How My Startup Almost Went Bankrupt… Then Made $10,000,000 Profit

Three years ago, my company, Mode Mobile, was on the verge of bankruptcy. And just three years later, we're on track to do over $10 million in profit. But let's get something straight. This was not an accident. There was no such thing as an overnight success. What you're seeing is the final step in a long Runway of compounding. Design, psychology, timing and strategy. In this episode, we're going to break down the anatomy of a startup. Explosions what makes one product hit while another one fizzles. And. And the invisible frameworks. The smartest founders build before the spotlight ever shows up. This is universal basic knowledge. Every successful startup solves a very specific problem. Not for everyone, but for someone. They don't try to boil the ocean. They identify a pain that feels urgent, emotional and obvious when you see it. That clarity makes adoption frictionless. People don't need to be convinced. They need to feel understood. So at Mode Mobile, what we focused on was the fact that people were spending 40, 50, 60 hours a week on their smartphone. And, and there's only 162 hours in a week and you're sleeping eight hours a day, there's only 112 left. So people are spending one third to one half of their waking lives on their smartphone. So our focus here at Mode was that people are spending a lot of time on your smartphones. Tech companies are making trillions of dollars off of that time, and you're getting nothing for it. Because at Mode, we understand that time and your attention are the most valuable assets that you have. And if you're going to spend the time to be on your smartphone, you should get rewarded for it. So remember I said our business almost went under. This was one of the biggest lessons in my career, that distribution should come before you scale. And what I mean by that is that most entrepreneurs get it backwards, like I did. They obsessed over scaling before they nailed down distribution. And what I mean by distribution, I mean profitable distribution. Viral startups don't grow because the product is perfect. They grow because the distribution is built into the product. And sharing referrals, visibility, incentives and growth is all embedded in it. But the downside of this is when you only focus on growth without looking at the bottom numbers, like your profit, it could tank your business. Specifically in the case of mobile, this cost us over $10 million and it was almost catastrophic where we almost ran out of capital and the company shut down. So here's where I got it wrong. Back in 2022 and 2021, the market was rewarding growth at all Costs. This is also known as blitz scaling. And essentially you are trying to grow as fast as you possibly can. How do most companies grow? They put more marketing dollars into the funnel. The problem is when you don't get those marketing dollars back, you might go bankrupt. And that's almost what happened to us. So I'm going to break this down for you. So in marketing, you have something called a customer payback period, also known as your CAC cost of acquisition. So cac. So this essentially means that in order for me to get a customer, it costs me a certain amount of money to get that customer. For the sake of this explanation, we're going to say my CAC is $1. Just to make it simple. Now what we focus on today is our payback period. What a payback period means is essentially how long does it take for me to get my $1 back. The faster your payback period, the more you can scale because money is coming in and you can essentially repeat the cycle. The longer your payback period, the more risk you have. So longer payback period equals bad, shorter payback period equals good at boat. Specifically, we now focus on a 60 day or less payback period because most of our advertising partners, we only need to pay them 60 days later. So essentially we get to grow for free. But back in 2021 and 2022, when the market was focused on growth and we got caught up in that storm, we extended our payback period to almost nine months. And if you think nine months is a lot, there were several other companies that were targeting 18 month or 24 month payback periods. This was not just a one off. Every company was doing it, so it made every other company do it too. And we got caught up in the mix. If you have a repeatable business model, it doesn't mean that nine months can't work because some customers maybe are going to renew after one year and the math will work out. But in our case, nine months was just way too long because the way that advertisers paid us had to do with their payback period. And unfortunately, in 2022, we had a ton of clients that were either about to go public and ultimately went bankrupt because of their industry and did not pay us that money back. So how did this almost take us down in 2022? We really wanted to grow because everyone else was growing. And that's what we thought we had to do in order to attract the big investors. So we 9x our cost of acquisition from $1 to, to $9. And that ultimately made my payback go from one month to nine months. And that sounds great because you're like, okay, at month 10, you're going to be profitable. The problem is what happens if your advertisers and the people that pay you stop paying you. And that's exactly what happened to us. See, in 2022, we had a bunch of clients that were supposed to go public and some companies that were in the crypto space, like Voyager, FTX, etc. That ultimately went bankrupt. And then we were unable to collect money from them. So our $9, we were only able to collect $4 back. And that means that we lost $5 per consumer that we brought in. And that doesn't seem like a lot, but when you're acquiring millions of consumers, this really stacks up. And that's how you lose 5, 10, $15 million in if you are not running your business diligently. So the key takeaway here is that I was only earning $4 when my effective cost to acquire a customer was 9, meaning that I was $5 underwater. When you multiply this times millions of consumers, this adds up fast. And what I learned is that my bills didn't stop. I counted on that cash flow that I was going to get, assuming that I was going to get my $9 back. And then what I ended up having to do was having to lay off half of my staff and it almost crushed my company. Do not let this happen to you. The second part is that you can actually grow for free. If you lower your cost of acquisition to $2 and then you target a two month payback period. Most advertisers will, and credit cards will actually give you up to 60 days on net terms. There's something called net 30 which allows you to pay 30 days later and net 60 allows you to pay 60 days later. So what this means is that you can actually grow for free in many cases because they are loaning you the money to grow. This is a great opportunity for you to scale your business without having to put more capital in. And then you should always remember is that faster payback equals happy. The faster your payback period is, you're going to get your money back faster and you're going to be able to scale your business. Do not think that because companies are growing, they are actually that successful. There are many amazing tech companies that have essentially, essentially burned insane amounts of capital and then figured out their business model. Uber, Amazon, all successfully have done this. However, the amount of companies that have just spent VC money and incinerated it because you give them $1 and they're giving essentially themselves 50 cents back. That's not going to work. And many of them implode. And do not allow this to happen to your business. And learn from my mistake. So a lot of people ask us how we fix this. Ultimately, we had to lay off our staff, we had to cut our payback periods, and then we had to completely rethink of our business. We had to think about the lines of revenue that were sustainable and that were long term. We had to create new features and then we had to figure out a new way to raise capital so that we can regrow our business. It took us almost three years and I'm really happy that we went through that process because it almost killed us, but because it didn't kill us, it made us much stronger. So I am thankful for that time. And if you don't have to go through it, you shouldn't. And that's why you're hopefully watching this video. Timing is one of the most important parts of business. The market has to be ready, the technology has to be ready, and the consumer has to be ready and halfway there. Psychologically, when those things line up, growth will look explosive. And when they don't, even great ideas will fail quietly. Think Friendster or MySpace before Facebook. So at moat specifically, timing doesn't always necessarily have to do with just a product failing. It could also mean your opportunity to raise capital or, or grow your business. Certain industries are just starting to take off. Look at the AI boom over the last 18 months. Three years ago, people weren't really thinking about AI. Sure, the early adopters were there OpenAI and so on, but many were not even thinking about this new industry. The same thing happens for capital raising specifically. MO has raised over $75 million in capital for its business. The way that we do this is through something called regulation A financing. So regulation A financing is how MO has been able to raise over $75 million in capital. This is something that 10 years ago didn't really exist. And think about all the things that had to happen in order for this to be possible. Investors need to feel comfortable to invest in startups online. They need to be comfortable to actually do a transaction to own shares online. And people need to be comfortable with the idea of investing. Well, guess what? During COVID every single person became an investor because at home people can buy shares of $1 on their Robinhood account. And so investing took off and, and you could see that today in the market. Fast forward four years later and we raised over 75 million in capital for our business through crowdfunding. Had we done this 10 years ago, we likely would not have been successful because there was no framework to even do this. So timing is important for your business. It's extremely critical, and preparation, meeting, execution, and a little bit of luck and timing is what equals ultimately the ability to have success. Mark Cubitt said it best, and you only need to be right once. Every breakout company has a simple story. One sentence, one promise, one action that is easier to explain the faster it spreads. Complexity kills momentum, simplicity creates velocity. So at moat specifically, we earn revenue from a variety of different sources. We have a ton of acquisitions that we've done. We have a variety of business units that generate revenues in different ways. But what we had to think is how can we succinctly tell what our business does in the least amount of words? And what will be the most memorable thing for people to say about our company? If they want to dive in deeper into the details because they're considering investing, we have that information for them. But you need to tell them that one sentence, that one tagline, and that narrative over and over again. For us specifically is that we created a phone that pays you, we created an app that pays you, we created the biggest disruption to smartphone since the iPhone, and we have helped consumers saved over $1 billion from using this software. So what you're going to ultimately see is the same messaging over and over again. And that's how people spread your message. So we've helped consumers earn and save over $1 billion. So this isn't just about tech. The same playbook works in real estate, fitness, education, finance and content. Just solve a real pain. Find your product market fit. Don't overspend on your cost of acquisition. Don't get caught up in what everyone else is doing. Focus on what's profitable flow, focus on what your customers want, interview your customers, understand what makes them tick, and then be able to tell your story and think about your story when you're selling it to potential customers and investors. If you can do that, you remove the friction, your business will undoubtedly grow.