Business

Feb. 20, 2014 12:30 pm

We shut down our startup and have no regrets: Inhabi cofounders

Both David Friedman and Jameel Farruk landed on their feet: Friedman is the CTO of Real Food Works, the venture-backed healthy meal subscription service run by Lucinda Duncalfe. Farruk runs client relations at interactive agency Brolik.

Inhabi cofounders Jameel Farruk and David Friedman. Photo from the City Paper.

There was no skirting the issue.

Cofounders Jameel Farruk and David Friedman had to decide whether or not to shut their startup down. It was the fall of 2012, one year after the pair launched Inhabi, a matchmaking service for renters and landords.

It wasn’t a question of passion or of drive, Farruk said. It wasn’t about the quality of the cofounders’ working relationship.

Inhabi had always been self-funded, so the matter at hand was of a more practical nature.

“We had to ask ourselves real questions like, ‘How do you keep the lights on? How do you keep people’s wives in school?'” Farruk said.

It’s the blessing and the curse of bootstrapping: build for revenue fast or fail before you hit your stride. Ultimately, the cofounders, who had cut their teeth at Venmo, decided to shut Inhabi down.

Both Friedman and Farruk landed on their feet: Friedman is the CTO of Real Food Works, the venture-backed healthy meal subscription service run by Lucinda Duncalfe. Farruk runs client relations at Callowhill interactive agency Brolik.

Here’s what happened to the startup, what the cofounders learned and why they don’t have any regrets (except maybe one).

  • Identify your target market as soon as possible. Both founders said that by the time they realized their target market, it was too late. Inhabi should have focused on the lower-tier landlords, or those who have a harder time finding tenants, rather than the high-end landlords. The startup had a lot of paying customers, most of whom were the lower-tier landlords. “We weren’t really listening to our customers enough along the way,” Friedman said.
  • Don’t let the vision overshadow the reality. It’s easy to drink the startup Kool-aid, Farruk said. Seeing Venmo’s enormous success gave us the guts to go out on our own, Farruk said, but “sometimes businesses are not supposed to work and it has nothing to do with how smart or capable the entrepreneur is.” It’s important to realize that, Farruk said. “Fortunately for us, we were able to pull out right at that danger point,” he said. “Nobody had to sell a home or get rid of any cars.”
  • Your fellow entrepreneurs can act as a sniff test. The Inhabi cofounders turned to RJMetrics cofounders Bob Moore and Jake Stein for a second opinion. “We asked them, ‘Would you fight or walk away?'” Farruk said. They said they’d walk. This kind of honesty and support is what makes the Philly tech scene so rewarding, he said.
  • Look for other exit options. Friedman said his one regret is that he didn’t work harder to find new owners for the startup. “We didn’t push too hard on finding the next step for Inhabi because we both found great opportunities,” he said. (Salvaging startups has actually been a topic of discussion on the Philly Startup Leaders listserv and a recent Venturef0rth event.)
  • It’s OK to fail and it’s even better to talk about it. “I think not enough people are honest about [failure],” Friedman said. “I love talking about failure, as weird as that sounds.” Both founders agreed that the startup culture here was supportive when they were frank about what was happening to Inhabi. “The culture here really means it when they say fail fast, and owning up to that is a huge part of it.”
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Juliana Reyes

Juliana Reyes began as lead reporter at Technical.ly Philly in July 2012. Previously, she was a city services beat reporter for the Philadelphia Daily News, as part of a project called “It’s Our Money.” She is learning to drive, learning to bike (in the city) but is an expert at taking SEPTA. She grew up in North Jersey and Manila, Philippines but she left the tropics for Bryn Mawr College, where she majored in linguistics. She now lives in West Philly.

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  • Sean Dawes

    What was the biggest overhead for this company? Dev cost I would think. Outside of that, was the business run out of their homes? Could this still be going while both founders maintain full time jobs?

    • David Friedman

      Sean, the biggest overhead was people – Jameel and myself. We scaled pretty rapidly to something that was full-time, so running it as a part-time venture really wasn’t an option. Of course, full-time doesn’t always mean enough capital to continue growing or pay yourself what you really want/need.

      Also, we both take commitment to our new companies pretty seriously. I can’t speak for Jameel, but I did not expect to have time for side work (and was right).

      • Jameel Farruk

        Sean, aside from the human cost of running the company, our business was servicing a double-sided marketplace. Our revenues were not subscription based, but reliant on lead generation as a service to property owners. By the time we refined our target customer, scalability became a huge hurdle that required additional manpower and a marketing budget which we could not subsidize ourselves, or with company revenue.

        Running a startup that you are fully invested in can be tricky. Doing it part-time can be disastrous based on the circumstances. In our case, part-time was not the right option and would have prolonged the same outcome.

        • Sean Dawes

          Lead gen is def interesting as a business model. We manage it for a selection of clients in our portfolio so I know some of the hurdles you faced. A lot of what you faced I am sure was out of your hands. Like if you are referring to your landlords closing those leads which makes them like your service. If they suck at lead management, they just point the blame on the service not the process they either have that is inefficient or that is nonexistent.

      • Sean Dawes

        You can be fully committed and still have a full time job. How soon did you run out of cash after launching the business? Think you underestimated your burn rate prior to starting the business?

        I get undercapitalization. Did you try raising capital? Given the sharp growth and revenue mentioned above, would think this could be attractive or even help you secure some kind of bridge loan.

        Def cool to see you both chiming in and am sure lots of startup owners respect both your honesty :)

        • Jameel Farruk

          I wouldn’t say we underestimated the burn rate. The smartest thing we did was pull out before things would become uncontrollably dicey. It was the hardest decision we could have made.

          We bootstrapped a fully functioning business for just shy of 19 months. We had paying customers and had some good luck along the way. The problem was scaling inventory while dealing with a lessening demand as occupancy rates were creeping up. Also, we can blame ourselves too. Looking back as some founders do, there were things we could have learned faster, executed more efficiently and produced better.

          We did seek investment at a variety of stages, however I would think it was a culmination of the above that kept us from mitigating enough of the risk. The takeaway? We could have hit the investment circuit more aggressively while we were hot vs when we needed it to keep the ship from sinking.

          Sean, I’ll be speaking more on this topic during Philly Tech Week. Hope to see you there.

          • Sean Dawes

            I’ll be at some of the events. Will stop by to chat if I see you.

        • David Friedman

          Sean, I’ve got to disagree with you here. If I’m working on Inhabi at night while working at Real Food Works, am I really committed to Real Food Works? In my book, no. If it were a job at XYZ Corp. where there is zero expectation of work outside of 9-5 (instead of another startup), I might be able to serve two masters.

          On the other side is the fact that building and scaling a startup is a full-time job. Working part-time on Inhabi would have just made for a prolonged death. I realize this is the option that many founders take, but it wasn’t right for us.

          The conversation around capitalization, forecasting, and fundraising is just way too long to type out. Happy to discuss over a drink. :)

          • Sean Dawes

            That is what I was implying. You go out and get a job at company X for the 9-5 and than you can funnel that capital into the next 8-10hrs in the day for the startup. I understand you can’t work on two startups where you have equitable interest.

            Hope all is well with Real Food Works

  • Uri Pierre-Noel

    Wish they had considered selling the start up. I personally would have been interested.

    • David Friedman

      Uri, the assets are still around…. :)

      • Uri Pierre-Noel

        Now that is a conversation I’m interested in having. (upierrenoel at gmail.com) Thanks for replying David!

  • Anthony Coombs

    Both are good guys. Wish them the best. Had a great conversation with Dave when they were winding down and made good sense and helped me along in my failed venture.

    • Jameel Farruk

      Thank you Anthony. We had one heck of a ride building the company and we are always grateful to have had folks like you supporting us along the way.

    • Sean Dawes

      What led to the demise of your venture?

  • Henry Ventura

    So this is my first time reading the comments and I’m thankful this article provided such an awesome forum. Props to everyone.