Zirtual – A Startup Story Gone Wrong


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Unless you learn to get comfortable with failure, you cannot aspire and look forward to success.

By now, most of you have heard of Zirtual, an on-demand personal assistant company founded in 2011 that went out of business last week and laid off more than 400 employees. The employees received an email on Friday, 08/14 notifying them that the company was shutting down due to financial issues. And the clients received their notifications too.

According to Zirtual’s now, ex-CEO, Maren Kate Donovan, the business was on an $11 million run rate, and was burning $400,000 a month.

There were various causes that frothed up for what happened.

Maren Kate Donovan blamed it on “burn” which is more money being spent than what came in. She also regretted not having a full-blown board in place. Another reason given was the conversion of 1099 contractors into full-time employees without considering the implications of the 20-30% employment expense increase. The lack of a full-time CFO although the size of the organization demanded one, was another factor that came up as well.

The irony is that Zirtual raised about $3.2 million in just this past June and July. Although it might look surprising that a company that just weeks ago, raised funding went under, there is more to the truth than that. Zirtual’s SEC Form D filings show that they tried to raise $5.75 million in June and July – but got only $3.2 million in total. And mind you, this is debt with its own contractual obligations.

Startups.co, depending on how you see it, came to Zirtual’s rescue or gobbled it up post the disaster and acquired it. Startups.co CEO Wil Schroter, negotiated a cash-and-stock deal and added Zirtual to his company’s portfolio of online services for entrepreneurs. In fact, Zirtual, apparently resumed services this past Monday and Startups.co re-hired 60 former employees on a contract basis and looks forward to re-hire more. Startups.co has also initiated efforts on bringing back some of Zirtual’s clients, while the competition is also pursuing them.

Meanwhile, Zirtual has its own set of issues post going out of business. A few former employees filed a class-action lawsuit against Zirtual Inc. in U.S. District Court in the state of Delaware, questioning the company’s violation of labor laws by not giving effective notice of termination. The transfer of that liability to the new owner is still in question. On the other end, there are clients who are hurt by the breach of trust and are hesitant to go back or for that matter, doubt the industry as well.

Lots of lessons here for entrepreneurs. Here are a few:

  • Make sure you raise money way before you need it and raise enough so you and your team are not eclipsed with that worry while you pursue your vision.
  • Debt Financing is great with predictable cash flows; else it can very soon become a nightmare!
  • Do not penny pinch when it comes to finding the right talent and bringing it in when you need it. Find your savings somewhere else.
  • Check, double check and triple check everything. You can never go wrong with overanalyzing operational finances.
  • Proactive and quick decision-making is important, but be wise about your decisions.
  • Your customers and employees come first, everything else comes after them for without them, there is no business.

Learn from them and go find your success!

Image Courtesy of FreeDigitalPhotos.net

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