My Y Combinator startup had driven me into $90,000 of personal credit card debt. It was my own fault. My two jobs weren’t enough to cover the growing interest payments each month.
Osman and I had gotten into Y Combinator but we had pivoted. We made a where anyone in Hong Kong could import anything they wanted from the USA. Amazon doesn’t ship a lot of their items to island countries. You paste an amazon link (or any other website) into our website and it will tell you the price and arrive at your door.
Our first and biggest product was the Silicon Valley powderized drink Soylent. We got lucky the weight, price, and rarity of it made it a really good first item to sell abroad. We figured out target market was high salary expats at finance companies. But those people actually don’t crave lots of goods from the USA.
But their wives did. My cofounder Osman found a better sales channel: Hong Kong Moms. There was an extremely active facebook group with 60,000 members sharing not just life on being a mom but what products they use, what products they want, and internet deals. We worked out advertising deals with the moderator of the group and quickly became active members.
The Y Combinator partners had hated what we were doing.
I remember the president of Y Combinator told me “Logistics is pretty efficient already.” These were the pre-covid days remember.
Another partner seems annoyed watching us pitch. I recall I hacked his website many years ago.
I recognized a former group partner who invested in my last company and asked him for feedback. He watched out pitch and simply said “This doesn’t sound like a tech company.” before walking away.
Y Combinator demo day is the single greatest event for a startup in Silicon Valley. Last time, my company raise $1.7 million in a week. This time…we raised a total of $10,000 from a single investor.
Through an accounting error we didn’t even realize we had no money until it was too late to even pay off the company debts, most of which were on my personal credit card. I thought I completely fucked over my life.
So what choice did we have left? We had to freeze the service since it was so operational heavy. It still had a decent customer base of the most wealthy expats in Hong Kong and a decent brand. Facebook kept giving me rewards as I promoted little stories about our service and different products that might be interesting to people.
I thought I could just sell the company the same way I did with my previous startup. My last one didn’t even have revenue this should be way easier. I put our website on sale on Flippa. It got up to $3,200. This was going far worse than last time.
I didn’t set a reserve price. This is a price threshold where if it goes over, you HAVE to legally sell no matter what. They say people are more likely to bid if you set a really low reserve price so I made it a dollar more than the last bid and waited.
Nobody is willing to buy this for even $1 more. I am feeling like a loser.
Suddenly, my cofounder Osman told me he thinks get more money from a real acquisition.
Bullshit. I think as I scramble to check the website and see if it hit the reserve that day. Thank god it did not yet. I was able to end the auction without having to legally sell the company.
We had two potential acquisitions from Hong Kong freight forwarders. Our website was way easier to use and buy from than traditional freight forwarding which I hadn’t heard of. In the traditional business you buy an item yourself and ship it to a local mailbox in country then you have to track it and pay when it arrives where the company will take over and get it to you in Hong Kong. Our way was one click to purchase and forget about it. We also had far more control over the price and hence the profit from each item. They started to describe us as “white glove” freight forwarding.
The first company to talk us was the #1 freight forwarder in the country. Within a few minutes of meeting the CEO we knew he was a miserable person to be around. Their office was windowless and depressing. They were potentially talking about lots of cash upfront so it was tempting but ultimately I botched the deal by being too transparent about what code I did versus what we used 3rd parties for.
We were more seasoned by the time Lenton Group met with us. This was an international logistics umbrella of companies operating in 18 countries all over Southeast Asia and the tropics. They had a subsidiary that did freight forwarding called ZipX that had nearly $0 in sales that was acquiring us and switching to our product.
We met with the American co-owner at his warehouse in New York. It was 2 miles from a subway station so I wore a hoodie and walked 40 minutes with a heavy backpack to his office in the summer heat. I was told I looked like a “sweaty stoner”. He wanted to cancel the acquisition right then and there until he met my suit wearing, smooth talking cofounder.
We were flown out to their office in Shanghai for a final meeting. While going over our product their director kept making little criticisms in Mandarin. Saying it doesn’t look so complicated to copy our website. Luckily I knew enough Chinese, I jumped up and getting into the details to address it this every time it happened.
It worked. They gave an acquisition that completely wiped out my debts and gave us nice shiny new Director titles and amazing salaries for China.
Earlier that month my interest payments were so large I wasn’t even going to be able to pay my credit card minimum anymore. What a Deus Ex Machina. If I had written this kind of story it would have been too unbelievable.
The first year was spent integrating our product into the logistics network owned by our acquirers and expanding website to import from not just the USA but also Europe into 18 countries around the world.
But our sales weren’t doing well. The company that acquired us was run by the son of the chairman of our board and he had no idea what he was doing. My cofounder didn’t want to live in China so he had left the company. I was all alone. The chairman, Morty, asked me if I wanted to try being CEO of ZipX, the subsidiary that had acquired my startup.
I figured now was my chance and took it. A few days later the entire executive team of our acquirers went off to climb Mount Kilimanjaro for Morty’s 70th birthday. They would be gone for 2 weeks while I had to prove myself.
I pinged every entrepreneurial friend I had for new trendy western products I could try to sell in Hong Kong. One of my friends, Scott, always believes the world is ending. From famine, from a plague, from droughts. He told me a hedge fund he worked with in Hong Kong was clamoring for face masks.
I’ll give it a shot I figured. I googled “facemask supplier” and called every website for the first 10 pages. It was the start of 2020. We didn’t yet know about Covid.
The entire executive team was unreachable. I didn’t even have a company credit or approval to spend on anything yet. I had just saved up my first $5,000 from the acquisition after paying off all my debts. I spent it all on these facemasks.
Within the first hour of putting masks on our online store we sold out. One of the directors said he had a little cell phone signal on the base of the mountain and saw 200 notifications in our slack purchase channel.
What followed was a whirlwind of of businesses around Hong Kong begging us to bring more facemasks. The orders get kept getting bigger and bigger as word spread. I made a little graphic at the time to show how much we were helping Hong Kong businesses.
The West Kowloon Cultural District wanted 10,000. The American Club wanted 50,000. Then the dean of Hong Kong University got my whatsapp. He wanted 1,000,000 facemasks.
The suppliers I found on google were running out and the USA was starting to ban the export of masks as it became clear Covid was spreading there too. I was going to need to figure out a better supply chain.
I pinged my entrepreneurial friends around the world again, this time asking to check and buy from suppliers I had found. My friend in Poland stocked them in his parents house. Scott was in Uzbekistan driving over to a supplier to purchase over a million facemasks for me when I heard terrible news. The country just banned the export of masks. Thankfully I was able to reach Scott before he paid.
A game of Whac-A-Mole started where I would export from one country and they would ban it from going out. Some countries would ban and then unban it depending on the week.
At one point China was punshing Hong Kong for the protests and would randomly declare masks of different illegal to import. There were “grey markets” setup with insurance where you could pay a truck to drive over the border and assume some % of the time the masks will be discovered and confiscated.
Sketchy people came out of the woodwork claiming they had proper masks.
A suited middle eastern man whose business card simply said “Nigel” claimed he was filling a private jet between Hong Kong and the UAE with masks. The brands and certifications he listed never added up.
The executive team at Lenton Group came back and figured I knew what I was doing. They gave me free reign to ask anything from any of their teams all over the world with the backing of our Chairman.
The orders kept getting bigger and stranger and so did the fraud.
The Hong Kong police commissioner tried to order a large amount cash on delivery. I learned how to follow up with people’s network and make sure they are who they say they are. Some scammer was pretending to be the police commissioner and presumably stiff me if I deliver the goods. I played it straight long enough to get info for the authorities who took over the matter.
At one point I got an email from someone claiming to be the Chairman of the Australian Chamber of Commerce. Suspecting fraud again I asked this guy to meet me in person at my office. This guy was extremely public and I found it hard to believe he would be in Hong Kong during the start of a pandemic. I waited in my lobby prepared to report yet another person to police. To my surprise it was actually the guy!
The government of Australia was looking for 50,000,000 gloves and masks with very specific certifications. I kept getting undercut at the manufacturers. I would make an order and someone would show up with a bag of money and take my inventory. A director finally connected me to a potential supplier and I was starting to get stressed out over such a big order. The supplier looked like a real slimey guy and his certifications weren’t adding up. I started to get angry and he said he needs to clarify it with the godfather.
When he left the room, my director turned to me and said “Take it easy, he’s with the Thai Mafia.”
It was too sketchy, we ended up bailing on the order the last day. The Australian guy was pissed. Every hour from 10pm to 4am he called me introducing yet another high level Australian politician and repeating “Please let James here know how much we need this.”
Then we got an order that dwarfed everything else we had done. La Poste, the postal service of France reached out. They wanted us to be the sole supplier for all their delivery people as part of a union negotation. They needed hand sanitizer and face masks ASAP.
There was no time for boats. We filled over 40 planes. We had to do some math and timing for the sanitizer and masks so that weight and space made sense for each trip.
Every piece of the supply chain was at its limits. It was not “Pretty efficient already.”
The lines for trucks to get to the airport was multiple days. The warehouse at the airport that stored the cargo had no space and was in chaos. The airplane could only be on the runway a short time and if you missed the window it could be a long time before the next flight. To make matters even crazier, every day the regulations for what could be exported from China changed. Papers and certifications were vague and confusing. We had to go back to old suppliers and get new papers. New tests needed to be done on the masks to check their Bacteria Filtration Efficiency (BFE) and Particle Filtration Efficiency (PFE).
Here was one weeks list of changes we had to worry about or customs may just hold our boxes from getting on the plane.
At one point our masks were stuck in the warehouse with a box that was missing the latest change from that week. Our plane was schedule 2 days later. Everything was about to fall apart. We shipped 20,000 boxes with the new changes on them and had people reboxing masks for 48 hours straight on shifts.
It made it on the plane in time.
We ended up shipping over 100,000,000 facemasks and 600,000 hand sanitizers in total.
After receiving the masks the French Government had a new change on their side. They no longer trusted tests conducted in China. They needed to redo the BFE and PFE tests on their side or they would refund the entire order!
They randomly took samples and we anxiously waited. After the large cost of getting them there, the masks just sat in a French warehouse untouched. The value of masks was rapidly falling every day we waited for the results. If we failed the test we might not even be able to resell these for cents on the dollar.
The tests finally came back. Our masks failed the test.
Fuck. Were our Chinese tests faked?
I looked at the pdf closer. We failed because our PFE and BFE were actually too high?
We were actually too good at blocking the virus. It was actually a bit hard to breathe in our masks. The French Government approved.