A cautionary tale about subscription services and how not to shut down a startup
medium.com
medium.com
Startups fail. Fact of life. We talk about "burn rate" and "runway" because it is easier to say than "The number of days you have to find a working business model or secure additional investment, after which you have to fire all of your employees because you cannot make payroll."
When startups know they're going to fail to make payroll, they fire all employees. Fact of life. Fired employees are the worst affected people when a startup collapses, by a factor of lots. They don't get to call up their credit card company and chargeback forgone wages for the last three years.
When you're the non-technical CEO of a subscription commerce company, and you find yourself in an empty office without employees, if you're hypothetically aware that subscriptions are still active -- which you very well might not be aware of -- you have very limited options for actually fixing it. You might as well ask my dad to do an orderly shutdown of Appointment Reminder given I get hit with a bus tomorrow.
Could this have been handled better? Yeah. There's a reason that when startups ask for advice on what to do in their remaining hours of life we always say the words "Prepare and execute on a plan to effect an orderly wind-down of the business." It's not exactly something people are born knowing and might not be at top-of-mind while they're going through an enormously stressful event.
Being too lazy to shut off the site is not an excuse.
You also have very limited options for avoiding liability for fraud. I don't think using the excuse that you were a non-technical CEO is one of them.
You cite the failure mode of startups as a "fact of life" with regards to two particulars, and minimize the ethical responsibility of the hypothetical non-technical CEO on the basis of implied incompetence and his or her technical inability to do anything about the situation due to both his or her failure to plan for the eventuality and the actions that he or she has just taken. That leaves you with two "that's just how it is" statements and one "what can I [he] do about it anyways" statement, lined up against one "could this have been handled better? Yeah" statement. I believe you might agree that that looks like a pretty weak argument, on a second read; if not, I'm certainly interested in what you have to say about it.
If you're the non-technical CEO of a subscription commerce company in this situation, did you mean to do anything wrong? Of course not, no-one is going to assume that. Does that mean you aren't to blame and it's not your fault and you're not responsible for the situation because who knew startups were high-risk and computers are hard? In the scenario you outline, it would not give me confidence in a person to hear that he or she believed such a thing.
More notably, though, and perhaps interestingly, the author mentions that it does not give her any particular confidence in "Techstar" as a brand. Interesting because of the implicit assumption that the VC incubators are effectively vouching for the reliability of the startup and assuming a degree of governance / diligence with regards to the potential extremes of the outcome, which in turn raises the question of whether that's an idea that the incubators are selling (perhaps unwittingly) to their prospective investments. So, I think something like that might be more productive to talk about than situational ethics, really. But I didn't want to leave you with the mistaken belief that everyone had come to the same conclusions about the facts of life.
It is fraud, there should be no mistaking that. If you take someone's money with absolutely no intention of fulfilling the service or product they're purchasing, it is fraud, period.
It doesn't take a technical founder to log in to Stripe and shut down the payment processing. Or to call Stripe and get it turned off. It doesn't take a technical founder to alter the settings on the domain name and blank it that way either. I know people that can barely use email that can change settings on a domain.
It might cost $200 to $500 - worst case scenario - to hire someone to take down the consumer facing part of the site (or plainly neuter it). More than likely they could reach out to any number of contacts and get it down for a lot less than that. Don't have a few hundred dollars? Well then your responsibility is to go crawling to your family, your friends, Techstars, whomever to get it. Just to save their reputation, I'd be willing to bet Techstars would have helped in getting this shut down had they been asked.
There is no excuse for what they've done.
First, who are they? Their street address is
2409 20TH ST BOULDER CO 80304 US
which is a house.
A Colorado corporation search gives a second address:
1738 Pearl St., Suite 2A, Boulder, CO 80302, United States
which looks like office space above a restaurant in Google Street View. Their landlord is Pearl Street Properties (http://www.pearlstreetmallproperties.com) and calling them during working hours might be helpful.
They're incorporated in Delaware, but are delinquent in filing with Colorado. Delaware corporation search only works on weekdays, so not much is available from there tonight.
The founder is Alicia DiRago. Not only is the company not communicating, her rather busy personal online life has stopped.
Here's her Twitter feed, which stopped on September 3, 2014: https://twitter.com/aliciadirago
Here's her other startup, Dismount Creative, which was last updated on August 3, 2014: http://www.dismountcreative.com/
Her personal Facebook account, last updated in January 2014: https://www.facebook.com/alicia.dirago Definitely the right person; she's wearing a Whimseybox T-shirt in her profile picture.
She's married and lives in Boulder, CO. The address is a matter of public record, but I won't list it here. Her husband, Joseph DiRago, is an attorney in Boulder. No news items or obituaries for either of them.
This is a very tiny operation and there's probably a personal problem. This isn't a big enough business to be a scam.
I tried to buy a year gift subscription and got an error message. It showed me a silly error message which included Ryan Gosling promising a foot massage for me to keep my calm. I mistakingly tried 2 more times and now see 3 charges on my credit card.
For what it’s worth, they use Stripe. I saw the $1 pending transaction they tried. Hopefully Stripe can shut them down.
EDIT: Looks like they're no longer accepting payment, but if this article is right, they still were for a very long time after ceasing shipments.
Yes, this a great example of what not to do when you know your company is doomed, and the founders are killing their long-term prospects of future ventures with all this bad karma, but there's no need to drag Techstars into it.
Obviously Techstars can't force people to stop shenanigans, but I hope for a society where we expect more of each other, where behaving ethically is not more or less important that profits but simply completely necessary.
I'm not sure I can, in good conscience, condemn someone for expecting more of a renowned institution, however minor that renown is. I also think that the author of this post is in a place to understand what is possible and expected of investors, given she is an Operating Partner at Khosla Ventures.
Techstars may not market themselves as a measure of credibility, but i'm sure it is something they care deeply about. If an incubator constantly spat out startups making deeply questionable decisions like this one they would have far less startups knocking on their door.
From their website: "Techstars provides [...] intensive mentorship, and an amazing network of mentors [...]"
Seems like they are all about credibility.
Techstars and/or its affiliates would have taken equity in exchange for their services. They're part owners of the company as as such bear some measure of responsibility for its actions.
>> "Techstars doesn't market itself as some bastion of credibility to consumers."
Yes it does. It's consumers are small startups in need of seed money and strategic advice. Brand name is very important, and one of any incubator/accelerator's selling points. If a startup can associate itself with a highly regarded seed brand like YC or Andressen-Horowitz it makes its valuations much higher down the line. If Techstars becomes associated with shady ventures, it will hurt its ability to find willing participants.
One company deliver "led lights" does everything, except deliver the goods. Web site is up, customer support answers to messages (as long as you're going to order something) and they'll accept payments. But that's where it ends.
My dad got a new cellphone and it got the number which is still being shown on that web page. It's nice to receive more and less angry calls all day long from people getting scammed all the time.
Unfortunately this seems to be quite common problem. Isn't it the business focus? Do the things which make money, don't mind about the rest. Web site, credit card handling, and customer support, all generate revenue. Delivering goods is bad business, it generates substantial expences.
One famous entrepreneur in finland said that invoicing is the thing that runs the business, rest is irrelevant.
We're Sorry
Whimseybox is no longer taking new subscriptions, gifts, or shop orders at this time.
Are you kidding me? The model of "I have your credit card number and the code on the back and I can charge you as many times as I want" is clearly broken.
The credit card system gives much better consumer protection most of the time.
More seriously, automating the process of harvesting credit card numbers and signing them up for monthly billing, then taking a cut, is evil genius.
Even more seriously, the sex-trade people were way ahead on this, by happily offering canceling customers refund checks with mind-blowingly dirty names on them to discourage deposit.
I'm not sure "someone would enjoy running this" makes much of a difference if it can't pay the bills.
For those without integrity, it's a recommendation: There are trusting people who will signup & pay even if you don't deliver.
The world is still wild, and I like that. Nothing to recommend than to be skeptical and ethical please.
EDIT: After dealing with customer "service" utterly failed, I had to disconnect from Verizon after my 2-year contract by refusing to pay them. It worked, but probably only because I had unchecked the "auto-pay" box every month for two years.
I no longer have much patience for big companies that mess me around, but it's important to always be reasonable if you want a good result, and particularly if you might wind up taking real legal action. So, this is my general plan:
First, assuming I'm properly entitled to cancel whatever agreement we have, they always get one attempt to play nice and give reasonable notice to cancel by their preferred mechanism. I make a clear record of what happens at this stage, e.g., if I called them then I note the time of the call, who I spoke to, and what was said. Recording the call can be a useful alternative here, but be careful to check what is legal in your jurisdiction before you do this.
Second, if cancelling their way fails or proves to be unreasonably difficult, I skip right to sending a recorded letter to their registered address or the equivalent. I explain briefly what happened before, and I state clearly that I am terminating the agreement and that I do not agree to further charges. Always be polite and fair.
Third, depending on the amounts of money and timescales involved, I also contact whatever payment services are involved preemptively to make clear that I have not authorised any further payments. Again, keep good records. Alternatively, if I get charged again then at this point I would formally dispute the charge, if necessary providing the payment service with the records to show that I have given proper notice to cancel.
If we get this far and working with the payment service(s) doesn't get things fixed reasonably quickly, it's a case of whether the time and money involved justify proper legal action, and following whatever process is required.
Opinions differ on whether to include a threat that further trouble will lead to legal action at the letter stage. Any allusion to a legal action might get bounced directly to their legal department, which is probably better or worse depending on whether you know what you're doing and whether they know you know. If they call your bluff and you don't know what you're doing, you could wind up spending far more time and money chasing even a simple small claims action than it's worth, or more likely giving up and then they know they've won. On the other hand, if you know a friendly lawyer who can spend a few minutes explaining the process and the really important things you need to do without charging you the earth for it, go right ahead. That might include adding certain required information to the letter itself along with a statement that it's the first formal step in your legal action, for example.
A less dramatic alternative that I've seen work several times is just to add a statement to the letter that you will charge them a reasonable "administration fee" to cover your time and trouble if you have to contact them again due to their failure to comply within a reasonable period. It's surprising how many places automatically change their behaviour as soon as something might actually cost them real money, even if it's only a nominal amount, and there's a good chance that whatever front line grunt first opens your letter won't be authorised to deal with that situation so you'll get escalated to someone more effective. As always it's worth knowing what the law says in your area before trying this one, because you don't want to do something dumb that will let them settle for peanuts later if you do wind up spending a significant amount on real legal action that you might otherwise have been entitled to recover.
So I guess it comes down to the usual things: Always keep records, always be transparently fair and reasonable, try your payment service's dispute process if it's a sensible option, and then if things still aren't working out, make sure you've taken at least some basic legal advice about your particular situation before you go charging in with something heavier and act accordingly.
Very few of these things will send the product without a completed transaction, and even if they did (one time), the odds of a company selling a $40 debt are insanely low.
When consumers need an extra layer of protection against bad actors, this is a great way to go about it, and the risk to your credit is actually very low.