I Messed Up and I'm Sorry | Storytime with Justin Kan

I'm gonna make this video about losing $75 million and more than a couple friends in my last company. Or in other words, how I started Atrium and failed. Because lots of people ask about this, and I want to be honest with everyone and kind of walk people through what the experience is like of failing. Because I think a lot of times after the fact, it's easy to say, oh, here's the lesson I learned. And I walked away from it and it was a growth experience, which is all true. And there's a lot of hardship that comes with failure that doesn't feel super easy to walk away from at the time. So, where to begin?

How's it going? I'm Justin, Justin Kan from justin.tv.

I'm somebody who gets really excited about new ideas, which is probably why I'm into YouTube. I get super stoked on trying new things. I love learning about new industries, new spaces, and then I want to start a company. And that's my instinct. I'm like, oh, I want to— like, this could change the world. I want to start a company. I want to build something here. And that's what happened with Atrium. I had this really what I thought was interesting idea around creating a new kind of legal services company that would utilize this specific kind of regulatory hack that I invented in order to innovate on the way legal services are provided. Because I was a consumer of legal services. I'd been a, what I call, a power user of legal, unfortunately. You know, in my companies as an entrepreneur, I'd spent all this money and time on legal, and I hated the experience. The experience of legal, buying legal services is very opaque to me as a customer, as a client, and it was very expensive, and often I didn't understand what I was paying for. So I started the company. I kind of started riffing on this idea with someone who eventually became my co-founder, Augie Reiko, who was a partner at Auric. And Augie and I really hit it off in the beginning. I really liked chatting with him about this company. I really liked talking to him about the idea. Someone who was working for me, not at YC, but just in my own personal capacity, who was kind of like my chief of staff, His name was Nick Cortez, and Nick and I really got along. He was like a great friend to me, like a really— we kind of riffed on all sorts of stuff. We'd do investments together, you know, we'd work on investments together, and he actually told me to invest in this company Teachable. It's back in 2016 that we invested. Teachable's marketplace for courses, which actually sold last year for $200-something million. So actually Nick was a really great employee. My relationship with Nick, I mean, it was amazing, and not only personal, but obviously He was a great investor too. So we were just studying different ideas and I started riffing on this idea for a legal services startup with Augie, and then Nick kind of was excited about it, and so he joined on. And I recruited a friend of mine, Chris Smoke, who was a YC founder, as the CTO. And then had met this other woman, Beibei Chua, who I really hit it off with too. And she was— she had been in legal startups before and had a lot of experience. She'd sold a legal startup to LegalZoom. And so I just really liked her as well. And so we kind kind of assembled this team of 5 different founders. And because of my track record, because, you know, I'm Justin Kan and I got Twitch, you know, under my belt, and I've been a partner in YC, and I just like— people wanted to fund my next startup. And so we raised a Series A with just an idea. You know, I had an idea. Actually, this is even before we'd fully formed the team, but I had like— went in with Augie with a pitch deck, you know, like a 10-slide pitch deck, and I pitched this vision of like what Atrium could be and got a term sheet for $10 million right out the gate from General Catalyst. And General Catalyst, I mean, they're great investors. So, you know, one thing I should caveat is like all of the failures with Atrium are really reflective of my own shortcomings. They're not like on my co-founders, they're not on the investors. If you're the CEO, the failures Belong to you. Now, they also—you don't control everything as a CEO. You don't control everything that happens in your company, and ultimately, you only have a limited amount of control of the outcome. And so, if you try your best, you know, that's—that's what you should strive for—is to try your best. You can't—you know—if it doesn't work, that's—it doesn't work. Sometimes startups—you know—startups are risky, and you're trying new ideas, and sometimes new ideas don't work because that's the risk. Like, that's why you're getting—you know—the rewards are so high. You know, you can have Coinbase be a 6,000x. Because it's risky, right? People didn't know if Bitcoin was gonna work out or if the marketplace was gonna, you know, an exchange was going to be the thing that captured all the value. And so it's okay as a founder, you know, things fail. That's okay. It's hard to internalize that though. So anyways, we started this company, we got this term sheet. I raised money from— I wanted to fill the round with many, many investors. We raised money from like 90 investors so that we would use them as a funnel for customers and really dominate Silicon Valley. We did that. I'm great at pitching. And then, so then we got started building this new kind of startup, hired a ton of people in the beginning. We just hired way too fast because I was like, I just want to go, go, go, get customers and then figure out product afterwards. That was a huge mistake. Number one, true technology startups, I should say, are about product. It's about finding a differentiated solution using technology to build something that is fundamentally new. And that is something that I think I lost sight of. And there are companies out there that don't do that, of course, like a Dollar Shave Club or something like that. It's a marketing, you know, it's marketing, or places, people who figure out better forms of distribution to sell something. But like the true, ultimately dominating Silicon Valley, game-changing, world-changing startups are the ones that use technology to figure out how to do something completely new. You know, the Googles, the Facebooks, Twitters, Cruises, or Coinbase, all those are companies that do something completely new that has never been possible before, and they are enabled to do it because of technology and product. And so we were not, you know, I didn't focus enough on product because I think I had been jaded by product and seeing a lot of startups that I found I felt like did not have differentiated product create some things that were, you know, very successful companies or seemed like very very successful companies. So, you know, that was one of the first mistakes. Another mistake that we made was we really just hired way too fast, you know, and one of the things that I didn't spend enough time doing was figuring out how do I set the culture of this company? What kind of company do I wanna create culture-wise? Like, and who are we serving as our customer? You know, in Atrium's case, it was like, are we serving lawyers? And within lawyers, are we serving lawyers who wanna make a lot of money and be partners, or are we serving people who wanna get out of big law and have more of a lifestyle? like a better lifestyle? We didn't— we never answered that question. And then, you know, of course, outside of lawyers, it's like, are we serving the clients, you know, the people who are buying legal services? We never really spent the time to figure out who are we serving in the same way. Like at Twitch, Emmett very clearly early on said, okay, we're going to serve the broadcasters, the streamers. The streamers are the ones we're going to serve because viewers will go to wherever streamers are, even if the site sucks because they want the content. And so we basically only built features for streamers in the very beginning of Twitch. You know, that was the right move at the end of the day. And so I didn't do that sufficiently at Atrium, and therefore we never had this North Star of like, what customer are we serving first and foremost? And I think in a startup that serves many different types of people, that is critically important. It's better to serve a narrow niche of customers and then have that grow than start trying to serve everyone, which is the temptation for many founders who want to take over the world like I did. I do. So from the very beginning, things were not set up super well. And then, you know, because we grew, we did grow, I kind of felt like I was rolling a boulder uphill. The culture was, you know, there were a lot of problems with the culture because of things that I did, you know, because we grew headcount fast and we didn't have that North Star. So we hired people who thought the answer should be different things, you know, like some people thought it should be lawyers, some people thought it should be this kind of lawyer, some people thought it should be this kind of lawyer, some people thought it should be clients. And that was like a big frictional cost inside the company. And so we grew and raised a lot more money, you know, raised another $65 million in a round led by Andreessen with participation from many other amazing investors. Because I mean, the revenue was growing, it's just that margins were pretty tight because we hadn't really fundamentally innovated on how services were delivered. Primarily what we differentiated on was that I was a really good marketer to startups because that was my background, you know. I knew what startups wanted to hear. I was in the space. I've been you know, have been a successful startup founder, but marketing as a primary differentiator is not good enough if the product isn't better in some way. And so along the way, this caused a lot of friction because we didn't have clearly defined goals. It was very hard to clearly define roles with my co-founders, and I think there was just a huge amount of frictional costs. And one by one, they left until I was kind of the last man standing. And, you know, I don't put that on them. I think I Did not have a lot of maturity in— I would say I didn't have a lot of empathy as a manager in the beginning. It was kind of like either you succeed as an employee, you know, as a team member, either you're crushing it or you're betraying me. You know, I was very much like win or die, and there's nothing more important than winning. And the problem was that, you know, people didn't feel supported. Like co-founders did not feel particularly supported. And I think in a lot of ways I didn't set them up for success. And so, you know, ones who are very close friends of mine like Nick and Chris, when it didn't work out, you know, our friendships took a hit, or they, you know, they went to basically zero, which is, you know, pretty tragic. I mean, some of these guys I've known for years, years, years and years. I always joke with Nick that if it didn't work out, at least we spent Millions of dollars on his education, which is kind of true in a way. So I'll spare the details. Is I don't really want to get that much into the technical details on what went wrong, like what we could have done better. You know, I'm barely interested in legal services and legal technology, and I think you, the audience, probably are not interested at all. But those were some of the main themes: didn't figure out who we were building for, and we didn't set the culture right. We didn't differentiate enough on product. The end result was a very leaky bucket. Customers would come in. the product was not sufficiently differentiated, they'd churn out. And so even though it was like a pretty big revenue base, it just wasn't working. And I was just banging my head against the wall and like, what can we make it, how can we make it work? I think as a founder, you really owe your investors your best effort on trying to figure that out. And so we'd spent, you know, months, 6 months trying to figure out how do we fix churn, and we're not able to do it. So because of the churn, Growth was not great. You know, you can have a high-growth business with low margins, or you can have a low-growth business with high margins, but you can't have a low-growth business with low margins, which is what we were turning into. And at that point, I made the hard decision of saying, hey, this is not a business. At the same time, we've grown the team tremendously. You know, it was, it was super big, and there were too many people to pivot. And we tried to figure out what's— is there anything that's working? And we just came up empty. And it got to the point where I said, like, I don't believe that there is a solution that we can figure out here that I would personally invest my own money in. And so even though we had— now the $75 mil, we had, you know, over $25 in the bank— I made this hard decision. I should return this capital to investors because I don't see a pivot that I really believe will work, and I don't want to make everyone just go through the fire drill of working on something that I don't believe in. For the next 6 months until we run out of money. So that's what we did. And, you know, 14 months ago, I stood in front of the company that I love dearly. The worst part about this was that we laid off our entire team. And I looked for acquihires or soft landings, had one lined up actually, fell through at the last moment. And then we decided to— I said, we have to shut down this company. And And so stood up in front of the team in a team meeting, and I loved our team meetings, you know, normally, not this one, but I loved our team meetings. And I love the team we built, and I really love the culture that we built. I was really big into culture, and I built a culture around conscious leadership that I felt like was really empowering to people, but it wasn't working. The company itself wasn't working. So I ended up having to stand up in front of the company and say, hey, This isn't working and we're shutting down and everyone is getting severance and you're gonna have to find a new job. And that was really tough. You know, I was tearing up, people were crying, people were angry, and that's what we did. So the experience, the feeling of shutting down your company, I mean, there's so much guilt attached to shutting down your company. Like if you did wrong by your investors, by your co-founders, by your employees, by your customers. It's tons of guilt. It's a lot of sadness. You have to get rid of— let go of your team. A lot of— it's a very easy opportunity to have a lot of rage and anger and blame. Like, why is the market doing this to me? Why did X, Y, or Z people not perform their jobs? Or why did, you know, why do the customers want this instead of this thing that we built? All of that, you know, feeds in. And, um, those are the— that's the emotional experience. Shutting down, it's it can be very difficult for people. What's interesting is is you know I loved many members of our team, and you know it's fascinating from a clinical standpoint, from a from an external standpoint, it's it's fascinating to watch. You know when you go through something that's tragic like that, or like there's a shock to the system, or it's sad, it's interesting who sticks with you and who doesn't, who supports you and who doesn't. You know some people, some executive team members, some people team members. Were very supportive. You know, they said, hey, we understand this is tough. We thought you did right by us. You tried your best, which is, you know, nice, reassuring to hear. And some people I'm still friends with, which is amazing. There's other people who I thought, you know, we were friends in the company who I never heard from them again. It is what it is. There's nothing like difficult times to show you who's really there for you. At the end of the day, it's tech. People were able to get up, go out and find new jobs, which is was great. That was my primary concern actually with the whole shutdown process, and I hope it was a growth experience for the team members. You know, I think it was. Yeah, but that was that was super tough. Yeah, and even even still though, even with how difficult it was, I feel like I got a lot out of the experience. You know, it's through that experience that I learned like, hey, I do not want to be the CEO of a company. I do not want to be the founder of a company. I just, I love new ideas. I love making content. I love telling stories. And that's part of your job as a founder, but it's not the whole job. And so for me, it was a catalyst to define what I wanted to do in the world. And investing in startups, being a part of that, creating content on YouTube and TikTok and creating content online being another part of that. And, you know, today it's like black and white. I'm so much happier. My friends see me and they're like, wow, you are so much happier than you were going through the startup experience. You know, startups— when I was young, I wouldn't trade my experience in startups for, for the world, but there was no way I ever want to go back. I gained so much personal growth and learning from startups, and also obviously success, but they're not for everyone. And they're not for everyone at every time in their lives. I spent my whole career thinking, if I, I just wanna be a great founder because all my examples, all the people I looked up to were founders, you know, Paul Grams of the world or Elon Musk or whatever, all founders. All my friends were founders, you know, guys from Reddit, my co-founders, my other YC founders. I just thought that's what you were supposed to do. You know, even my mom was an entrepreneur, right? And so I just thought being an entrepreneur is what I'm supposed to do. It turns out there's so many things I like so much better in the world that are so much better fits for, for who I am. And in a way, it's a, it's a blessing to have found them. So that's the story. Now, I wanted to make this video to help anybody who might be going through a similar difficult experience with their startup or any leadership position or anything else. No matter who you are, you can be going through a difficult experience. You know, I had already started a billion-dollar company and sold it when I had this one, and Sometimes things are tough. That's part of the experience of being a human being. But no matter what it is, no matter how difficult, you can get through it if you just take it one step at a time and really let yourself be present in the experience, not needing anything to be different from what's happening in the present. And that's the technique that I use, the strategy I use, the, the tactics, the tools that I use to get through it. So you're going through that kind of experience, then Wish you the best of luck. Just know that you'll, you'll survive it. Alright, thanks for watching.