Andrew: Here there, freedom fighters. My name is Andrew Warner. I am the founder of Mixergy.com, and I am proud that this is the place where entrepreneurs feel comfortable, not just coming to cheer themselves on but to talk about how well they did. But for over a thousand interviews they felt comfortable coming here and talking about their failures so that we can learn from them.
And in this interview I’ve got an entrepreneur who really shook up the startup world the other day when she did a post where she said, “I failed” and she talked very openly about not just what happened of the business but the emotional side of what happened to her. I saw the post, and I invited her here to do an interview so we can really understand what happened to her the last few years.
So to understand what today’s guest’s business did, you have to understand and remember that there are people out there who have outfits that they wear just a few times and then those outfits sit in their closets. Well, today’s guest, Nikki Durkin, came up with an idea to solve that. She founded 99dresses, a company that allowed women to trade fashion items with other users.
The site drew thousands of users, raised hundreds of thousands of dollars and recently, unfortunately, shut down. I invited her here to talk about what happened so that we can all learn from it, and this interview is sponsored by Scott Edward Walker of Walker Corporate Law. You might hear a little bit about some co-founder friction here.
One of the reasons why I recommend you talk to a great lawyer, to Scott, is if you ever do have co-founder friction you want to have something in writing with your co-founders beforehand to prepare yourself for it. Scott is the lawyer that can help you get started. If you need a lawyer, check out WalkerCorporateLaw.com, and ask to talk to my friend, Scott. Well, frankly any one in his firm. I’ve talked with lots of them there.
Nikki: Thank you. You’re welcome.
Andrew: So I’m going to ask you about the smile on your face because you don’t seem like a woman whose world came crashing down. In fact, when I asked you about that terrible moment in that process, even though we’re in 2014 you said, “Andrew, in 2011 I could barely get up.” What happened in 2011?
Nikki: Well, (?) in Australia. I was in (?) with an idea for the iPhone, and it was starting to get traction and had a bunch of technology problems, and I thought at that point I’m not good at technology, and I did not know how to code, and I really did not know how to work with developers as well. So I didn’t understand some of these problems, and it was posing huge amounts of problems. So we had gotten along with (?) and we were losing it all because of these issues that I couldn’t sort out.
And so on top of that I had a lot of personal stuff going on in my life as well. It compounded everything at that time. This was like July in 2011. And then on top of that we were kind of losing it. So I was looking at the business model and saying, “It was just like, I didn’t have any cash left.” We’re not going to get (?). In Australia if you looked at (?) like from scalability point of view it was (?). (?) the technology in the first place and keep it running. And then we didn’t have any infrastructure (?). In Australia they think it’s scalable.
So I was looking at this like, “I’m so dead. I’m gone down this really deep, deep hole and I don’t know how to get out.” I was just . . . I don’t know if I was depressed technically but I felt that way. I went home to my parents’ place for a long time. I was there for a while and I think I cried for an entire week. I just didn’t want to get out of bed.
And the business was causing a lot of friction with me and my family, especially my mom who helped me a lot with it. I was just stressed out, and when we talked about this company, it was coming between us which is something I value a lot. So that was really stress as well, so I got to work on repairing that relationship. So, yeah, I really took a lot of time. So I was days away from giving up the whole thing, and it was kind of compounded by . . .
I don’t know if it was a recipe for failure because I had this huge (?) in terms like I always felt that the Australian (?) she’s an 18-year-old girl and she’s (?) in the industry and she started this company.
And they just (?) into like interviews, interviews. And so it was like I don’t know I’ll take the interviews, but I wanted to talk about me and like (?) company and I always felt like . . . They talked about me as if I was like this girl who had an idea and then to talk about the idea isn’t interesting. What they wanted to do was say, “Look at this 18-year-old girl…”
Andrew: “…who has an idea, and…” I see. I worry about that, frankly, about myself as an interviewer, that sometimes I need to sell the interview, essentially, by promoting it, by making it sound important, and emphasizing what’s important, and I worry that there’s always a risk of going too far, of saying, “Hey, look at this person who just changed the world,” and really all they did was just get started. You were saying that you were going through depression.
I remember when I was in college and I was driving down the Grand Central Parkway in New York and I thought to myself, “If I just…” I was so down, I thought, “If I just turn into this divider, I just will crash the car and I’m done and the whole thing’s over.” Did you get to that point, where you said, “I’m going to kill myself.” Or was it, when you think of depression, where’s the logical end in your mind, or the illogical end?
Nikki: I mean, I was really, really down, I don’t know if I was in that much of a slump. I mean, I guess everyone toys with that every once in a while, and so I would never do anything like that because I just couldn’t. But when everything’s depressing and you can’t see a way out. And then I think part of it is just perspective of what happened, like, yes, it seems bad, but in the scheme of things, I realize I’m very [??].
Andrew: You don’t realize that, in the moment when you felt depressed, what does depression feel like for you?
Nikki: For me it was [??], because it was like I was in this black ocean, and I didn’t know the way out, and I wouldn’t get up in the morning, I didn’t know what do, I thought if I failed, everyone would laugh.
Nikki: At me.
Nikki: It didn’t last super, super long, but it was this period where I actually thought it was all over. And it was just black.
Andrew: I see, I know what you’re talking about. A sea of black, not sure how to get out of it, and you just feel lethargic, don’t want to even get up.
Andrew: This is a company of lots of ups and downs, so after that, things went really well. I’m looking at a blog post from a few months before that where things again weren’t going so well, where you had to tell your audience, “Look guys, it’s just me and my sister here who are working, we have a developer who is trying to fix the site but we’ve had some issues.” I see that throughout there have been some issues, but there have also been some successes. The idea came to you from where?
Nikki: Actually when I was 16, and I was looking at my wardrobe and I’m like, “I don’t wear 80 to 90% of this stuff and it’s all perfectly good.” And I was actually earning pretty decent money on my first business.
Andrew: On your what business?
Nikki: My first business I started when I was 15, it was called [??] Candy, and I designed t-shirts and got them printed [??] from China and sold them online and made pretty decent money for school off of that. And then I spent all my money on clothes because I had no costs, pretty much. I was in boarding school, I didn’t have to pay for food or rent or anything. And so I’d buy these clothes and I’d wear them a few times and then I’d get bored of them and [??], and I just wanted to buy more clothes.
It wasn’t just that I wanted to buy more clothes, I just wanted something new to wear. And I thought that it would be cool if I could just get rid of the stuff I didn’t want anymore, someone else could enjoy it, and I could just get their stuff. And then I went to boarding school and everyone shared clothes together and I thought it would be awesome to kind of do that online on a huge scale.
Andrew: I see. You know what, when I was reading about you, it seemed you were a first time entrepreneur who didn’t even know about Y Combinator, who was just new to the whole business scene.
Nikki: That’s not it, though.
Andrew: You did know Y Combinator, but you did have an entrepreneurial streak in you. The fact that you started this business beforehand shows that. That’s pretty impressive.
Nikki: Oh, that’s how I was raised. My parents. Ever since I was really young, that was how my parents raised us, was to be very entrepreneurial, so prior to that business, I had little bits and pieces of things. But when I was 15 proper online business kind of thing.
Andrew: I see. And so did you start to have this reputation both outside and a sense of who you were internally that said, “I am a successful businessperson, I’ve been doing this since I was a girl, my parents encouraged me to do this, I just have it, whatever it is, that magical it, I have.”
Nikki: I guess I was always known, even when I was in high school, it was like, I was kind of known for, “Oh, Nikki, she runs her own business and she’s going to do really well, like off to school and I was always like selling stuff to people. Making and selling stuff.
Andrew: You mean in school you were selling things to other students?
Nikki: Yeah. I did all the paintings, portraits, I sold them. Draw. I was printing my own t-shirts and when I realized that wasn’t scalable, that’s when I found a factory in China, and that’s how I started my [??] business. But I made jewelry. I made all kinds of stuff. But yeah, I guess that was always kind of like, part of my identity. So I guess I identified with being an entrepreneur. Not necessarily like a “successful” one. But, you know, I enjoyed it. I enjoy channeling my creativity into like, you know, entrepreneurial pursuits.
Andrew: I get what you’re talking about. Yeah. And one of the benefits of that is that it gives you confidence. It draws other people to you who are also confident in your business skills. But I think it could also be a problem, in the sense that, when you see yourself as this entrepreneur who has it together and other people see you that way, there’s so much more to lose when a business doesn’t work. Your identity goes. Right?
Nikki: Oh, yeah. For sure. I think that, I mean like I said, you take risks if you have nothing to lose. And I think I noticed I was taking a lot less risks once I became deeper involved in the business, because I had a lot more to lose. But when I started it’s like, you know, give it a go and I don’t have that much to lose. And if it doesn’t work out [??]… You know, like I do remember one time, this is like right when I was kind of close to finishing school and I was [??] of other people who kind of ask “Oh, what are you going to do after you finish school?”
And everyone is like, “I’m going to go to medical school. I’m going to do this. I’m going to be a lawyer. I’m going to be a doctor.” And I remember I was with one of my parent’s friends, and I said, “Oh, I’m going to be an entrepreneur.” They they’re like, “That’s nice, but seriously.”
Andrew: You might as well have said, “I’m going to be an astronaut”, as far as they were concerned.
Nikki: They were like, “That’s cute, honey”. And I was like, “What do you mean? I do that.” So yeah, I guess that I always… I decided, you know, like once I did my first proper businesses, I was kind of like, “I really like this.” And so I just knew I was going to do that.
Andrew: All right. So, you had this idea. I see where it came from. I see the logic behind it. And what I read in the blog post that you did on medium.com is you won a prize of $10,000 and that’s what gave you your grub stake. What was the contest that you won the $10,000 in?
Nikki: [laughs] This is when I didn’t have any money left and I was still in university. I was actually, I was on a scholarship that paid me cash, so it was actually like paying my living expenses, and all I had to do was go to university for a bit. So that was kind of nice. But, I didn’t have any cash to kind of push the business farther and this [??] is like a business- plan competition or something that got sent around and I was like, “Ten grand prize,” and I’m like, “I can win this.”
So, when I talked to a friend and I said, “I’ll write everything and do all the work. I just need you to show up on the day, I’m going to teach you what to say and then when we win I’m going to give you $500 of the money.” And so he was like, “Okay, sweet.”
And so I kind of like, did some research on the judges and figured out what [??]. I was like, “killer.” And I really didn’t have a high standard and we presented it and won. So then I kind of had a bit of money to buy a plane ticket and some accommodation in the U.S. That process took a while but I kind of like knew I wanted to get to the US but I didn’t really know how.
It was actually funny cause this is like, this was a few… I started doing this kind of just after this period of like, depression and like, when I was feeling really low. And I didn’t know how to get out of this situation and I said in my post that I think a lot of it is luck and timing. And it just so happened that Microsoft Australia had nominated us for like, start- up of the year or something and some award in Australia. [??] for us to be nominated. [??] I was like, “Fine. I’ll fill out the application.” But I was so depressed about the whole thing. I didn’t want to do it. But I said, “Okay. I’m just going to do this application.” And it turned out that we ended up winning the state and then winning the nationals. On that, we went down to Melbourne to present and we won.
Andrew: Oh, wow.
Nikki: The national thing [??] and as I was saying on the (?) table, I think it was next, but the director of Microsoft Australia. And I don’t know who she was, but we just chatted and she said, “I love for Microsoft Australia to get us to the U.S. and at that point I hadn’t really thought about it. I was just thinking in terms of how am I going to get us out of this hole in Australia. And she’s like, “You have to go to the U.S.” And I said, “Well, okay maybe that’s what I have to do. Maybe that’s going to be the way out of this.”
And so she kind of painted the seed I had. And then there was that guy, Matt Berry [sp], who is the CEO of FreeLancer.com and he’s the advisor, I’d imagine, to (?) post, and I always thought of him as really scary. But I have a lot of respect for him, and I went and approached him one day at a conference and it took a little time. And I said, “Matt, you’re one of the (?) players. I really need your help . . .
Andrew: We want to make sure to get this clear for the audience. Matt Berry of FreeLancer.com. He’s the founder of FreeLancer, right?
Nikki: Yes, he’s the CEO.
Andrew: He’s the CEO of FreeLancer.
Andrew: He was an incredible mentor to you throughout, great advisor, and you just kept seeing him in Australia and you just walked over to him and said, “I see you all the time?”
Nikki: Pretty much. I was seeing him around conferences and stuff and started seeing him (?) at things and at one conference in (?) which I think and he looked at me. And we just happened to be there and he looked up and I said, “I really need a mentor. Can I (?)? And like, I’d really appreciate some help. He was kind of like (?) he wants to go back to Sydney. It was a really, really (?).
It turned out we literally lived (?) away from each other in the same kind of suburb and everywhere I went. Like if I’d go to the supermarket he’d be there. If I’d be walking down the street, he’s was there. Like it became (?) are you guys stalking me and so it was eventually I was like seriously, I don’t why this is happening. I keep running into each other.
When we went out to dinner, I was telling him, “I wanted to get to the U.S.” And he said, “(?). I’ve got no money, no connections.”
Andrew: If you go to the U.S., you’re going to be crushed.
Nikki: Yeah, he said, “You’ll get crushed if you go over there.” And he said, “What you need is some support structure.” And he said, “Why don’t you apply for Y Combinator? And I hadn’t really thought about Y Combinator. I didn’t know what it was.” But I went and looked it up, and the application posted in two weeks, and I was like okay, I’m going to get into this thing. So I applied with a guy I was working with at the time, and he was going to come on as a co-founder. Then we applied together.
Andrew: Can I say who this guy is? It’s Sharif (?).
Nikki: Yeah, yeah, yeah. So I applied with Sharif. We were kind of go over there, and he . . . It was like a week before right before the interview, and I said, “What (?). He actually got very sick unfortunately and had to drop out of the company. And so it was a week before I was going for the interview and I didn’t have a co-founder any more. So . . .
Andrew: So the week before you go to the interview with Y Combinator, your co-founder gets sick and can’t make it there.
Nikki: Yeah, he had to completely . . . It was just unfortunate (?).
Andrew: Let me see if I understand this. I’m sorry. The original idea I get. If you have a dress, for example, that you’re not wearing, you want to make it available to other women, other girls, to wear. How is it in the beginning it was meant mostly for girls, you say, right? In the video that you created?
Andrew: For girls. So if a girl wanted to get your dress, originally what was the swap situation? Was it just that you listed and they could say I want it?
Nikki: So in Australia the way it worked was the girls listed the clothes and sold them (?)
Andrew: They would list it on the site. They would sell it on the site . . .
Andrew: . . . and . . .
Nikki: Yeah, they potentially listed on the site and they’d sell it for buttons, and then they could use those buttons to buy items that other girls had listed (crosstalk)
Andrew: Virtual currency.
Nikki: The buttons were virtual currency, so it was more kind of we would sell a bunch of buttons for $1 each if you wanted them. And, yep, (?)
Nikki: It worked really well in Australia.
Nikki: But unfortunately when Sherif [sp] fell sick, we couldn’t maintain the technology and go…
Andrew: So here’s what I saw in that old blog post that I found from April 19, 2011. You were saying to your community at the time, “I know things are breaking, but Sharif [sp] is coming on to help us out. He will fix a lot of what’s broken today, but we’re not going to make it really strong because Sherif’s going to rewrite the site. And I understand that you can’t even log on at times. I get it. We’re working on it.
Please understand even though it seems like we’re making money here by selling people this virtual currency called buttons, very few of you are buying it. It’s mostly you trading with each other using this virtual currency. There’s not much money here. I’m trying to make this as good as an experience as possible for you. Sharif, who’s an 18 year old guy who’s going to come and help me and my sister is answering help questions. It’s a small operation. Give us some slack and we will make this thing work.”
So that’s where you were and then soon after that you took off and it got even worse. You took off for your parent’s house. You were in that period that we talked about earlier. Then you said, if I understand you right, “I need to win some prize money. I will do what it takes.” You won the prize money. Right?
Nikki: Yeah. Pretty much.
Andrew: And then you get into Y Combinator. Co-founder says, Sharif says, “Hey look, I’m not feeling very well. I can’t…
Nikki: No. No, I wasn’t in Y Combinator at that point. We applied for them, but…
Andrew: Sorry, I keep saying got into it, but I mean you got into the interview with them. Sherif doesn’t make it in and then you need co- founders because Paul Graham, famously the co-founder of Y Combinator said, “A good entrepreneur should have at least a co-founder.” How did you find the two co-founders who joined you in the interview and joined you in the Y Combinator program?
Nikki: I remember I read this email from Y stating, “See in you in America in ten days for you interview.” And I was like okay, I don’t have co- founders. And I rang up Matt and I said, “What am I going to do? This is an awesome opportunity and I don’t have co-founders.” And he said, “Don’t worry. We’ll sort it out.” So he like emailed out pretty much everyone in the Australian tech scene because he knows pretty much everyone. And it turns out there was a guy in my co-working space who wanted to get involved. And I hadn’t really spent a, like I knew of him. I didn’t really know him, but I was kind of desperate.
And we kind of chatted for a bit and I said, “Cool. I need someone. Let’s see how far we get. Do you want to move to America?” And he said, “Screw it. Let’s do it.” So we literally got on a plane a few days later and I was teaching him everything about the business. It was very much the definition of a shotgun wedding. Which I will not recommend.
Andrew: I see.
Nikki: So I got him on board.
Andrew: Doesn’t Y Combinator before they invest money and time in new entrepreneur or a pair of entrepreneurs, don’t they want to make sure that the entrepreneurs are tightly bonded, that they work well together? Was there any of that? And if there was, how did you convince them that you were close? Considering that you’d just met days before.
Nikki: We said we knew each other, which was true. We spent time before, pretty much like dating. So, Pete, what are you hobbies or whatever? We kind of got to know each other. Yeah, we hung around together. We told them that the guy I applied with was different from this guy. Honestly the interview was so fast I can’t even remember what really happened around that side of things. So I don’t really know.
Andrew: Nikki, just to be clear, you were saying you were dating. You don’t mean that you guys were dating…
Nikki: Oh, no.
Andrew: You mean like dating in a shotgun marriage.
Nikki: It was like, yeah, if you equate it with kind of like finding someone compatible.
Andrew: Super. You get into Y Combinator. You do well in Y Combinator. Does the company pivot within Y Combinator? Or does it just continue to grow within the program?
Nikki: No, we kind of tried a few things. We ended rebuilding everything and launching what we kind of had in Australia. We launched it in the US market kind of right before [??] day. And then I went off fundraising for two months.
Nikki: I had Liam on board and I had some other investors who were kind of cool. And then it was $1.2 million and then . . .
Andrew: Wait, they offered you, these investors, how much?
Nikki: So all of it was $1.2.
Andrew: One point two, great.
Andrew: Co-founders, you’ve got Y Combinator almost behind you. You’ve got $1.2 million put up and then . . .
Nikki: Well, so I remember kind of like closing the last, feeling like rounding the whole thing up and then like I was pretty much on the way to the airport to get out of the country because I was going to overstay my (?) and visa law. I got back to Australia and then the next day I was like, “Hey, I was like everything is coming together and whatnot” and that’s a neat offer. And then I was going out with him and he pretty much said . . . I forgot to mention I brought on another co-founder. It was this other guy’s best mate in January. So a few months later (?) and he kind of came on board. So . . .
Andrew: I was wondering where the second co-founder, where the third co- founder came from.
Nikki: Sorry. They were best friends from the start.
Andrew: So then they both come in and they become your co-founders. They call you up and they say, “Hey, sorry we’re not going to continue.” In Hacker News, in the comments, people were saying, “Why don’t you mention who they are? What are you shying away from? And you said, “Look, I don’t want to embarrass them. That’s why I’m not saying their names” but there are some things that they could have really held on for a little bit longer. And frankly there were also some things that I could have done better.
What do you think you could have done better in this relationship with them?
Nikki: So I know there’s one thing I tend to do is I’m very, very . . . If I’m focused on something, I tend to go into this bubble like . . . My parents call it the Nikki bubble, and I will go and get that job done, and I kind of have a habit of blocking out everything else. I still . . .
Andrew: I do that. I don’t even want to work on other projects that are important just to get into the Andrew bubble, as I’ll call it.
Nikki: I was just like I’m fund raising. I know what I’m doing, and I’m like and I said, “You guys take control of the product side and I’m off fund raising.” And I think my big mistake was going into that bubble and not communicating the process. I was off limits for a time.
I was off having lunch with investors or coffees and meetings, and like I guess from their perspective they’re sitting at home and we live and work together. And they’re kind of like, “Oh, Nikki is off having fun and wining and dining, and honestly one of the co-founders, I would say, has a large ego and he liked that side of things. He liked that kind of glamorous . . .
Andrew: Oh, he liked the ego part.
Nikki: Yeah, I mean . . .
Andrew: He liked the part about going out and meeting the big name investors and you got to do it while he was forced to stay in the house which you guys were living in and working in.
Nikki: Yeah, and (?) I said at the beginning, “This is my job. That’s what I am doing, and you guys are doing all the technology.” I said, “Yeah, that’s cool but it also came out about, actually we talked about it that . . . I don’t know. I kind of felt a little uncomfortable airing all of this. I don’t want to upset part of them. They’re not bad people. They’re just like we both made mistakes, and it felt . . .
Andrew: I see what you’re talking about. Without getting into too many details, tell me, Nikki, if I’m right. Basically what you’re saying is the part that you take responsibility for was going out and getting to know these big investors. You’re going to lunches. You’re getting to know people who you admire, who you respected. It seems like more fun and you didn’t check in with them. I remember actually, does that seem right?
Nikki: Yeah, I mean, that’s pretty much it. I wasn’t communicating the process well enough. And to me those took a huge toll because I’m an introvert. I’m not naturally an extrovert. I have to force myself to do that side of things. And so I actually found it incredibly exhausting whereas I think one of the other guys he is an extrovert, and he probably would have loved that. He sounded like it was really easy, but . . .
Andrew: So why didn’t you let him do that? Even though you were the CEO, it doesn’t really matter. You’re all co-founders. Someone just needs to go out there.
Nikki: I don’t know. I can sell a vision. 99dresses was always kind of like . . . I was half the story anyway.
Andrew: So you capitalized on that.
Nikki: They like that. It was not a lot of goal setting. It was problem solving and they understand it. And so I think that was the selling point. I had Liam (?) quickly and I had some other investors who kind of said cool, and so like I think that was the selling point. And explaining things like we tried to go to a meeting. We went to one meeting with the other boss and I just wanted to step on his toes the whole time and tell him to be quiet because he would just take things off in tangents. Whereas I had a very specific agenda of what I wanted to talk about and a purpose and stuff. We kind of decided that it’s going to be better if one of us does it and it was me. That’s my job.
Andrew: So they pull out. The investors who you put together they say what?
Nikki: These guys pulled out and I think the hard thing was that I just didn’t see it coming. I knew something was kind of off when I was like, you know the last month or something. One of them was quiet down and I almost thought it was post YC depression. Which is actually a thing apparently. Like after a few weeks people get post YC depression.
Andrew: Post YC depression. Okay.
Nikki: Yeah. They tell about that in YC. I remember sitting in a car outside a shopping center and I said, “Look, you seem off. Like you seem sad. Is there anything I can do? Is there something you want to talk about?” And he said, “No. Everything is completely fine. I think it’s all going to be fine once we get back to Australia. I’m just keen to get back to Australia.” And I said, “Okay. Cool.” So I just assumed. He told me it was fine. And so I had no warning about any of this. I felt like an idiot as well because it’s like even if I had gotten the money because I hadn’t hid our account or anything, who goes and, I would have looked like a fool. I would have looked like I was lying. That I didn’t know my team was going to leave.
Andrew: Right. So either you’re a liar for not having told your investors that you knew the co-founders were leaving or you’re a fool for not knowing it. Either way you’re not in a good position.
Nikki: Yeah, so either way it’s not good. I remember I was so upset and I went over to Matt’s office and he was like, “Let’s go out and get drunk.” And then he was like, “Just take your mind off things. Don’t worry about it and then tomorrow you can deal with the investors.” And he said, “Always give them the bad news first. And then you give them any good news. Just do it. Just tell them.”
So I ran up to the lead the next day and they said, “Honestly it’s just so high risk because you’re now a single non-tech founder in Australia with no visa and no team. And we’re about to put half a million dollars into you. And we love you but no.” Which I thought was going to happen. And then another investor fell off. I was like to the other guys, “I’m going to sort something out. I’m going to find a team and everything.” It took a few months, but they eventually, I mean the rest of them pretty much said, “Shit happens. Just take the money. Go sort it out.”
Andrew: A handful of investors did. Tim Draper was one of those investors.
Andrew: Impressive. So he’s saying yes. Eddie Lee is saying yes. You end up basically putting together $595,000. They say, “Look, take this money. We believe in you even though your co-founders aren’t there. We feel confident you can make this work.” You said in your post that you wished that you would have closed each of those investors individually as opposed to waiting for the full round. Why didn’t you close the investors individually instead of waiting?
Nikki: The way it was to get this far I had Lee committed really quickly. Like within a few days of YC demo day. They were really into it. They wanted me to raise at least a million. So they said, “We’re going to give you a half a million dollars, but we want you to pull together the other half a million.”
Andrew: Got you.
Nikki: And so I said, “Okay.” Because that was what I thought. We would raise that much. And I did. I did that, but the problem with doing that is that instead of just, like it really is just so much easier to get people on board once I said, “Oh we’ve got a lead.” And then I just had to get everyone else. Then it turned into this whole herding game. Like getting everyone together and then like, kind of…Whereas in [??] they’re kind of like just close everyone on the spot. That might have been a good idea, but either way I would have been left in the same position. I would have been left with money and no team. I kind of feel bad. Because I did it like a fraud.
Andrew: Right. Okay. Frankly, though, I’d rather feel like a fraud and have $1.2 million and no co-founders than feel like everything was completely on the up and up. Actually, either way you would have been on the up and up. Just bad luck that these guys left before you closed.
Fine. They left. It’s time for you to pick yourself up and get back into the game. You end up with $595 thousand. You have another developer. Am I pronouncing his name right? Marsen Pieten?
Nikki: Machen [SP].
Nikki: Machen Papilage [SP].
Nikki: Polish. Yeah.
Andrew: He’s committed. He is going to join you. You guys are together on this thing. You launch in the U.S., and you’re not in the U.S. actually, frankly, at that point.
Andrew: No. Because the U.S. says we don’t want scumbags like you who are going to try to create companies in our country.
Andrew: You know what, you dirt bags are going to try and employ our people and create software, enrich our country. Get out until you prove yourselves worthy of being here. And so the U.S.’s system apparently worked in this case. They kept you guys out. And as a result, what happens to your company when the customers are now in the U.S. but the cofounder is outside? How does it impact your business?
Nikki: Well, I was in Australia.
Nikki: Essentially, the team was in Australia. I had one person on the ground in the U.S. And it was just incredibly hard to run something in the U.S. when you’re on the other side of the world because, I mean, you just didn’t have that connection to customers.
It’s harder to talk to them even setting up, like, times to chat like a Skype was, like, difficult because of time differences. And we needed to, like, handle stock. And there were a whole bunch of things. I think also we were just out of touch.
We were out of touch with, like, what was happening at that time in the market. The competition. Like, we could see the competition, but, you know, like, the whole market had kind of moved on by the time we kind of like got something out there again.
Andrew: What was the competition, Nikki, that was charging towards you? How would you describe what they were doing?
Nikki: Most of it was a lot of players had come into the whole market with, like, buying and selling fashion. And allowing you, like, a whole bunch of different methods to do that, but mainly like a lot of apps that allows you to buy and sell clothes between each other.
Which is fine for the designer stuff and, like, some brand name stuff, but I guess what 99dresses always worked really well for was lower end fashion. That stuff was, like, really hard to sell. All the girls are quite happy to trade it, and that’s all I wanted to capitalize on, I guess.
Nikki: But it still made it really difficult because you have to, like, from a value proposition point of view, like, we realized our product just wasn’t that valuable in comparison, like, to the other apps. And so I pretty much felt really frustrated.
I booked a ticket to America for a few weeks and I just went and talked to a lot of American girls and I talked how they market customers. And there were, like, the same problems that were coming up, like, over and over again. Like, one thing was they, like, we love the concept. We want to swap stuff, but if it’s not on mobile, like, forget it.
So it was, like, a big thing that came to us, like, mobile-fess. And another thing was, like, the way we’d done shipping which worked really well in Australia. Like, Americans are used to not paying the shipping or just, like, when she’d tack on, like, shipping costs, like, it kind of perverted some of the value. And we did it slightly differently in Australia.
Andrew: What was the shipping proposition? I know that was an issue. If I wanted to buy a dress, I would pay a few buttons and I would also pay for shipping.
Nikki: So back in Australia, the way it worked was because there was no APIs. That was one of the reasons, I believe. Because there’s no APIs to connect with, like, the shipping systems. Which meant that shipping was totally, like, unscalable.
But what we would do is, like, if you listed something and you’re, like, oh, I want eight buttons for this, and there would be costs, like, you know, it’s six buttons postage. Like we’d have, like, small, medium and large postage, or whatever.
So someone would pay you eight buttons plus six buttons in postage, and the person who had that dress would, like, send it to the other person. And they’re physically going to the post office buying the post packet and sending it off and then paying for it. But then she had buttons to go spend on someone else’s items and then that person would pay for the postage to her. So it was very much like a pay it forward system.
Andrew: Got it. So the buyer paid for shipping with buttons. The seller paid for shipping with cash.
Nikki: Would pay with cash.
Andrew: I see.
Nikki: And then she could then go and get something from someone else.
Andrew: Got it.
Nikki: Which worked very well in Australia, but it seems that American girls aren’t a big fan of that. So that really, like, was not working well.
Nikki: But then it’s kind of, like, well, then so what we make people pay in buttons. And then they have to whip out their credit card anyway for cash because the proposition was, like, this cashless kind of thing. And so, yeah, I mean, it was just a problem.
And the other thing was just when people came to our app, they looked at the prices of these things and it was in buttons. But they realized that one button was worth a dollar, so just really kind of equating things to dollars, and just looking at it in terms of, like, a normal buy and sell app.
And they’re kind of, like, well, why would we use that if we can use, like, another buy and sell app and have the option of having cash. So just, like, psychologically, it wasn’t sitting, like, that well. And then I think they’re kind of, like, the main issues. Oh, and the other thing was it wasn’t quick enough.
Like, there wasn’t enough instant gratification. So if you came on to the app, like, okay, I want to list my item and trade it. You have to list your item and then you have to wait for someone else to actually, like, want your time and kind of, like, give you the buttons. And then you could go get something else, but there wasn’t, like, instant gratification.
Andrew: All of this stuff is really insightful. I can see how you wouldn’t anticipate this. That you would think, hey, look, this was validated in Australia. It means it works. We’re just now coming to a bigger market that also happens to speak English. I could see how of this made sense to you and how insightful it is to you to talk to your customers and get redirected.
What I’m curious about is how did you have these conversations with your customers. It’s not like you can walk down the streets of San Francisco or New York and say, hey, are you using 99dresses, can you tell me about it? What did you do to figure this out?
Nikki: So I’d email.
Nikki: [??]. A lot of it, though, was we had one girl kind of blogging for us for a while in the U.S. and it was part of her job was, like, find people. So she would, you know, go to some meet-ups or even her friends, friends of friends, like, getting. Because that’s like part of this media and her. We needed someone with a network on the ground.
Andrew: So she would go to, not existing users of 99dresses, but the kinds of people who you’d like to be users, and she would say what?
Nikki: I mean, she’d pretty much say, hey, like, we’re building this app and it’s full of clothes swapping, and, you know, can I interview you for, like, 20 minutes. And I just really want to, like, find out about how you solved this problem.
And so it was too fast and so we kind of like talked to a lot of, like, existing users which would just involve kind of like reaching out to existing users and finding out where the problems were. And then we were starting to get, like, the same issues coming up over and over again.
Andrew: So she found it and I’m guessing, based on my research, that it’s Shandra Rabruck [SP] who did this?
Nikki: No, this is another girl.
Andrew: A different person. One of the things that I remember hearing from Emmett of twitch.tv was he told me in his Mixergy interview that he felt he had to do these kinds of customer interviews himself because that was the best way for him to fully learn what was going on. But if you had a community manager on the ground who was able to do this well, why didn’t that work for you? Why did you have to fly in?
Nikki: I just feel like a lot of stuff gets lost in translation. Like it’s one thing to kind of write down, to listen and all of that. But, like, I just felt like we’re going to die unless we figure this out. This is, like, our highest priority.
Andrew: And so he would go and talk to potential customers too?
Andrew: I see.
Nikki: So I was just, like, I’m going over there for three weeks and we’re going to figure out what the hell is going on and what we’re going to do about it. And I did, and actually we figured out the problems pretty quickly.
And then I had this epiphany about how to solve them that was based on a whole bunch of different assumptions. And I kind of started talking to some existing girls about it, and they’re, like, actually that sounds like really fun. And so pretty much the idea that instead of giving people buttons when they sold something was actually doing, like, instant gratification, which was if I list something, it instantly unbuttons when you’re listing something. And you’re essentially listing something to give away.
Andrew: Oh, I see. So you get virtual currency for listing things.
Nikki: Yeah. You essentially get virtual currency for listing things. Because one of the things our research told us was that these girls, the kinds of stuff that they wanted to trade, they’re, like, half the problem which is getting rid of it. They’re like, “I don’t know what to do with it. I want to give it to friends or donate it. I want it to go to someone who will really enjoy it. I’m happy to give it away. If I could get something cool in return, that’s great. But half the problem is just cleaning out my closet.” So we’re like, “Okay, what if you had a system where…” It was the first iteration.
The main idea was you list something, you kind of earn buttons. Then you can use those buttons to claim items from other girls. At this point you list items, you earn buttons, and then you can use those buttons to go and essentially request items from other girls. And then a girl can look at your request and be like, “Okay. Yes she can have that.” Or, “No, I don’t want to give that to her.” And the way she can make that decision was based on that person’s karma. So basically the more you gave away, you get high karma. When you receive stuff it goes down.
Andrew: Got it.
Nikki: And so it was more just kind of like people can list stuff and it’s like essentially saying, “Hey, I don’t want this dress anymore. I’m going to give it away.” And then like three people can put up their hands and say, “Oh, I want it.” And then you can give it to the person who has the highest karma.
Andrew: You know what? I’m going to challenge you to push yourself a little bit farther than you said before. You did something to make this marketplace work that you said was a little shady chicken and egg solution.
Nikki: I did a few things.
Andrew: Shock us. What did you do that you haven’t talked about publicly?
Nikki: Okay, I mean the things that were kind of like gray area. A lot of what we did that’s kind of gray area and not the black area was we built a very, very elaborate faking system. We faked everything in the beginning. So day one we had fake users, fake commenting obviously. But we actually had a budget. We went to Nordstrom Rack and saw all these clothes here had a 30 day return policy. So we’d go and buy up all these clothes, we’d photograph them, and we’d list them under these fake users who had all these fake profiles and these fake personalities. And then we’d list these items.
The catch then was the way the system wanted those items in order to claim those items they needed to list stuff themselves. So they would list their items and then people could put a claim on these items. And if we saw that they had listed good quality stuff then we might give them one of these good items and we’d let them win it. But if not another person would claim over the top of them.
Andrew: That’s brilliant. That makes a lot of sense.
Nikki: That was kind of like the gray area. And we did some other things that probably shouldn’t talk about publicly.
Andrew: What else? This is the startup world. People admire you for doing that. They don’t admire you for crying. You opened up about crying. This is the stuff that makes them gasp with excitement.
Nikki: We had, I hope our users don’t actually listen to this. We had other items that we would actually kind of steal off their marketplaces. So we’d have photos of stuff that we’d find. Like items that we thought were cute out and about and we’d list that they were called the unwinnables.
Andrew: I see.
Nikki: Basically people could look at them and see that they’re cute items and then they could claim them but they didn’t know that they were never going to win them because we didn’t actually have them. So we had a system that would automatically claim over the top so they could never actually win these items. But the [??] the whole thing was like if there’s good stuff listed, people will list their own stuff and eventually we’d can get rid of all the fake stuff. And all this other stuff is going to be real. And so that’s kind of what we did. So we just put a whole bombardment on day one of stuff. And some of it we would give away. Like we actually had a big budget for, we called it marketing budget for giving away this stuff. But yeah there were some dodgy things that I probably wouldn’t want our users knowing too much about. Where it was a computer pretty much…
Andrew: The computer did all this stuff?
Nikki: Yeah we spent a while building this system because day one you have to do something or I know it’ll trickle along and you have to kind of get the momentum going. So we would like constantly just be listing stuff on there. Commenting. We had a system that would automatically like things from certain users. It was like very elaborate. But we faked an entire community. And literally within less than a few weeks we could phase the whole things out. It went way better than I thought it would. And so we got rid of all that fudgey stuff as soon as we could.
Andrew: And it did work because you said that there were some users who ended up being power users. They spent over a thousand dollars each, some of these users, on the site. You’re starting to get some traction, you’re starting to get some trades, people were starting to become active, and things were good. Right?
Nikki: Yeah, yeah. Things were really good.
Andrew: And then what happened?
Nikki: I remember growth was kind of like, it was a little slow at first and then I remember January we like grew 150 percent. And suddenly we were doing a thousand trades a week. And then we kept growing from there. I think part of what helped that the good growth was we figure out how to get really cheap Facebook install ads. So we were paying 15 cents an install or something in January and getting a lot of girls coming in and listing things and trying it out.
And then I think kind of like looking back part of it was and we probably didn’t realize it at the time, like we ran a few experiments and kind of let them run. For one example we ran an experiment, we were trying to get our activation rate up and we say, “What if we give people a hundred free buttons when they come in? So it’s kind of like they have something to start off with.” That data, the actual cohort reports of how that data performed took a while to actually get because it was something that you couldn’t tell immediately. And when you look back it’s kind of like, okay, our activation rate went up but our attention didn’t.
Our attention actually went down because the quality of the people who were activating were lower because they were doing for these free buttons. I think kind of like looking back that compounded with a few other things, but what we were really worried about were like we had really good retention and our community was just like really loyal and tight knit. You know, I’m friends with a lot of the girls in our community. We have a private Facebook group where girls are posting several times a day and everyone is kind of friends. But I think just looking at it we were really worried about the activation rate thing. If that’s low, like people would come in and one, the concept was kind of complicated.
Once they understood it and realized the value proposition and tried it, our attention was really, really good. But it was really hard to get people to a point where they would give it go and actually understand it and realize that value. And we tried a whole bunch of different things like better unboarding [sp] and giving out free buttons. And it was just like nothing really, really moves the needle a lot on that. So we were kind of like a bit down about that.
And then we were looking at okay, we can pair that with our customer acquisition cost and then how much we’re making off these trades. And we realized that we were starting to get some holes. There were some holes in the business model. And then it started to get to the point where the other thing we noticed was the average value of items that were traded was dropping and it just kept dropping.
Andrew: Why do you think?
Nikki: That’s just naturally how it works and honestly I should have anticipated it anyway. Like I knew it because it was exactly the same in Australia. Because the way the trading system works, you’re using virtual currency. You can keep the quality very high if people are selling for cash because there’s no risk involved. It’s like I know that if I give my item away in exchange for cash I know exactly what that cash is worth and what it can buy. Whereas when you’re trading with virtual currency it’s kind of like, I’m giving it away and I’m getting currency and I don’t really know what I’m going to get back for it and so people don’t take as big risks on the items.
Andrew: Why doesn’t it happen the other way? Where they start of by saying, “I’m just going to put my junky stuff up until I get a sense of the community and then I’ll increase the quality.”? Why does it start with good and then go to bad?
Nikki: Because it’s pretty much if you imagine it, and I noticed this in Australia and here, if you set the quality up here people will upload anything below that, but they’re not going to go above it. So if the quality drops to here and then it’s like this and then it’ll just naturally, like it just drops to a certain level and then it starts to be comfortable at that level but problem was that level, we were making very small fees on some items. And so that’s when I was really looking at the business model and I don’t know, starting to see a few holes in it. So, yeah. [laughs]
Andrew: So at this point in order to learn what worked and what didn’t you had to invest some money. You had a little bit of money going into office space. You had a little bit of money going into people and you were starting to run out of money, went back to your investors and said, “We need to raise another round.” What did they say?
Nikki: So, two of the angels kind of said, well one of them was like, ” Yeah you’re doing great metrics and well I’m really interested but I need, but I want to be VC.” Because he’s actually not even here. He’s actually in Sweden, Switzerland… I haven’t actually met him in person but he’s fantastic. Which I was expecting, because when he was originally going to come in like two years ago, he expecting it to have a VC involved for some oversight, right.
Nikki: So this time, he was like, “I want a VC involved.” So I said, “Okay.” And another investor, kind of like the same thing, “Can you get a VC involved.” And so it just turn out that like one from, who I actually really liked, and they’re always been helpful and involved. And the partner I was working with, they really loved it and they really liked me and they wanted to lead it but it seems like in the end they just couldn’t convince the other people. In farm[SP] it all kind of fell through, but my mistake was like, I’d much rather be working on the product than fundraising. I was like they’re our best bet of getting the money.
I mean I made two really big mistakes. The first one was, I should have raised money in January. It’s really easy to say that and retrospect but raise money when you don’t think you need the money. [laugh] when everything’s on the up and up. I waited too long[SP]. And then the second thing was I was putting my eggs all in one basket, because honestly I felt like we had it really, really tough to find someone anyway. Like if we can’t get anything from our existing investors, because it’s like a vote of confidence. I mean it okay if like the angels don’t come in because all of them don’t have a lot of money to put behind it but if you’ve got a firm involved and then they kind of won’t back you again. It’s kind of, it’s really like why would other investors want to back you?
Andrew: I mentioned earlier that you admitted to crying. That in its face was a big surprise. It was on that call.
Nikki: Oh yeah. Actually, you know what I had a bad feeling about it. They wanted to schedule this call. Actually it was at night time and I rang my mom up beforehand, in Australia. I was chatting to her and I said, ” If this doesn’t go through, if didn’t doesn’t work because I have a bad feeling about it, I actually think we’re screwed,” because we didn’t have. I was just very doubtful we could find somebody else anyway. What was really funny was during this call, the phone line was really crackly. I was like, from what sounded like they were actually in, and they actually like we actually wanted to fill up the whole round. And then there was this long winded kind of thing about that and I was thinking Oh my God, thank God, thank God.
And then it was kind of only towards the end that it came together that he was telling me that they would not be doing that. And I was like at the end, I’m like oh God. And I felt really bad as the guy was telling me this cause I was like I didn’t want to speak. I was just silent cause I know I’m going to cry. I don’t know it was just very emotional and it was like, ” I’m really sorry.” I think he really felt bad about it because they really tried. Like these two guys I was working sounded like they tried really hard to kind of get it through but they just didn’t happen.
And anyway, I was kind of upset and I went over to Martin’s place at night and I was fully expecting him to be like, “Hey. I have a one year old child and a wife and I need to you know get a job. It’s too risky.” but he surprised me. [laughs]. I was like “let’s cut costs. We’re going to cut our salaries, we’re going to get rid of our office.” You know, we decided this: “let’s just keep fighting until the end.”
Andrew: And you kept downsizing and fighting and in the end …
Nikki: Yeah, it was sad actually. The next day, we gave notice on our office and then I fired someone. So, basically one [??] was doing the work of two people and she wasn’t sleeping and she worked so hard already and she was just taking on a whole … So it was just now four of us. Everyone really rallys and I was just very proud of them.
Andrew: And then you did this really long post on the internet. I can see you’re tearing up now as we talk about it. You posted about all this. How was the reaction when you’re admitting to the world about crying, when you’re admitting to the world about your setbacks. What happened?
Nikki: It was just amazing. Honestly, I kind of wrote it when I knew we had, one week left. I talked to these investors and it was the same thing over and over again, “No one wants to [??] drown.” I remember that the day before I’d been at this VC conference. I didn’t want to show up and I knew I had to because I was feeling so sick in the morning like a [inaudible] or something. Then, I had to go this conference and I’m praying that I’m not going to throw up on investors because that would not go down well.
I went and networked, I came in the next morning and that morning I had a meeting with a VC which was the same thing … I just came in and I kind of knew I was going to have that conversation with Marsha and just say “I think it’s time.” We just kind of looked at each other and no one really has to say anything, we just knew it was over.
Yeah, there was a few tears but mainly a lot of laughing because that’s how we deal with things; just lots of jokes. It took a bit of time to process and I felt like I had a story and I just needed to write it down because when I was going through it, I was looking for someone to relate to. No one talks about it. If you ask any entrepreneur how their company is doing, it’s always like “We’re killing it, we’re doing this, we’re doing that.”
I know all of that is not necessarily true and it was only when we’d open up to some other entrepreneurs and be like “we’re short on cash, do you have any ideas?” Or like “can you introduce us to investors?” Then you realize that they’re like “oh, we ran out of cash twice” or like “we had to shut down” … Suddenly, all the war stories come out when you force them to, but no one really tells you that publicly.
I remember the weekend before we decided to shut down, I met up with an entrepreneur that I really respect, Rebecca from Posse and she’s been in a really tough position before, she was like “I was one month away from running out of cash.” I teared up when she was telling me about this. I’m like “it’s just so refreshing to talk to someone who gets it, who has actually been there.” And she said, “The first thing you have to do is you have to come to terms with failure. Then you can move on like you can fight this, but you just need to understand what failure means. It’s not the end of the world. You’re young and …”
Andrew: When you expressed it, did you get to experience that from readers? Did anyone come back to you and say “You know what, Nikki, this is what I needed right now because I had been going through this”?
Nikki: I wrote this post and I was just like “I’ll put it out there.” I wasn’t really expecting anyone to really read it besides my friends because I was like “Maybe someone will Google it and come across it.” I wrote this post and I have literally had hundreds of emails in my inbox, I had hundreds of Facebook messages, probably thousands of tweets. It’s been viewed 150,000 times now, and I posted it yesterday. There’s this huge outpouring of support and so many people are like “Oh my gosh, this is my story except different events. But this is exactly how I feel.” I didn’t realize it was going to resonate with that many people.
Andrew: On Hacker News, I see people who are in your Y-Combinator batch, who say things like “I don’t know who GUI-A is, I met Nikki when I lived in Hacker House in Mountain View in 2012.” Having recently moved to the Bay Area, I remember being impressed at the time with her intensity and the fact that she actually had a great product with real users.” There are a lot of people who are saying “You know what, I really liked her. I knew her when she was at that stage.” The stage where maybe you felt like you were going through the imposter syndrome. They were rooting for you. I think, looking at your Facebook page right now.
As you mentioned your Facebook page, I went to it. It’s flooded with people who are rooting for you, flooded with people who are moved by your openness with this story. I’m one of those people. I’m really proud to have had you come on here to tell this story and to share it with the Mixergy audience. I’m convinced that a few months from now, if not years from now, I’m going to have to beg you talk about the next business that you do. I’m hoping that you’ll get such a good reaction from the audience that you’ll say “You know what? I remember doing Mixergy back then. I’m going to come back and talk about this next success.” I’m looking forward to having you on when you do that.
Nikki: Awesome. Hopefully.
Andrew: Congratulations on posting this and having had this experience. I’m disappointed that you’re going to have to go back to Australia. This country really needs to do something about its immigration laws. When we have a good entrepreneur, we want to try to find a way to keep them here.
Nikki: If I’m going to go travelling, I’ve heard Chile has got a good startup program.
Andrew: Yeah, South America really does respect entrepreneurs now, go figure.
Andrew: All right. Thank you so much for doing this interview, Nikki. Thank you all for being a part of it. Bye, guys.