I owed them $1.5 million

This week I’ll tell you how we dealt with the financial trouble that one of my companies, Unbloat, got into. (If you missed the story of how we got here, you should read it here. It’s our best newsletter).

As we closed out April, Unbloat, my digestive supplement company, had not been able to reach its goals. Worse, we accrued LOTS of debt. In fact, it was about $500K more than I had realized, which was a very rude awakening.

For the first time in a while, I felt STRESSED.

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People’s jobs would be impacted. They trusted me. I felt regret. Why didn’t I get involved sooner? I was facing a business that owed $1.5M to creditors and had just lost another $100,000. I was afraid.

Before I take you into the numbers and what we did about them, let’s not brush over the emotion of the situation. It’s important to acknowledge it.

At Gateway X, my venture studio, we use the Conscious Leadership framework. This framework suggests that at any given moment, everyone is either 'Above The Line' or 'Below The Line.'

Being 'Above The Line' means you are open, curious, and driven by a desire to learn and grow.

Being 'Below The Line' means you are reactive, defensive, and operating from a place of fear.

We use business as a means for personal growth by noticing when we go Below The Line and what brings us there. It’s arguably been the most useful framework in my life, both business and personal.

That being said, I was Below The Line. I’m pretty sure Carolyn, our CEO, was as well. Our finance partner basically threw their hands up and said, “The business is finished.”

How were we going to pay this back? The debt was due in 90 days. Sure, we could have declared bankruptcy. But Gateway X was still on the hook for $500K, as a guarantor of part of Unbloat’s debt. Fear told me to put my head in the sand, wait, and see if it got better — but I learned from previous failure that’s the worst thing I could do.

Instead, I focused my attention on “shifting” Above The Line. That isn’t as easy as it sounds.

I was scared, and in a state of threat. I hate failing. I was worried there wasn’t a clear path forward.

The process of shifting from a state of threat to a state of trust is counterintuitive. It involves what few of us like to do: fully feel our feelings. Once you’re aware you are Below The Line, you need to show compassion for yourself and others in the situation.

So, I did both.

First, I FELT all of the fear. I wrote down what was happening and what the worst-case scenario was.

I let it all in. When I do this, the worry usually passes quickly. Then came the easy part of accepting myself for being scared. I also, of course, put my attention on the team.

I started feeling better and was ready to take action.

Carolyn and I, along with Gateway X’s leadership, started by analyzing the business.


  1. We took count of our recurring revenue

  2. We evaluated whether we could acquire customers at a much lower CAC (customer acquisition cost) if we cut back marketing spend, which would essentially get us to first-order profitability

  3. We reviewed our operating expenses and what we needed to keep the business afloat

  4. We analyzed cash flow to understand how we could actually pay back creditors

We were searching for a path to keep running the business and pay back all the creditors. As you might have noticed, this is actually what happens in a typical “Chapter 11” bankruptcy. You go to court because you can’t pay your bills and the judge forces the creditors to accept a plan that gives everyone the highest chance of a payback.

I wasn’t going to wait for that. We were going to make our own plan, and once we were convinced it would work, we’d convince all of the other stakeholders to get on board.

After analyzing, we took action.

1. We cut operating expenses by 80%

This meant all full-time employees, most agencies, and lots of software. What was left were part-time folks and GrowthAssistants. Operating expenses dropped from $50-60K to $10-15K.

This sounds easy when you read it in an email, but it included ending Carolyn’s job (CEO) and others who had made this business their lives for the last two years. Those are the scariest, most difficult conversations.

If you want me to write a longer email about how to have tough conversations, hit reply and let me know. My favorite framework is: YOU/WE/IT.

You can use it when doing layoffs, M&A, or anything that impacts people.

Leaders tend to communicate backward:

  • IT - What’s happening to the company. (“The company had a problem this past…”)

  • WE - What’s happening to the team. (“We have to make cutbacks to…”)

  • YOU - What’s happening to you as a result. (“Because of this, your job will...”)

A better approach is to reverse it, with YOU/WE/IT:

  • YOU - In this case, I had opportunities for employees at other Gateway X companies — a benefit of running a venture studio

  • WE - I explained that the company was moving to a part-time setup

  • IT - I talked about our debt and the company’s need to pay back our creditors

It's critical you stay Above The Line, even when it’s nearly impossible because your business is imploding.

2. We limited marketing to quickly-profitable spending

We cut marketing from $220K per month down to $70K per month, or from $7.3K per day down to $2.3K per day. This involved:

  1. Restructuring Facebook accounts to only our biggest winners

  2. Cutting our testing budget entirely

  3. Getting rid of paid search on Google

  4. Cutting any other speculative spend

Here’s an example of some of our top-performing ads. Previously we’d have kept all of them. We slashed anything that was below a .7 ROAS, so #2 and #4 were stopped.

3. We PROACTIVELY called all our major creditors

Instead of waiting for them to notice a problem and come to us, we contacted our lender, Meta, and our supplier. We shared what was happening openly and honestly.

We owed a lot of money and believed we had a plan to pay them back, BUT we’d need their support (especially with the timing of payments).

Again, this was a very scary phone call for me to make. I didn’t deliver on my promises. I looked like a failure. My fate was out of my hands.

And things could get much worse: What if they pull credit vs give patience? I could be signing my own death warrant. If Meta said: “You can’t spend anymore,” or our supplier stopped sending pills, or our lender triggered a covenant… it would be GAME OVER.

Should I have waited as long as possible before making these risky calls?

NO. It’s important to communicate and build trust with your partners. That approach has never failed me. Open, honest, and collaborative.

In those calls/relationships, there were two important things at play.

  1. People. Business is always between PEOPLE. In my experience, trust is built by honest and open communication. That’s easy when things are good. It’s hard when things get tough. But by proactively communicating the hard instead of hiding it, I believed we would build trust, which would give us a higher chance of success.

  2. Leverage. There’s a famous saying. “If you owe the bank $1,000, that’s your problem. If you owe the bank, $1 MILLION… that’s THEIR problem.” Our creditors had an incentive to help us pay them off.

In this instance, we were coming to these folks hat in hand, with a thoughtful plan and a commitment to paying them back before we took anything for ourselves.

They had a call to make: they could “end us” or “work with us.” What was more in their interest?

It’s important to be honest, build trust, AND to put together a persuasive and compelling argument where your interests and your partner’s interests (our creditors, in this case) are aligned.

So I made the calls. For “scary” calls, I find preparation to be my friend. There were a few aspects of this preparation:

  • Mental and Emotional “Get my mind right.”

  • Narrative “What story are we telling?”

  • Financials and Numbers “Tight data/persuasive case with numbers.”

  • Chess “Play out a few moves ahead to anticipate how the call may go, and be prepared to respond.”

In a past newsletter, I told you that a key trait of a good CEO is rigor. You can see that in the preparation Carolyn and I brought to each conversation.

This is the doc we prepared for our conversation with our lender.

Let me call your attention to a few sections.

1. Framing

Right from the heading, we showed that this wasn’t a story of failure. It was a shift towards maximizing profit. That framing had credibility because of what came next.

2. Progress

We showed what we accomplished. This wasn’t an unproven plan — it was an accomplishment. The document was full of clear accomplishments.

3. Request

This wasn’t a “work with us” conversation that would have left them trying to figure out what they could do and how it would impact the business. We made clear and specific requests that had direct impacts on the business.

As Carolyn says when she looks back, “I OVERplanned how to get their money back.”

We did everything that I described here within a week or so.

I used April 30th as a hard deadline so that May would be a “clean” PnL. I hoped that we could squeeze enough profit out of the business over the next year to pay everyone back and move on.

But it wasn’t all in my hands.

So what happened?

My previous newsletter explained how we got here. This issue showed what we did about it.

Tune in next week for the last email in this series to learn our fate.