Following last week’s news that ONTHEGO is in administration, founder Mick Spencer has opened up about the guilt, pain and frustration he’s feeling as he readies his business for sale. But, after everything, he says sometimes the painful decisions are still the right ones to make.
The startup — which provides software for groups to create branded sportswear — was reported to be in administration last week, owing about $6.5 million to creditors.
Speaking to SmartCompany, Spencer explains the business went into administration on May 31, and a four-week business as asset sale followed. Now, ONTHEGO has been sold to a new owner, which has not been identified, for an undisclosed sum.
The majority of the debt, according to Spencer, was in convertible notes for investors, due next year and secured over the business.
A dip in sales due to COVID-19 and the subsequent pause in community sports meant Spencer knew the business would not be able to make the repayments. The business saw its growth stall and a planned expansion into the US was put on ice.
The team began talks around selling the business, he explains to SmartCompany.
“The best thing for us to do was to go into administration to get a better structure for the business moving forward.”
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“I needed to do the right thing”
As a founder, that wasn’t an easy decision to make. Spencer is also set to step away from the business entirely once the sale is complete.
On the one hand, he was the majority owner and director, and says he knew going into administration was the right thing for the business in the long-term.
“I knew we couldn’t repay the debt or buy the debt out in 12 months’ time, [so] there was no point in continuing to trade,” he explains.
He hopes the creditors and suppliers will continue to work with the business in the future, and there will be minimal disruption for clients too.
“We looked to get the best result for everyone, moving forward,” he adds.
“Taking the emotion out of it — which is difficult — it’s just business.”
That brings us to the other hand. This is the business Spencer has been building since 2012 when he was at university. It’s the dream he left university to pursue.
“Taking the emotion out of it is no mean feat,” he says.
“We would either win big or not”
As we’re chatting, Spencer stresses how fortunate he feels to have been able to grow that dream from the ground up to become a multimillion-dollar enterprise, and to have headed up a successful business.
“We were disrupting a multimillion-dollar industry that’s quite old school,” he explains.
“We knew we would either win big or not,” he adds.
While the situation is “really sad”, Spencer feels entrepreneurship is perceived somewhat differently in Australia to other parts of the world, such as the US, for example.
While some could perceive this ending as a failure, looking for someone or something specific to blame, he doesn’t necessarily see it that way.
“As the founder, you feel a lot of guilt, and pain around the decisions you made, and frustrations,” he says.
Then again, if it wasn’t for the pandemic — if markets remained stable, if ONTHEGO had maintained its growth, and if a planned US launch had gone ahead — the situation could have been very different.
Learning from mistakes
Even so, Spencer says there is a lesson here for other founders.
He urges other startups raising capital to grow their businesses to think about not only who their investors are, but also how that capital is structured, and the options they will have in the case of a severe market disruption such as the COVID-19 crisis, or if things simply don’t go as well as planned.
“We had a secured debt to multiple shareholders,” he says, but it was not structured in the best way for the business.
“It had too much security on what we could and couldn’t do.”
The challenges in running a startup are real, he adds. All you can do is learn from them.
For his part, Spencer is still working closely with the administrators to get the sale of ONTHEGO finalised. Then, he plans to take some time out to reflect and unwind.
“It’s obviously been a very stressful 12 months,” he says.
But, he also hints that he has “a few ideas trickling”, so we could see him back on the startup scene before too long.
“We’ll have to wait and see.”