurrence or if this is an outlier situation.
  • 7Figures2Commas 12y ago
    > It's mind blowing that investors can be so careless with their cash. I wonder if it's a common occurrence or if this is an outlier situation. There is way too much capital chasing too few opportunities today. The bar for who and what gets funded at seed stage is extremely low. Social proof and accelerator cred clearly often substitute for due diligence. Exacerbating this is the prevalence of party rounds in which lots of investors put in relatively small chunks of capital. For obvious reasons, if you're raising a $6 million Series A from two or three name firms on Sand Hill Road, you're probably going to be subjected to a lot more scrutiny than if you're raising a $3 million round from a group that consists of upwards of 10 angels and/or super angel funds. In the latter scenario, the amount invested per investor tends to be so small that none of the participants have a real incentive to perform rigorous due diligence, which costs money and takes time. According to CB, 15 investors participated in Amicus' $3.2 million round in 2012.
  • aidos 12y ago
    Additionally, accountants can save you huge amounts of money in the long run. We pay our accountant a very modest £100 a month, and he's easily saved us many multiples of that again and again. If you're ever thinking that you can't afford an accountant you may want to think again.
• nwenzel 12y ago
  Poor bank UI crushes startup's bank account. Thanks for posting Seth. Must have been a tough one to write. I can't say this enough, use Zenpayroll. In a prior company I had one of the other payroll giants (Zenpayroll didn't exist 10 years ago). It was awful. We switched from one giant to another to make 401k easier. But in the switch, both companies reported earnings to the IRS. All my employees received notices from the IRS saying they each owed $10k+ in back taxes and penalties. No one ended up having to pay, but when the IRS comes calling, it's stressful even when you're not wrong. Zenpayroll is fantastic. New game, new level. https://zenpayroll.com/ https://zenpayroll.com/
• jlevy 12y ago
  As internal counsel for YC, it was very upsetting to learn about the ongoing troubles at Amicus. It was particularly distressing to hear about the payroll tax issues, given that YC has funded excellent companies that specialize in accounting and payroll for small businesses, such as Indinero and Zenpayroll. The tone of Seth's post suggest that YC has supported Seth in all of his recent actions. That is not true -- YC supports its companies through good times and bad, but we do not support illegality. For example, in paragraph 3 Seth writes that PG looks for founders that are "naughty" and writes about levels of rule-breaking. YC's principal tenets are to "make something people want" and "talk and listen to users/customers" -- YC may promote a culture of disruption, but that does not mean neglecting payroll taxes and breaking rules.
  • davindra 12y ago
    > "The tone of Seth's post suggest that YC has supported Seth in all of his recent actions. That is not true -- YC supports its companies through good times and bad, but we do not support illegality." That's interesting to know. So when a founder makes a mistake that unintentionally breaks a law, YC ceases their support.
  • sethbannon 12y ago
    As tlrobinson and jacquesm noted, I certainly didn't mean to imply that YC in any way supports companies not paying payroll taxes -- as I advise in the post, companies shouldn't cut corners when it comes to that stuff.
    • jasonlaramburu 12y ago
      It's ironic to me that payroll taxes (which theoretically exist for the employee's benefit) have forced a promising and growing company to lay off staff. Have you tried hiring a tax attorney to negotiate with the IRS? Often they will waive some of the penalties and allow payment plans.
  • jacquesm 12y ago
    Thank you for this note, good to see YCs position on stuff like this. But to clarify the point the OP made about being 'naughty' had to do with a different part of the narrative, the one where promises were made to customers, not the part where they do not pay the withheld payroll taxes (the illegal component).
• jozefff 12y ago
  Dang, that's rough Seth. Thanks a ton for sharing though. It's hard enough to go through those kind of struggles, but to be honest and let others know the difficulties you faced and own up to mistakes you made is really valiant. Kudos to the max.
• MattBnB 12y ago
  Such an awesome article. Minimal, simple and well said. Taxes would suck to f up
• deleted 12y ago
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• jeffcrigler 12y ago
  Seth shows a lot of courage to do this. I have done three start ups. My first one was successful and got bought by Lexis/Nexis... but it wasn't very lucrative. The second one was a complete disaster and I spend $40 million on a pipe dream and my VC's had to take me out. The third one was a success still waiting to materialize as it was sold and I have yet to see the dividend. But at ever step i made lots of mistakes (including falling behind on payroll taxes) and each of these were learning opportunities. I give kudos to Seth for sharing this and am more hopeful now than before that he can make Amicus successful in the long term.
• lambda 12y ago
  So, revealing one of these mistakes would come off as a brave revelation of a personal mistake; a lesson learned and moved on from All of them together seem to come across as being simply dishonest. Being years behind on taxes because you never bothered to have a proper accountant look at your finances, calling people co-founders one day and then treating them like employees, selling non-existent features to your customers and collecting credit card information with no product to back it up, saying you "dropped out of Harvard" when you "took a few courses at Harvard Extension", not telling your investors about what's going on, all adds up to pretty much being entirely dishonest with everyone you interacted with. One of these mistakes could be forgivable; I've known some very good people who were terrible at accounting and so wound up with lots of back taxes to pay. A good salesman may sell a feature that's not quite ready yet; it's sometimes frustrating for the developers, but as long as it's more the exception than the rule it's OK. Focusing on your product more than your investors may be OK if you just have so much to do and you really are bringing them a lot of value. But all of them at once? That doesn't leave you with very many excuses; you weren't so busy building features that you didn't have time for investors, you were using your customers, and the IRS, and your "cofounders" as extra investors and even with all of that you weren't able to make it work out.
• dheer01 12y ago
  Seth - Thanks for sharing your perspective - its extremely courageous to talk about these things in the open. I am a startup founder and have been there done that - allow me to seed you with a radically different perspective. You made NO mistakes. None. Every lesson that you learned - you will unlearn it in the next year or so. There are lessons to learn over here, but not the ones you mentioned - they will come - just wait for it. Everyone pointing out in this thread about your mistakes is dead wrong. They don't know what it takes - most have never been close to what you are doing - they just don't know. This is also one of the reasons it might NOT help to talk about these things in public - though I am not saying that you shouldn't. Most successful founders make most of these mistakes - and then some. The only mistake that you really made is to not figure out the business - everything else is not important. Sales fixes everything - and it would have fixed all these mistakes. Specifically: 1. Skipping on taxes till its too late - this is a trait of a successful founder. It means you are focussed on the business too much to bother about paying taxes. 2. Poorly defined co founder relationships - the story about 'every' startup. Let me tell you the secret about founder relationships - ignore them. Figure out the 'business' - founder relationships will figure themselves out. 3. Hacks - This world is unfortunately run by people who don't see things like we do. To hack is to have tread that middle ground which keeps the peace and also lets us run things they way they should. 4. Going it alone - There is no other way. At the centre of the biggest changes the world has ever seen, there is a lonely founder. You have to do it alone - dont seek to change it - just understand it. 5. Investor relations - Investors like a good business more than you and me - you fix the business and let the investor will fix the relations.
• chetanahuja 12y ago
  The whole kerfuffle about Harvard Extension vs Harvard College just lays bare the awful reality of the value of college education today. It's basically about acquiring a brand-name on your resume. Especially in the US system, the university branding says very little about the merits of the graduates (since admissions process is a colossal clusterfuck where a very large number or rejected candidates are objectively academically superior to a very large number of accepted candidates) and everything about our obsessions with exclusive clubs.
• andrewstuart 12y ago
  Let he who is without guilt cast the first stone.