A cautionary tale about subscription services and how not to shut down a startup

https://medium.com/@ireneau/whimseybox-and-a-cautionary-tale-about-subscription-services-and-how-not-to-shut-down-a-startup-be1bd2c69ecd

by mikeleeorg • 12 years ago

171 53 12 years ago

medium.com

vijucat2• 12 years ago

A friend of mine has recommended https://www.entropay.com/ for these kinds of online purchases : since it's a pre-paid virtual credit card, you cannot get charged beyond the pre-paid amount, if I understood it correctly. The initial loading fees of 4.95% seems quite high, but my immediate next thought was : I would personally still pay it for the security! Warning : I have yet to try it out myself; this is just word-of-mouth, not a personal recommendation. I intend to try it out soon with taobao.com, to which I have taken an immense liking recently, despite getting the wrong colour for my mechanical keyboard which I ordered from there :-)

thematt• 12 years ago

Bank of America has this too for their cards, it's called ShopSafe.

UnoriginalGuy• 12 years ago

You cannot be charged but you can be sent to collections and have your credit ruined. So be careful, people think closing a payment account is akin to a cancellation, it is not.

toomuchtodo• 12 years ago

Collections? Good luck. Its going to go through 1-3 collection agencies, who are then going to have to prove its a legitimate debt (no, your photocopied spreadsheet listing just creditor names and amounts is not proof). The FCRA has some real teeth when it comes to that.

http://en.wikipedia.org/wiki/Fair_Credit_Reporting_Act

vijucat2• 12 years ago

Are you sure about this? That sounds like a fairly basic flaw in the product.

Karunamon• 12 years ago

Collections for what? Unless you pre-committed to a certain term and stop paying for it, payment gets declined, services stop, and that's that. You don't get to send someone to collections just because they stopped paying you without asking nicely first.

username2233• 12 years ago

So what's the least-bad way for plebes who care about credit ratings to deal with Comcast-levels of "customer retention," or just plain dishonesty and stonewalling like in this case? Never set up a recurring payment? That's been my approach for awhile, but it demands a bit of vigilance.

EDIT: After dealing with customer "service" utterly failed, I had to disconnect from Verizon after my 2-year contract by refusing to pay them. It worked, but probably only because I had unchecked the "auto-pay" box every month for two years.

nkozyra• 12 years ago

Extremely unlikely for these types of services. "Credit" is often different than a subscription service - typically in the TOS of the latter, there's a cancellation of services for nonpayment. You don't "owe" anything unless you got something and didn't pay for it.

Very few of these things will send the product without a completed transaction, and even if they did (one time), the odds of a company selling a $40 debt are insanely low.

When consumers need an extra layer of protection against bad actors, this is a great way to go about it, and the risk to your credit is actually very low.

gst• 12 years ago

Just get a Citi credit card that includes virtual account numbers (see https://en.wikipedia.org/wiki/Controlled_payment_number). There's no fee to sign up, with the DoubleCash card you get 2% cashback, and you can easily create a new virtual credit card number for each online purchase. Also allows you to set a Dollar limit for virtual numbers and to close numbers.

function_seven• 12 years ago

How is their site still up and running, accepting new members and payments, if they can't afford to continue on as a going concern? Is this out-and-out fraud?

EDIT: Looks like they're no longer accepting payment, but if this article is right, they still were for a very long time after ceasing shipments.

logn• 12 years ago

Maybe this post got their attention? (edit: doubtful as it was posted 4 minutes ago)

We're Sorry

Whimseybox is no longer taking new subscriptions, gifts, or shop orders at this time.

https://whimseybox.com/subscription/new

bobbles• 12 years ago

The home and signup pages have no mention of this at all

astrocat• 12 years ago

Saying things like "Now Techstars has lost complete credibility in my mind" is taking things too far and just being petty. Techstars doesn't market itself as some bastion of credibility to consumers.

Yes, this a great example of what not to do when you know your company is doomed, and the founders are killing their long-term prospects of future ventures with all this bad karma, but there's no need to drag Techstars into it.

tptacek• 12 years ago

Not to mention: there's not a whole lot Techstars can even do about this. They're a minority investor and their involvement is limited to the first few months of company operation. This comes up every once in awhile with YC, too.

nedwin• 12 years ago

Legally not a whole lot they can do, and not sure about any other kind of obligation, but hopefully they're reaching out to the founder to make sure she's OK and help get this mess sorted out.

hawkice• 12 years ago

I initially completely agreed, but now I'm less sure. I used to mentor someone, and if he was found using skills I taught him to act fraudulently, I would accept partial responsibility.

Obviously Techstars can't force people to stop shenanigans, but I hope for a society where we expect more of each other, where behaving ethically is not more or less important that profits but simply completely necessary.

I'm not sure I can, in good conscience, condemn someone for expecting more of a renowned institution, however minor that renown is. I also think that the author of this post is in a place to understand what is possible and expected of investors, given she is an Operating Partner at Khosla Ventures.

djtidau• 12 years ago

I think the basic idea behind the assertion is that someone coming out of Techstars should know better, either due to the fact they have smart/savvy enough to be accepted in the first place or that they have been provided with enough information to make decent decisions like shutting a site down when the business has folded.

Techstars may not market themselves as a measure of credibility, but i'm sure it is something they care deeply about. If an incubator constantly spat out startups making deeply questionable decisions like this one they would have far less startups knocking on their door.

Retra• 12 years ago

Doesn't everybody market themselves as a "bastion of credibility?"

From their website: "Techstars provides [...] intensive mentorship, and an amazing network of mentors [...]"

Seems like they are all about credibility.

lstyls• 12 years ago

> "there's no need to drag Techstars into it"

Techstars and/or its affiliates would have taken equity in exchange for their services. They're part owners of the company as as such bear some measure of responsibility for its actions.

> "Techstars doesn't market itself as some bastion of credibility to consumers."

Yes it does. It's consumers are small startups in need of seed money and strategic advice. Brand name is very important, and one of any incubator/accelerator's selling points. If a startup can associate itself with a highly regarded seed brand like YC or Andressen-Horowitz it makes its valuations much higher down the line. If Techstars becomes associated with shady ventures, it will hurt its ability to find willing participants.

gumby• 12 years ago

Do they take a board seat? It's the responsibility of the board to make sure a company is shut down responsibly (once it's insolvent it needs to be run for the benefit of the debt holders FIRST, and part of that is not adding new liabilities).

johnvschmitt• 12 years ago

For those with integrity, it's not worth the read. Yes, stop taking money from new customers when you've shut down the company.

For those without integrity, it's a recommendation: There are trusting people who will signup & pay even if you don't deliver.

The world is still wild, and I like that. Nothing to recommend than to be skeptical and ethical please.

FunCaptcha_Jim• 12 years ago

Great article, shame it happened. I'm really curious as to how this idea didn't really succeed - seemed like a slam dunk service. Anyone know more?

jqm• 12 years ago

Funny, I was thinking exactly the opposite about the idea...

username2233• 12 years ago

Same here. It's like Ikea sending you a random box of do-it-yourself furniture every month. The "maker" mumbo-jumbo is about building things you actually want, not assembling stuff someone throws at you.

sgarman• 12 years ago

If anything these X box a month services pop up so frequently I'm surprised there is not a startup to help people make their own x box a month companies.

jeremymcanally• 12 years ago

There is actually, and it's nice! http://cratejoy.com

nols2• 12 years ago

You shouldn't be surprised, it does exist.

http://www.subbly.co/

billychasen2• 12 years ago

I literally just tried to sign up for this as a gift for someone this past weekend.

I tried to buy a year gift subscription and got an error message. It showed me a silly error message which included Ryan Gosling promising a foot massage for me to keep my calm. I mistakingly tried 2 more times and now see 3 charges on my credit card.

For what it’s worth, they use Stripe. I saw the $1 pending transaction they tried. Hopefully Stripe can shut them down.

mintplant• 12 years ago

Did you file chargebacks?

billychasen2• 12 years ago

I did this on Saturday and will give WhimseyBox the benefit of the doubt to fix this by Mon/Tues before disputing with Amex. It's always a slow road when Amex investigates.

lmg643• 12 years ago

Interesting. Is there a market for shut-down services? Clearly they had "something" if people are still signing up. Might not be a $100mm exit but I'm sure someone would enjoy running this for a few million in cash each year?

infinitone• 12 years ago

If i understand you correctly, you just valuated this business at 'a few million'? What makes you think its worth more than 5k?

nols2• 12 years ago

They didn't shut down if they were making a few million a year. They probably didn't scale nearly as well as they thought and never broke into a profit/subscriber number.

jlarocco• 12 years ago

The saying, “We lose money on every sale, but make it up on volume,” comes to mind.

I'm not sure "someone would enjoy running this" makes much of a difference if it can't pay the bills.

grandconj• 12 years ago

A great warning for founders considering a subscription-based freemium model.

patio11• 12 years ago

It isn't necessary to dream up scenarios of unethical action on the part of anyone for this to happen.

Startups fail. Fact of life. We talk about "burn rate" and "runway" because it is easier to say than "The number of days you have to find a working business model or secure additional investment, after which you have to fire all of your employees because you cannot make payroll."

When startups know they're going to fail to make payroll, they fire all employees. Fact of life. Fired employees are the worst affected people when a startup collapses, by a factor of lots. They don't get to call up their credit card company and chargeback forgone wages for the last three years.

When you're the non-technical CEO of a subscription commerce company, and you find yourself in an empty office without employees, if you're hypothetically aware that subscriptions are still active -- which you very well might not be aware of -- you have very limited options for actually fixing it. You might as well ask my dad to do an orderly shutdown of Appointment Reminder given I get hit with a bus tomorrow.

Could this have been handled better? Yeah. There's a reason that when startups ask for advice on what to do in their remaining hours of life we always say the words "Prepare and execute on a plan to effect an orderly wind-down of the business." It's not exactly something people are born knowing and might not be at top-of-mind while they're going through an enormously stressful event.

chasing• 12 years ago

Taking money with no intention of delivering a product is unethical. I think I was born knowing that. Or, at least, I learned it pretty early on.

Being too lazy to shut off the site is not an excuse.

tcarey83• 12 years ago

It's not only unethical, it is fraud.

pdonis• 12 years ago

When you're the non-technical CEO of a subscription commerce company, and you find yourself in an empty office without employees, if you're hypothetically aware that subscriptions are still active -- which you very well might not be aware of -- you have very limited options for actually fixing it.

You also have very limited options for avoiding liability for fraud. I don't think using the excuse that you were a non-technical CEO is one of them.

escape_goat• 12 years ago

I know that this must be your gut reaction to the article, because it was written less than an hour after the link was posted, and it's possible that you didn't read the blog post very carefully: it alleges two serious breaches of normative commercial behaviour that I won't characterize legally. There's firstly the failure to cancel a charge for a non-forthcoming product, of course; more seriously that the company is still signing up and charging new customers. So, with that in mind, I want to invite you to review it, because if it's a reaction that considers the full details of the matter, I have to say that it doesn't really pass the smell test, in my judgement.

You cite the failure mode of startups as a "fact of life" with regards to two particulars, and minimize the ethical responsibility of the hypothetical non-technical CEO on the basis of implied incompetence and his or her technical inability to do anything about the situation due to both his or her failure to plan for the eventuality and the actions that he or she has just taken. That leaves you with two "that's just how it is" statements and one "what can I [he] do about it anyways" statement, lined up against one "could this have been handled better? Yeah" statement. I believe you might agree that that looks like a pretty weak argument, on a second read; if not, I'm certainly interested in what you have to say about it.

If you're the non-technical CEO of a subscription commerce company in this situation, did you mean to do anything wrong? Of course not, no-one is going to assume that. Does that mean you aren't to blame and it's not your fault and you're not responsible for the situation because who knew startups were high-risk and computers are hard? In the scenario you outline, it would not give me confidence in a person to hear that he or she believed such a thing.

More notably, though, and perhaps interestingly, the author mentions that it does not give her any particular confidence in "Techstar" as a brand. Interesting because of the implicit assumption that the VC incubators are effectively vouching for the reliability of the startup and assuming a degree of governance / diligence with regards to the potential extremes of the outcome, which in turn raises the question of whether that's an idea that the incubators are selling (perhaps unwittingly) to their prospective investments. So, I think something like that might be more productive to talk about than situational ethics, really. But I didn't want to leave you with the mistaken belief that everyone had come to the same conclusions about the facts of life.

adventured• 12 years ago

This is a ridiculously absurd attempt at excusing fraud.

It is fraud, there should be no mistaking that. If you take someone's money with absolutely no intention of fulfilling the service or product they're purchasing, it is fraud, period.

It doesn't take a technical founder to log in to Stripe and shut down the payment processing. Or to call Stripe and get it turned off. It doesn't take a technical founder to alter the settings on the domain name and blank it that way either. I know people that can barely use email that can change settings on a domain.

It might cost $200 to $500 - worst case scenario - to hire someone to take down the consumer facing part of the site (or plainly neuter it). More than likely they could reach out to any number of contacts and get it down for a lot less than that. Don't have a few hundred dollars? Well then your responsibility is to go crawling to your family, your friends, Techstars, whomever to get it. Just to save their reputation, I'd be willing to bet Techstars would have helped in getting this shut down had they been asked.

There is no excuse for what they've done.

Animats• 12 years ago

Well, they seem to be in violation of the FTC's Mail Order Rule.

First, who are they? Their street address is

2409 20TH ST BOULDER CO 80304 US

which is a house.

A Colorado corporation search gives a second address:

1738 Pearl St., Suite 2A, Boulder, CO 80302, United States

which looks like office space above a restaurant in Google Street View. Their landlord is Pearl Street Properties (http://www.pearlstreetmallproperties.com) and calling them during working hours might be helpful.

They're incorporated in Delaware, but are delinquent in filing with Colorado. Delaware corporation search only works on weekdays, so not much is available from there tonight.

The founder is Alicia DiRago. Not only is the company not communicating, her rather busy personal online life has stopped.

Here's her Twitter feed, which stopped on September 3, 2014: https://twitter.com/aliciadirago

Here's her other startup, Dismount Creative, which was last updated on August 3, 2014: http://www.dismountcreative.com/

Her personal Facebook account, last updated in January 2014: https://www.facebook.com/alicia.dirago Definitely the right person; she's wearing a Whimseybox T-shirt in her profile picture.

She's married and lives in Boulder, CO. The address is a matter of public record, but I won't list it here. Her husband, Joseph DiRago, is an attorney in Boulder. No news items or obituaries for either of them.

This is a very tiny operation and there's probably a personal problem. This isn't a big enough business to be a scam.

spacefight• 12 years ago

Shutting down the website of a bancrupt company is not hard.

kjs3• 12 years ago

"Her husband...is an attorney..." probably explains why she thinks she can keep up the shill longer than any sane, ethical person would.

iopq2• 12 years ago

This is why I want to just pay for everything with Bitcoin. I gave my credit card to a site (not a subscription site) and they charged me and never delivered. I contacted them and they said they refunded the charge and put in a new order (???). So now I had TWO charges. Why didn't they just ship me the stuff without charging me again? I disputed one charge with the credit card company and the company refunded me after they saw the chargeback. Then a month later they ordered again for me. I had to charge back a second time (and I got a refund back again).

Are you kidding me? The model of "I have your credit card number and the code on the back and I can charge you as many times as I want" is clearly broken.

ams6110• 12 years ago

virtual/single-use credit card numbers are a potential solution.

PinguTS• 12 years ago

But bitcoin will not help you at all, when there is no delivery. Bitcoin has no charge back. Bitcoin is in this sense mor like Western Union.

The credit card system gives much better consumer protection most of the time.

iopq2• 12 years ago

No, the point is they DID deliver, but they tried to keep charging me for new deliveries.

quanticle• 12 years ago

If anything Bitcoin would be much, much worse. If I pay for something with Bitcoin, and it doesn't arrive, I'm left without any recourse whatsoever (just as if I'd mailed an envelope full of currency). At least with a credit card, I can file a chargeback claim.

Sami_Lehtinen• 12 years ago

Unfortunately what you experienced is really common.

One company deliver "led lights" does everything, except deliver the goods. Web site is up, customer support answers to messages (as long as you're going to order something) and they'll accept payments. But that's where it ends.

My dad got a new cellphone and it got the number which is still being shown on that web page. It's nice to receive more and less angry calls all day long from people getting scammed all the time.

Unfortunately this seems to be quite common problem. Isn't it the business focus? Do the things which make money, don't mind about the rest. Web site, credit card handling, and customer support, all generate revenue. Delivering goods is bad business, it generates substantial expences.

One famous entrepreneur in finland said that invoicing is the thing that runs the business, rest is irrelevant.

annnnd• 12 years ago

I think Hanlon's razor applies here ("Never attribute to malice that which is adequately explained by stupidity.") - when startups fail it is difficult to fail gracefully. It leaves you with lots of stuff to do, all the time knowing that you will get nothing in return. Frustrating and tiring as hell. (I don't condone the founder's actions, I just say I can understand what has lead to this situation) That said, I hope they make it right as soon as possible.

A cautionary tale about subscription services and how not to shut down a startup

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