My startup hell – a cautionary tale for new businesses2012-03-28 5
With the startup scene riding a monster wave of optimism, dreams of grandeur, innovative ideas, and mounting success stories, a lot of caution can be thrown to the wind. So, when entrepreneurial guru Marcus Tonndorf hit rock bottom last year after the downfall of a promising startup, he sought to warn the tech community of the possibilities of failure – and how best to avoid it. In an exclusive interview with VentureVillage, Tonndorf talks about what went wrong at the now-sedated ‘choose your own adventure’ app Audiogent, losing out on an estimated €80,000 worth of owed wages, and the hard lessons learned.
“The whole scene is buzzing about how great entrepreneurship is, but people forget that it has a dark side. When people don’t make it – you never hear anything about it, but if they get up again – you will, but not everyone learns from it. Hopefully people will learn from my story..”
‘Choose your own adventure’ – about Audiogent
As the then-CEO and consulting managing director of Audiogent, Tonndorf joined the Magdeburg based firm in mid-2010 to form a trio with CFO Robert Lübke and CTO and initial founder Cornelius Huber who’d already been working on the product for several years. Audiogent would’ve been on the brink of entering the international market this year after it arguably became the world’s first producer and publisher of highly interactive audiobooks. It enjoyed a string of success in his home of Germany, after releasing sci-fi book apps; “Raumzeit” in October, 2010, and “Die Drei Fragezeichen” in August, 2011.
The fall-out of Audiogent
With the growing success of Audiogent, Tonndorf got busy from March last year to secure the company’s first big investment. But, as the ball got rolling with interested investors, things took a turn for the worse in November last year. “During one important investor meeting in Munich, we were asked a question for the first time directly: Are the software rights in the company? I said ‘yes, of course’ – having always assumed so, but Cornelius said ‘no’. That’s when I called for a timeout,” says Tonndorf. It turned out that Huber owned the software rights, not Audiogent, so any investment made would’ve been for an empty shell, but more importantly it would put the company in the firing line of illegalities should an investment be made.
Business first, contracts later
With a crowdfunding investment in the pipeline, Tonndorf than moved onto the task of getting the rights transferred to its rightful place; “Robert and I had to set a deadline and say (to Huber) ‘you have to transfer the rights before the auction otherwise we have to quit the company or be legally responsible for fraud – for communicating something that’s not true.’ So he waited while we continually persisted, I fought like crazy to keep it alive but he wanted the security of having the rights, even though he owned 60% of the company.
“In the end he stopped all communication with us and didn’t transfer the rights. Robert and I had to quit four days before the Crowdfunding auction or we’d have been up for fraud. It’s like investing in a restaurant where there’s no staff and the chef – who owns the recipes, is leaving,” he explains. During this vital turn of events, Huber says in a statement sent to VentureVillage “At this point I was both baffled and crazy busy trying to finish the product on time on my own while giving explanations to 20 investors as to what was going on in the heads of my two fellow companions.”
Subsequently, the investor in Munich withdrew the offer and Tonndorf asked Crowdfunding platform Innovestment to stop what would’ve been, a €100,000 investment. Huber argues “the software is still used to this day without any problems.” He also adds that “you never bargain with money that you don’t already have, so this did not have any dire impact,” however “as a result (of Tonndorf and Lübke’s departure) Audiogent had temporarily lost manpower.”
Picking up the pieces
Following the resignations, crisis talks and significant investment pull-outs, Tonndorf hired a lawyer with the intent of suing Huber in the hope of retrieving some of the €80,000 he would’ve acquired in wages over the year and a half of developing the company’s marketing, management and business strategy. “But I decided not to in the end. Plain and simple: the company has no money and I would have to spend a lot to put the company through court,” says Tonndorf.
“As an entrepreneur; if you’re good you get up and you fight again, I don’t want to put energy into fighting him because it’ll bring me nothing except the greed of wanting the money back. It’s money, it’s sad, it disappeared, but I learned so much from this whole experience.” Robert Lübke is fighting his own battle to get back over four years of time and money invested in the company. As for Huber, well “in the end he lost the team and he lost the money,” says Tonndorf. As for the future of the product? Well, Huber went onto release Audiogent’s third interactive audiobook Perry Rhodan Tamer – early this year. ”The company is as fit to create and market its products as before,” says Huber. However, without the team’s expertise to market and publicly announce the new product, its release subsequently fell on deaf ears.
Two steps back, one giant step forward
Since Tonndorf’s departure from the company in November last year, he’s recently co-founded Palupas Shoes: an online platform which allows users to customise their own flip-flops. “I wanted to do something that was more fun and closer to my background of design and branding but in a leading position. I got introduced to a lot of companies when I started looking for work, but when I met Mathias Eylers who started and owned most of Palupas – I thought it was great.”
And so starts Tonndorf’s next big venture in the startup sphere. This time around however, he stepped into Palupas with new-found wisdom and cautionary measures; “I learned so much about what not to do, and in a startup it’s just as important as knowing what to do.”
Image credit: handshake – flickr user Victor1558
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