My Favourite Failure: How to fail without getting knocked out - Tom McLeod

0:00One of the thorniest parts of managing people is managing their pay. How often do you end up misaligned with your team? Someone thinks they deserve a raise, but you have a different view. This is where our partner Personio comes in. Personio is the all-in-one HR platform you need to scale your business. And they've just released a feature for compensation management. It makes salary reviews so much easier because it ties salaries to performance reviews, which also happen to be handled by Personio. Managers can do stuff like see their allocated budget for promotions and distribute them across their teams.

0:35Personio constantly adds new features like this to make your life easier and your company more successful. You can get set up with them incredibly quickly, which is great if you're time poor. So, if you're leading a growing business and want to offer a better employee experience for less effort, then book a demo at personio.com forward slash secret leaders. That's personio.com forward slash secret leaders. There's a link in the show notes.

1:04Failing is like a gut punch, but you're trying to not get punched in the face, is kind of how I think about it, right? And so you can punch me a lot. You can take a lot of body blows before you collapse. Getting knocked out is a real problem. Tom McLeod is one of the best people we've ever spoken to about failure. Today, he's the founder of Archive, the world's first distributed museum. He's built five companies, has raised$85 million, had some exits, including one to Coinbase a few years ago, but today we're learning from the ones he didn't win. Tom has failed with a dozen ventures in some truly extraordinary circumstances.

1:45Bear with me today, because this one is a wild ride.

1:55In 2007, Tom was in his early 20s and was running a record label and music studio in Washington DC. Tom Hanks, The record label didn't quite work out. Spotify shows up. I'm doing like a 90s style indie record label. SoundCloud shows up. Everyone's got MacBooks and so they can record people and don't need music studios. What they needed actually was MySpace pages. So I end up doing MySpace pages for the artists, which turns into a web design business, which turns into a SaaS content management system for sort of hustler freelance web designers to sell to their small business clients. At that point, we probably should have taken the cash flow.

2:36We had about 30 ,000 users paying us a decent amount every month from subscription billing back in 2009. We said, no, we're not going to try to scale this into anything bigger because the iPhone is out now and we're going to build mobile apps. and not only we're going to build mobile apps, we're going to move to San Francisco because we want to compete. Like we want to know if we're the, like as good as we think we are kind of thing. And it was like, if we were going to move to, uh, if we're going to do finance, we'd move to New York. Uh, if I was going to be a model, I'd move to, I don't know, maybe probably still New York.

3:12If I was going to sell drugs, I'd move to Miami. Um, and I was like, if I'm going to slang apps, you know, if I'm going to sell iPhone apps and try to figure out if we can be big time tech founders, we're going to move to the Bay Area. So my co-founder and I, we did that and just started launching mobile apps, the vast majority of which failed just unbelievably, miserably, and fully. Tom said the first app they launched had a little bit of success, which was actually the worst possible outcome because it gave them false confidence that they could do it. It was a spy camera app, and Tom had got the idea from a bizarre experience.

3:53I was on the metro in DC, and there was like a rally or something, like a pseudo protest about protesting Obama or something. And there was a guy on the metro, and he had a full like American flag outfit on with like a wolf shirt and like a bandana. And like, I was 100 % taking a picture to send to a bunch of friends to like, be like, this guy looks insane. Like this, I don't know what this is, yada, yada, yada. And I didn't realize that next to me was either his mother or partner who was watching me take the photo of him on the Metro and literally, just looks at me and goes, why are you taking a photo of him?

4:42What are you going to do with that? Who are you? Are you, you know, is this the free press type stuff? And I was like, I was obviously very much caught. Like I was definitely taking photos to like make jokes about this person. I mean, not publicly, but it was just in the, in like my friend's group chat or whatever. And I was deeply embarrassed and was like, man, I still kind of want to do this. I still kind of, I didn't, I wasn't mad. I took the picture. I was kind of mad. I got caught. someone should build an app that would let me not get caught. And I think most of the early app ideas, good or bad, and not just me, I think almost all of us that were kind of, I don't know how to describe it, like app store cowboys back then.

5:27It was just like some dumb problem in their life that we tried to build an app for. and maybe there was a million other people that would pay us 99 cents to solve that problem for them too was most of the shots on goal I think. Shots on goal is a key theme for Tom and this shot kind of worked. The spy camera app took off in Japan in particular. They got to a few hundred thousand users. It was successful enough to whet their appetite but only enough really to cover their bills in San Francisco. They released a few other spy apps, but then went in another wild direction, which nearly paid off big time.

6:06We had this idea called iFailed, which was a competition to see how far you could throw an iPhone in the air and catch it. So we knew that you had a, you could get the acceleration acceleration upwards. You're creating a parabola. So at the top of it, the acceleration will go to zero. You can then use pretty standard physics formulas to figure out how long it took at the speed of the acceleration to go to there. And then how long it took to get to zero again on the down, which would give you a parabola, which would give you a curve. This is a pretty simple math equation for a computer. And we built it.

6:44We built this thing where we're running around, tossing our phones in the air, trying to see, oh, I got it three feet. I've got it five feet. I've got it seven feet. And we had this idea for a competition where who would be the person in your zip code, in your building, in your state, in your country, in your city, your town, to have the highest world record or the record of throwing their phone the highest in the air. We even went ahead and called a company that's a pretty big company now in the accessory space, but they were young like us at that time, OtterBox, which was like the best iPhone cases in the world.

7:19And they were going to give away, you know, like an OtterBox for the winner of every like state or every city. You know, there was going to be this whole cross partnership. They loved the idea. They thought it was kind of fun. And the idea being that, you know, if you bought an OtterBox, you could probably throw it higher than anyone else, yada, yada, yada. Man, we submitted this to Apple. and back then there was this there was this thing that was called basically like review purgatory or review hell where apple would not give you a reason for why they weren't approving your app because they were just kind of like we control this and there wasn't enough uh expectation for transparency but they just kept telling us that it was denied and we kept saying what do you violate And they would say, well, it's violating the terms of service.

8:06And we'd say, which term? And they'd say, you're trying to break people's phones. We're like, no, we're trying to show how great your phone is and how strong. And it just ended up that they stopped responding. And I believe if I found the account right now, it would still be there in unapproved status. Like it's probably still sitting there now. The worst part is that four months in to ours being in purgatory. So this is utter failure. We spent a bunch of time, we brought a brand partnership, never even got to market. And this is before test flight even. So we couldn't even have people demoing it, etc.

8:42Someone with a different name came up with the same idea. They called it ITOS or ITOS. Theirs got approved and they got on the Ellen DeGeneres show with it, with people standing on trampolines, throwing it in the studio, and they sold 2 million copies of it. and we were sitting there like, wait, what? Tom suspects Apple blocked them because of their name. They'd spelt the F in I failed with a PH, so their first three letters mirrored the IPH of the iPhone. But what's incredible about Tom and his co-founder is how good and quick they got at shipping, testing, and failing. Every three months, they shipped a new app, and if it didn't work, they'd kill it.

9:25For one year, they shipped nothing but eating apps which passed food reviews on niche stuff like the best lobster restaurants, for example. All of these apps delivered middling performance. So they had to kill them all. They had an entire year of misses. We then had a win. We had something called Frametastic, which became one of the early picture framing apps, which again, once you get a hit, you start feeling the juice again. That was a big hit. That ended up doing legitimately like tens of millions of users. So that one actually became a big, a big successful product, which, which made us think, well, if we can make one thing work, we should go where the money is.

10:03So let's try to make a game. So we have no business making games. We've never made a game before. We've now done a bunch of food review apps, a failed iPhone tossing app, and a pretty successful picture framing app. And so now we start making games. So we have a first game we come out, we make in literally a hackathon at night, just me and my co-founder, we did it in about eight hours. And it was called Control Shift. And it was like a Mavis Beacon teaches typing game because everyone was complaining that they couldn't type fast on the keyboard with no keyboard on the phones. And so these little ships that would come in, and they would drag a word behind it and you would type the word with the keyboard.

10:48Utter failure. I don't know. I still think it was a great idea. No one gave a shit. It was a pretty terrible thing. We made these cute little 8-bit chips, launched it, went to zero. We then spent a ton of time on a game we called Cooties, which was this touch game where you'd have to move your finger around a screen trying to collect things on it, dodging these little things called Cooties that we made. And every level would be a different type of water. So it was like swamp water, sea water, bath water, you know, water. And there'd be different types of cooties that would move in different ways.

11:22And you had to move your fingers. Again, we thought it was amazing. Honestly, that one we probably spent eight months on really went to town, hand drew all the graphics. I made the audio. I like broke my audio engineering skills back out. Utter failure. Not I think probably 5000 total downloads like gaming was hard. And then I think we probably had our biggest failure in the mobile stuff. So, and this is like a pretty in-depth story. And also interesting because I think we were, what we found out with this one, we were probably right, even though we were wrong and how much timing is involved in success.

12:00So we had this idea for a match three game. my co-founder was was obsessed with the idea that there should be um there should be a chess style light game that allows you to really match with people with like an elo rating where it's like you know that if you're really good at this you're competing against people that are also really good candy crush had come out match three games were really popular and there was candy crush blitz which would have you play against other people but if you were it didn't it didn't the rankings didn't matter etc this was supposed to be like if you were a plus 1000 you'd only play against other plus 1000s and eventually you'd know who the best player in this match three speed clock type game was we called the game kharabi it was a bunch of small dots on a screen at different colors and some of them would do different things if you had a different style some would blow up a whole row some would make a square some would do whatever this is pretty defined mechanics we spent a lot of time on this refining it making it it was beautiful looking it was you know we thought it was a really attractive game.

13:01We knew match three was successful and everyone who tried it really liked it. We were about a month from release and a game comes out in the app store. That game is called Dots. Dots is the exact same game. Like legitimately the same game. It is a match three game with a bunch of colored dots. It becomes, I think, a top five game in the App Store. It is a huge, successful game. It launches an entire incubator, basically, called Brooklyn Beta, which becomes a huge mobile app investment company, et cetera. Huge, huge success. They end up having multiple spinoffs. They have a dot story. They have like almost an RPG about what the dots are doing.

13:52Like it becomes this huge thing. Meanwhile, we then launched Karabi, which becomes kind of the hardcore version of Dots. Like we're going after the hardcore people. If we had been earlier and the timing had been right, we would have potentially been the main one and they would have been the also ran. And we just looked like a clone. And at that time, clones in the App Store was a rampant problem. There's like anything time something launched and was successful, there'd be a million clone versions. So Karabi just doesn't really work. we probably get 20 000 people on it total dots is now you know dots has 20 million people it's a huge success and i become obsessed with meeting these guys because i was like you know i get conspiratorial in my head i was like we didn't tell that many people but the industry is small how did these guys have the same idea as us how is this you know how is this possible that this could happen at the same time as us and i finally meet these guys and they're like oh you guys made Kohlrabi.

14:51We saw that. What a good game. You guys really went the hardcore. I was like, yeah. Like, what was your inspiration? Like, it's, you don't think it's kind of wild that we had sort of the same idea. And the guy goes, you know, our inspiration was that at, I went to the MoMA and there was a Damien Hirst painting called Dots. And it was, it's, they're very famous. Damien Hirst has done hundreds of these where he does a bunch of dots in this perfect grid. and he said, I was looking at it and I thought about a match three game on top of this painting. And I came back and I took it and I took the painting and I made, we made dots and we just called it dots.

15:32And I was like, oh, oh, that's really interesting. So I called my co-founder who had the idea for Krabi. And I was like, dude, I finally met the guys who met dots. They, they saw this Damien Hirst painting and that's what that's, you know, that's where they came up with it. They didn't steal the idea. It wasn't a whole thing, yada, yada, yada. and he goes dude that's where I got the idea I was like what he was like yeah before it toured the MoMA in New York it was at the SF MoMA and I saw it and I looked at it and I thought man what if someone made a game out of these Damien Hirst dots paintings it would be an incredible start for a match three game which took me on the path so at the end of the day it turned out that a Damien Hearst painting, which if you research the Damien Hearst painting is actually about a bunch of pills that he saw at parties on tables in all their different colors, like colored drug pills.

16:26So at the end of the day, Damien Hearst seeing a bunch of drugs on tables at parties in the aughts turned into him making a painting, turned into two people on different coasts, 3 ,000 miles apart, making the exact same game, one making hundreds of millions of dollars, probably. One failing miserably ended up being sequentially timed app store games at different success rates. Wow, what a story. And what an example of timing and other weird serendipitous factors that contribute to ideas and ultimately success. But that wasn't the end of their foray into mobile gaming. They built a companion app to League of Legends, which they sold to Tencent.

17:05And then Tom decided to build a tech-enabled logistics company whilst his co-founder built a game studio which he eventually sold for$100 million. The lesson? Tom thinks it's to keep punching. But this wasn't the end of Tom and his co-founder's punches either. Whilst they were exiting to Tencent, they were building another concept which they'd raised money for, for the first time, and they were really excited. We built a platform called Crosswalk, and Crosswalk was a tool that it, when I want to say it was the iPhone four launched and when they updated iOS for the iPhone four or the iPhone five, they had something called cloud loading, where if you, if you bought an app on your iTunes, on your laptop, it would appear on your iPhone.

17:56And if you did it on your iPod touch, it would appear on across all of your devices. This is just completely normal now. You don't even think about the fact that it used to be like you have to install it on every single device. You'd have to install it on your iPad and install it on your iPhone. It's just everything loads onto everything now. It's just become a normal place. But there was a time when that was like a revolutionary feature on overall iOS. And we saw this and we decided to try to build a business on top of Apple's cloud sideloading that would allow people to put links on their ads or on their websites or on their Instagram link and bio type places that would directly install an app on their phone by putting their Apple credentials into a password field that would pop up.

18:47So you would go to, you know, you would go to open, open table.com. And instead of them saying, I think a little button that would say, click here to download the app. It would literally say, click here to install it. We would make a little window that would pop up. We automated the post function of iTunes. We had scraped the pipes on the backend and you would literally put into a random box, your, your Apple ID and password. And then five seconds later, the app would show up on your phone because we had basically hacked the backend. I like to think it was an open protocol that we utilized. Man, it was amazing.

19:31We launched all these sub products called Bundler, BundleFoo. It would let you put 10 apps on at once. So we would go to these big companies that had like seven games and they could install seven games on your phone at one time. We started having success. People really liked it. We thought we could scale this whole thing. Man, we got smacked with this Apple cease and desist at such a brutal level. It wasn't even a cease and desist like, hey, we think this is, we'd like you to stop. It was like, we are going to come after your life. That's how we felt. It was seven cease and desists on every single potential vertical that we were potentially attempting to criminally steal people's usernames and passwords, all these things.

20:27And again, I fully understand Apple's take. We thought we were angling for an acquisition. We thought that Apple would look at it and be like, these two really smart guys have figured out a utility that would be really helpful for growing the net amount of downloads. And that was our pitch. Our pitch was, hey, if one link can now download 10 apps to people's phones at once, this is good for your ecosystem. It's good for your developers. It's good for everyone. Bring us in. Let's take the tech. We should exit to Apple. That's what we thought. Man, it was not an exit. Maybe we were naive enough at the time to figure it out, but we just got completely shut down.

21:05And, I mean, it was the fastest. It wasn't the fastest fail that we had, but it felt crazy because we had really raised money. We thought we tried to build a real business around the edge opportunities here. And at the very least, we thought we could get a quick exit in and turn it into something that would return investor and put some money in our pockets. And it was the first time we really felt the brute force of that type of failure. I could listen to Tom speaking about failure for hours. But would you believe it? We still haven't heard the most painful failure of his career. His rental startup called Omni.

21:40And the weird thing is he actually sold it for a decent amount to Coinbase in 2019. We grew a big company. I thought I was building like peer-to-peer Amazon. I thought I was building the one, this thing that was going to be everything. When you get to a scale that you can build something like that, your downside is a little protected. You've probably created a lot of value. You can find an exit. You can do right by your team. You can potentially return some capital to investors. You become a steward of capital. But when I look at the six years I worked on it and where I thought I was going to achieve, because this had the highest expectations, the most pressure, the strongest strength.

22:26Lobster Eats not working. Cooties not working. Crosswalk not working. It was bad because I put some time in and I wanted to write. But I wasn't out there thinking that these were going to be world-changing products. And so even though that one ended up doing right by the team, investors landing the ship economically and financially did pretty well for me, all things considered, net of time and resources, I thought it was going to be space. I thought I was doing something. So the near miss, the knowing that you were in reach of opportunity, that you had something, that the numbers looked like it could be there and then falling short, that actually, for me personally, was significantly more devastating because the stakes were higher.

23:19Tom is unbelievably productive. It's so hard to do what he's done, to ship, to test, to cut, when something's not working and just go again. His big lesson on failure is it's all about taking loads of shots, but critically, it's about what you do once you get hit. You can eat a lot of failures if you're moving in a manner that allows you to take that in the spot that you can then utilize it, you learn from it, you get better from it. And I would say the vast majority of the failures I have, I was at least able to dodge enough that I didn't get knocked out. And getting knocked out is a real problem.

23:56When you get fully knocked out, you're out for a long time. If you talk to a founder who's been knocked out, they're like, everything went wrong. I made the wrong choices. The wrong choices cascaded into my personal life. They cascaded into, it's like, you have to stop that cascade. And I think the net learning of all of it is that failing fast usually means you can recover. And so if you see that it's not working and you put into the business sense, hey, this isn't working. What could work? What do I learn from this? Where do I go from that? I think is an unbelievably strong thing for founders that plan on continuing for a while because I do think it is a numbers game.

24:39I do think sometimes failing, I mean, sometimes succeeding is simply sticking around. And if you look at a lot of successful founders, a lot of companies, a lot of these stories that you see, it is rarely, hey, I went out with this product, that product. Uber is so unlikely. It's such an edge case that you have perfect product market fit at the same time that a mobile device shows up that has perfect design and aesthetics that's backed by a trillion dollar company that suddenly needs people to have a kill. These things are so unlikely that most companies look like, hey, I launched a gaming app and it became Slack, or I launched a thing and it becomes...

25:19Most stories require pivoting. They require opportunity. And that means you have to identify when that moment is and you've got to do it. And the difference between a failure that punches you in the face and a failure that punches you in the gut is do you make the move to avoid the headshot? And that would be the my advice is like it's not it's not so bad to get punched a couple of times as long as you don't get knocked out. That was Tom McLeod giving an absolute masterclass on failure. Thank you, Tom. And thanks to you for listening to this episode. I've been your host, Dan Murray-Surter. I'll see you next time.

26:22for entrepreneurs and leaders. See you next time.