I lit ten million dollars on fire trying to compete with Asana

My last newsletter was about screwing up.

This is the story of one of my most spectacular ones.

The story of how I lost ten million dollars by doing something stupid.

This week, with quivering, shell-shocked hands, I signed documents that hammered nails into the coffin of my greatest business disaster of all time.

We finally shut down Flow, the productivity software company I started back in 2010.

I lost over ten million dollars in total.

Ten. Million. Dollars.

Up in smoke. Money bonfire. GONE.

For reference, if I'd just invested in an S&P 500 index fund with that cash, it would be enough to retire with $300,000+ in annual passive income.

Even worse: it would be worth over $30 million today.

Here's what happened…

In 2009, Metalab was a small but profitable agency.

The business was making a couple hundred thousand dollars a year in profit and I was trying to figure out how to invest the profits.

Agencies can be great businesses, but they don't have much recurring revenue, and they're only as good as your last project.

I wanted to build something scalable and recurring—something like Basecamp.

We built Flow, a simple to-do app that helped teams collaborate.

It was beautiful.

We launched it, and within 24 hours, thousands of people had signed up.

I was hooked.

We started hiring like crazy—designers, developers, marketers.

We opened fancy new offices and were suddenly spending tens of thousands a month on salaries, equipment, and rent.

I kept reassuring Chris, my then-CFO, now business partner.

He was freaking out watching me burn so much money. Metalab was growing like crazy, but as it grew, we were pouring 80-90% of our free cash flow into Flow and other dumb ideas.

I thought he was shortsighted:

"We are going to make millions! Maybe billions!" "You have to spend money to make money!" "Once we launch this new feature, then everyone will see!"

Then I heard a name start popping up. Quietly at first, then a lot.

Asana.

It turned out that Dustin Moskovitz, the billionaire co-founder of Facebook, was a fellow to-do-list junkie, and he was quietly working on his own product.

A few months later it went live.

And I breathed a big sigh of relief.

It was ugly—designed by engineers. Complicated and hard to use.

Not a threat in the slightest.

I felt validated:

With a team a quarter of the size, and a fraction of the money, we had built what I felt was a superior product.

Around this time, Dustin and I had coffee in San Francisco.

He told me that they had raised a huge amount of money and that we'd be stronger together. Perhaps we should join forces instead?

He was super nice, but I wasn't into the idea. After all, we were Apple and they were Microsoft. And we were allergic to venture capital—we were bootstrappers, baby!

(Emphasis on nice. He is a very down-to-earth and humble dude. Ironically, both Dustin and Christian Reber from Wunderlist, my two key competitors who I wanted to hate, turned out to be really good guys.)

He walked me through their investors, war chest, and hires—all formidable—and gently proposed we join forces.

I dismissed this idea immediately.

After all, I was on the bootstrapping train and he was foolishly slurping up Silicon Valley Kool-Aid!

"Nice try!" I thought. "Let the games begin…"

We left with a friendly handshake.

Flow kept growing quickly, but our customers were demanding.

They wanted an iPhone app. They wanted an Android app. They wanted an iPad app. They wanted a Mac app.

Asana quickly released apps on all platforms.

After all, they had a dev team five times our size.

Suddenly it was a key feature when people compared Asana and Flow side-by-side.

Mobile was table stakes.

We had to keep up.

Almost overnight, our burn doubled.

I continued to pound cash into the business.

Our burn kept growing. $20k → $40k → $60k → $80k → $150k/month.

For designers, more developers, more marketers, more office space.

More everything.

Until my bank balance couldn't keep up.

At one point in 2012, Chris even had to inject cash from his personal account so we wouldn't miss payroll.

It was terrifying.

I started to realize how big a bet this was. We were feeding a bonfire with dollar bills.

I had almost zero other investments outside of Metalab, which was going through a slow period at the time.

By this point, I had invested millions of dollars, without even realizing it.

Just continual weekly injections over the course of years.

Death by a thousand paper cuts.

Then, Asana raised even more money and started pouring it into marketing.

Of course, we didn't believe in paid marketing—it seemed douchey and aggressive.

We focused on organic growth…

Until that point, we had just done Field of Dreams marketing:

"If you build it, they will come."

Well, nobody came. We were a fart in the wind.

Suddenly, Asana ads were everywhere.

Billboards. Bus stops. Conferences. Airports. Google. Facebook. Capterra.

Even our own Google keywords were plastered with "Asana vs. Flow" paid links.

We started burning money on ads and hiring salespeople just to keep a toehold, but mostly we focused on making the product better than theirs—our one remaining advantage.

But our product was suffering.

In order to stay competitive, we had underinvested in our engineering team due to cash constraints and stretched them across mobile, desktop, and web.

We started to get an endless stream of bug reports from our customers.

Our growth slowed. Then stalled.

20% monthly growth dropped to 5%.

Customers weren't getting the features they wanted.

The support inbox was filled with the same five words: "It's not syncing again."

Our team felt frustrated and under-resourced and we churned through staff.

We had to hit pause and spend years—literally years—rewriting all of our apps, only to emerge on the other side to see…

Asana had hired designers.

At first, a tiny little team. Nothing to worry about.

But after a year or two, they started hiring a huge team of incredible people.

One day I woke up to see that Asana had fully relaunched.

Their marketing site looked… great.

Better than ours.

Their new app, while not perfect, had all the features we wished we had time to make, worked on more platforms, and most importantly was fast and not buggy.

By this point, we were burning over $150,000 per month.

Chris was tearing his hair out and pointed out that we had burnt through something like $5 million with no end in sight.

Still, we powered on for years. We even doubled down and raised money—too little, too late—from some friends of mine.

We decided that we didn't need to "own the market."

We could just have a small slice of pie. We focused on base hits.

For a while, that looked like an okay strategy. Our meager slice of pie.

Our revenue growth slowed, but we kept on growing.

Until one day it didn't.

Churn caught up with us, customer acquisition cost became unprofitable (Asana and others could afford to spend way more due to higher lifetime value), bugs continued to dominate our time, and Asana and others kept making their product better.

By 2022, the comparison was brutal: they were simply better.

Their marketing is better. Their product is better. Their features are better. Their enterprise support is better. Their integrations are better.

They won. We lost.

Twelve years and over $10 million lit on fire. We waved the white flag.

Done burning money in a losing battle.

The writing was on the wall. Dustin was right.

We lost the war, due to my own inexperience, product myopia, and a lack of capital in a highly capital-intensive and competitive space.

We were forced to downsize to breakeven and shift to a team based in India to keep the remaining customers happy, and Flow became a shadow of its former self.

For the past three years, it's been on life support.

But this last week, we let it go gently into the good night.

I signed the documents to dissolve the company and exhaled a sigh of relief.

My most epic business disaster was finally over. With many expensive scars to show for it.

In retrospect, we were like Fiji waging war on the United States with a collection of AK-47s and speedboats vs. artillery and aircraft carriers.

We got obliterated. Obviously.

Looking back as a grizzled entrepreneur and investor, it was inevitable.

VCs, friends—hell, my own business partner—all walked me through this, but it took years to sink in.

It was a slow-motion train wreck.

A thousand paper cuts, driven by my complete inexperience and incompetence.

While I think that failure is the best teacher, I think it's even better to learn by reading about my failures in a newsletter instead of losing $10 million yourself.

In this instance, I learned a lot:

1. Don't bring a knife to a gun fight. If you are in a competitive VC-funded space, it's foolish to compete without raising money.

2. Product isn't enough. The best product doesn't always win, and the quality of your product is not a long-term competitive advantage.

3. Distribution matters. "Build it and they will come" only works in movies. In software, distribution beats organic growth nine times out of ten.

4. Avoid commodity categories. Every developer in the world wakes up thinking "I should build a to-do list app," and people love jumping between productivity apps and workflows. There is no moat in productivity—avoid it if you can.

5. Know your numbers. Running a SaaS business without deeply understanding churn, LTV, CAC, etc., is like flying a plane without instrumentation: really stupid and dangerous.

6. When something isn't working, cut your losses early and move on. Failure sneaks up on you slowly, then all at once.

Goodnight, sweet prince.

Originally published in the I lost ten million dollars doing something stupid issue of Never Enough.