COVID-19 Venture

10 Lessons From The Great Recession, The Crisis That Saved My Startup

Written by Paul Martino, general partner at early-stage VC firm Bullpen Capital.

In 2006, I co-founded a company called Aggregate Knowledge, and we raised $30 million within a year. The biggest retailers and media outlets bought our Amazon-style recommendations engine.

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Trouble at Aggregate Knowledge came to a head in February 2008. Everyone had learned to copy our product. I went to a board meeting and told our investors that we needed to pivot. Our lead investor was Randy Komisar from Kleiner Perkins.

“Okay, Martino,” he said. “Go solve the problem. You’ve got six months.”

If we’d turned in our homework six months later, I would have been fired and the company likely would have failed. Lucky for us, six months later was August of 2008, the start of the financial crisis. Everyone had forgotten about us. We de facto had extra time to pivot.

The Great Recession saved our company (yes, it sounds counterintuitive). Although I cannot make any promises about the COVID-19 recession, I know this: It will force you to either fix your company, or it will force you to fold.

The following lessons come from a new long-form history of Aggregate Knowledge (read here).

These lessons might help you come out of this recession in better shape than you went in.

Lesson 1: Be in the game with people you trust.

I co-founded Aggregate Knowledge with Chris Law, whom I met at Microsoft as an intern in the mid 1990s. We spent 10 years getting to know each other before doing Aggregate Knowledge. That level of trust and awareness is invaluable.

Lesson 2: Cherish the times when it all goes well.

If you were a golden child of Silicon Valley, I hope you stowed away capital. If your office has used tables and Craigslist office chairs with weird stains, you have an advantage. If you blew your runway on a fancy hipster office, it’s going to start hurting right now.

Lesson 3: Do not hire “front runners,” the people who run the for exits first.

When you’re a hot startup, everyone shows up looking for a job. But be careful: Do not hire front runners, or if you did, fire them now because they are already looking for their next job. These opportunists from fancy companies will be the first to leave, when you need them most.

Lesson 4: If your customer asks a question that doesn’t make sense to you, don’t dismiss it. 

My co-founder, Chris Law, was at a customer meeting and someone asked about the difference between Bayesian filtering and Aggregate Knowledge’s approach. Chris thought, “Why do they even care?” Then the light bulb went off: Maybe our product wasn’t so special after all.

Lesson 5: Be honest with yourself and your team.

Once we started losing accounts, the front runners fled instead of helping solve the problem. Eventually, we had to lay off more than three quarters of the team.

Our CMO Dave Peterson, a brilliant marketer, made the case for why he should be laid off. Think about how much bravery and self-awareness that takes. Until we found our new angle, there was nothing for a marketer to do.

Lesson 6: (A) Take advantage of your lucky break, and (B) Stay alive long enough to get it. 

One day, I got a call from the head of technology at Omnicom (the advertising conglomerate), who was vetting a database platform we used. He wanted to develop attribution reports that determine who saw what ads before making a purchase.

Not only could our company do that, we made a Ferrari for that use case. But since we didn’t know anything about advertising, we didn’t realize it until this lucky reference call.

I landed a meeting with the CEO of Omnicom. First, he told me that advertisers weren’t going to like a computer nerd CEO who claims he can fix their business. Second, he asked to join our board of directors.

Lesson 7: Fix what is broken in your business while NO ONE is paying attention to you.

The world economy was unraveling but, since the spotlight was off the company, I had time to fix the problem. I needed a new CEO. Ashu Garg of Foundation Capital kept telling me I needed to meet Dave Jakubowski, an ad tech executive. Now I had the time to meet him.

Sure enough, Dave was the right guy, and I talked him into becoming CEO. Initially, he thought I was full of it, but once he saw the offer letter in black and white, he realized that I wasn’t kidding.

Lesson 8: Either step away when your time is up, or step into a new role.

I didn’t have a hard time stepping down because I knew I was the wrong person for the job. Chris, though, went from head of a product he invented to keeping his product on life support until we could replace it. He tossed ego aside and did whatever Jakubowski needed to make the new Aggregate Knowledge succeed.

Lesson 9: You survived, but you’re not in the clear.

Almost no venture deals got done between August 2008 and April 2009. That’s why the six extra months the financial crisis “gifted” us were so important. When the fog lifted, we had our new CEO and product. We did a new round of new financing with OVP out of Seattle. If we had needed to raise money any earlier, we would have been out of business.

Lesson 10: Call the ball early.

Now is the time to be intellectually honest. If you believe you were running a perfect business and blame the pandemic for all your woes, you’re not being honest.

You’re up

There’s no sugarcoating this situation. COVID-19 will end some promising startups. But here’s the good news: No one cares about your startup right now.

I hope you survive and thrive, go do it again, and then teach the next generation of entrepreneurs how to do it, too.

If you’re an entrepreneur, you were made for this. And we are all rooting for you.

Illustration: Dom Guzman

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