CEO Dulcie Madden on Navigating Cash Flow Shortages & Adversity While Raising Your Family & Team

Dulcie Madden co-founded Rest Devices, a startup that builds software and hardware for parents to help their babies sleep better, with Carson Darling and Thomas Lipoma in 2012. During her seven-year journey as CEO, Madden faced ups and downs that many hardware startups encounter. She negotiated a partnership with Babies “R” Us which ignited growth, but the capital needed to deliver the units to the big-box retailer depleted her startup’s cash flow. But she also endured a series of events that make her story unique, including an unsolicited acquisition offer, an aggressive lawsuit that almost bankrupted the business, failed financing, and marrying one of her co-founders (Lipoma). In a candid conversation with Shikhar Ghosh, Madden reflects on how she dealt with adversity and shares tips that can benefit any founder struggling with the decision of whether to continue or shut down their venture. Their discussion provides tips about founding team dynamics, the unique challenges of leading a hardware startup, and the CEO’s role in a scaling startup and maintaining team morale despite severe financial constraints. She also shares practical insights about raising a family while running a startup and how CEOs can maintain some emotional well-being, even during times of extreme duress. An unedited transcript follows the video.

Dulcie Madden interviewed by Shikhar Ghosh on November 25, 2019, at Harvard Business School (36:13). 

 

SHIKHAR GHOSH: I’m Shikhar Ghosh, I’m a professor of entrepreneurship at Harvard Business School. This is Dulcie Madden, she’s the CEO of Rest Devices. What does Rest Devices do?

DULCIE MADDEN: We started out with a sensor for being able to detect sleep and different sleep problems. And so we built a consumer hardware product called Mimo that was a wearable baby monitor that we shipped nationwide across the US through a variety of different retailers.

DULCIE MADDEN: And since then, we’ve segued into basically doing customized sleep coaching for parents while leveraging machine learning, the cloud, and very high-level clinical expertise to help parents get more sleep within a week.

SHIKHAR GHOSH: So sleep coaching for the parent or for the baby?

DULCIE MADDEN: Well, it’s both really, but ideally we’re helping the baby to sleep more so that the parent can sleep more.

SHIKHAR GHOSH: Okay. So I’m going to go back, you started the company in 2012?

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: So it’s been, what’s that, seven years now?

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: But when you started, one of the unusual things was that there was already a company with three co-founders and you came in, one of the co-founders was leaving. But you were also dating one of the other founders, so you were coming in as CEO, you were dating one of the founders, you’re coming in as an equal co-founder.

SHIKHAR GHOSH: That’s a pretty complicated set of relationships that are fraught with all kinds of potential problems. How did you navigate that and what scaffolding did you set up to make sure that when the inevitable sort of hard decisions came up, you’re able to deal with that effectively?

DULCIE MADDEN: Yeah. So it’s worth noting that when we started, we were not dating. And so as we were sort of making this transition, Thomas and I realized we had feelings for one another. And before anything happened, we approached Carson to tell him that we did and asked him about how we could handle this.

DULCIE MADDEN: And there were a few really important pieces of scaffolding. One was—

SHIKHAR GHOSH: So you definitely didn’t want him to find out?

DULCIE MADDEN: No, no. Because I think that that would have just imploded all trust that we had in each other. And once you do that in that way, I don’t think it’s possible to really get it back in a meaningful manner. So as part of that, what he established, and Carson I think it was pretty wise to do this, was like, “The number one thing I care about is communication.”

DULCIE MADDEN: “And I don’t want you to be having these big strategic discussions at home without me, generally just making decisions and talking about different pieces of what we’re doing without me there.” And that was incredibly important because what it means is I actually often talked to Carson first and then talk to Thomas and then we talk about things together.

SHIKHAR GHOSH: So Thomas is now your husband?

DULCIE MADDEN: Thomas is my husband, yep.

SHIKHAR GHOSH: And Carson was the other co-founder, right?

DULCIE MADDEN: Yep, yep, yep.

SHIKHAR GHOSH: And so you actually will talk to Carson before you talk to Thomas about something?

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: So he always feels like he’s in the loop?

DULCIE MADDEN: Yep. Yep, that’s incredibly important to make sure that he always knows that I’m not favoring my husband and my co-founder over him. In addition to that, we also changed up the structure of the board. So when we were doing this, Carson and Thomas had board seats. But if I had joined the board of CEO, which was customary, then in a terrible situation, Thomas and I could have ganged up on Carson.

DULCIE MADDEN: And so it was that Thomas stepped down and that Carson and I were on the board together. And that’s also helpful because then we can have each other’s backs and represent each other well and also Thomas’s interest at a board meeting. Last but not least, I think it was also really important for us to discuss roles and also things that we cared about.

DULCIE MADDEN: And so Carson and Thomas really care about long term ownership stakes and they also really care about being able to solve really interesting, difficult problems in the engineering world. And I am not an engineer and I really care about solving problems in the finance, marketing team, management, investor world and so that meant that we were able to pretty clearly divvy up what we were doing.

DULCIE MADDEN: And it also became clear that I don’t care about cash. So if we’re ever in a cash crunch, I’m okay with saying I’m going to cut salary or I don’t care about the cash piece, mostly just because I have a high tolerance for personal risk I think. But I do care about equity and sort of that more inherent equality that I think founders have together.

SHIKHAR GHOSH: So one of the reasons why a lot of early-stage companies fail is because the founding team, as you go through the stresses that come to a founding team, they start to fall apart. In your case, the founding team has been through a huge amount of ups and downs in the process and you’ve actually gotten tighter, right?

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: What would you say are the ingredients of that?

DULCIE MADDEN: I think, again, communication and trust are a really big part of that. Because when you’re going through difficult times, that’s when really you need to be talking more as a team and not just sort of avoiding the problem or avoiding people because it’s something that makes you uncomfortable. That can be about cash, that could be about like a major engineering problem.

DULCIE MADDEN: That could be about a really tricky board meeting that’s coming up. And so I think the fact that the three of us can always go to each other and say, “I need to talk to you about this,” and in addition have a non-emotional or a rarely emotional conversation and have it be more rational is really, really huge.

SHIKHAR GHOSH: So have you reached a point or have you reached points along the journey where you have just this fundamental disagreement?

DULCIE MADDEN: Yeah. And it’s worth noting that for Thomas and I, for a long time, he ran the supply chain part of the business and I was obviously running the entire P and L. And so he would have to ask for these huge pieces of cash that would then be to the detriment of salaries long term, of being able to pay rent, anything.

DULCIE MADDEN: But we need to be able to do that to be able to obviously ship product and make money. I usually said, “Is there a way you can do this more extensively without sacrificing quality?” And so that meant that we were sort of butting heads the most because he was running the most expensive piece of the business.

DULCIE MADDEN: And I was trying to maintain defensiveness because we never had enough cash ever. And so we learned to work through I think financial problems pretty quickly between the three of us.

SHIKHAR GHOSH: Even problems that were just between the two of you and how much cash do we need for supply chain, you wouldn’t discuss that at home?

DULCIE MADDEN: Nope.

SHIKHAR GHOSH: So as soon as you left the office, you’d stop?

DULCIE MADDEN: Stop.

SHIKHAR GHOSH: How do you actually manage that? Because it’s obviously on your mind, people think about in the shower, that’s what I’m thinking about.

DULCIE MADDEN: I think that as I’m processing things and having conversations, that’s how I really express what I want. But we would stay at the office really late and if there is something that was going to be controversial, we made sure that we would talk about it.

DULCIE MADDEN: And feel good and that we weren’t holding on to any piece of emotion or anything else inside. And you can tell, right? When you’re still pissed off or upset about something, you know when you’re saying that’s fine but it’s really not fine. And so we basically just have a commitment where we resolve it no matter how long it takes.

DULCIE MADDEN: And the same thing goes for when we’re at home like we don’t bring our home stuff to the office either because that’s not fun for anyone.

SHIKHAR GHOSH: Yeah, because you’ve got three kids, all young right now so there’s always the tensions of a couplehood of any kind. And you don’t bring any of that to–

DULCIE MADDEN: No, nope. I mean, if there’s something hilarious that happens, I’m very happy to tell our team about it. And it is worth noting that I have brought newborns to the office for a few months before they can be with a caregiver, but I would never want anything that’s happening at our home life and with our relationship to impact the way that people are feeling at work.

DULCIE MADDEN: My job is to make people feel confident, to be able to align them around the way they’re thinking, define the plan and execute on a plan both now and in the long term.

SHIKHAR GHOSH: So if I was the third co-founder in this, I’d be concerned if things go really well and you get to be really close to each other then I feel like the third wheel. If things blow up between you then that’s going to have repercussions for the whole business. So did you have any agreements upfront about particularly if things blow up between you before you were married?

DULCIE MADDEN: Yep. If things blew up, we did have a conversation about how both of us managed breakups in our personal lives. And I basically said that I wanted to have nothing to do with an ex. And he said, “Well, I can be friends with mine.” And I was like, “That’s great, I won’t want to see you again.” But at that point, it was really important to become rational.

And to be able to say, “If we were going to part ways, even if it was really acrimonious, both of us need to be able to take a step back emotionally and say this is what the company needs, not what we each personally need. And this is what both of us can bring to the table in terms of building long term value,” and then we can make a decision if we could both stay. And if that wasn’t possible, make a decision about who would add the most value long term and then the other person would leave.

SHIKHAR GHOSH: And how would you make that decision?

DULCIE MADDEN: I tend to be a big fan of 360 pieces of feedback, so I think it would be important that we talk to each other, that Carson weighed in, that a couple of key pieces of our team, right? Because you can sort of– they have their ears to the ground the most and a couple of key investors. Yeah.

SHIKHAR GHOSH: So early in the life of the company you had this incredible breakthrough where you got the contract with Babies ‘R Us, by far the largest retailer of baby clothing. And like any other hardware company, you took that on but then ran almost immediately into cash flow problems.

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: At first, when you think about hardware, for someone who’s creating a hardware product, what are the challenges that you have just in managing the business side of it?

DULCIE MADDEN: Yep. I think there’s really two ways to approach it. One is you can really try to bootstrap it and do everything in house, do it really scrappily, do some alpha-beta testing and then figure out if you want to be able to go direct-to-consumer so that you can maintain your profit margin even if you don’t have that much cash on hand. And also own the customer experience in case there are problems with it. The other way you can do it which is the way a lot of companies have done it, for instance, Nest, raised a ton of money out of the gate. And then you just hire, hire, hire so that you can solve any problem before you even really start.

But to do that, you need not just millions but tens of millions of dollars to be able to get something to product that way. And you also have a heavy draw on your bottom line because you’re just paying a lot of people. For us, I knew that I wanted to be able to raise enough money. It wasn’t going to be particularly fruitful given the size of the team that we had to have people be really anxious about their own personal salaries or cash flow. And so I was trying to raise money really, really actively.

And that sometimes went well and sometimes didn’t go really well. And one of the problems was that our investors demanded that we have a large sales contract. So get some POs from the number one the apex predator in the baby world which is Babies ‘R Us at the time. But to do that, I had to commit to it before we had any cash in the door. And Babies ‘R Us would want to turn something around really quickly. And so I’d basically be trying to find enough cash to shove into the system to make enough product and then work on a cash flow cycle from there because it was constantly up and down and up and down.

SHIKHAR GHOSH: And also with a new product, you can’t really predict what the take rate is going to be?

DULCIE MADDEN: 0% chance. With a consumer hardware product for babies, it was IOT and a wearable, it was an entirely new field and sector within the space. And the buyer who was a wonderful woman, she had a flip phone, she had no idea how to use WiFi or a router or anything, was like, “I’m going to make a guess.”

DULCIE MADDEN: And so we did budgeting based off of that guess and then it ended up being much more successful than we anticipated which was great. Yeah.

SHIKHAR GHOSH: And it was terrible?

DULCIE MADDEN: And it was terrible, yeah.

SHIKHAR GHOSH: Because your cash flow just went to hell, right?

DULCIE MADDEN: Yeah. And then we were out of money almost immediately.

SHIKHAR GHOSH: So as a hardware provider, when you’re out of money, it means it’s not just you who’s out of money, there’s a whole chain of supply, people supplying you who have problems with their cash flow?

DULCIE MADDEN: Right.

SHIKHAR GHOSH: Because now you’re paying them slow, you’re not paying them at all and so on. And you’ve dealt with this problem now for several years where you’re constantly short of money, sometimes just out of money. How do you think about dealing with your suppliers and what’s the best way to deal with them when you can’t do what they want, which is to pay them?

DULCIE MADDEN: Yep, yep. I think first and foremost you have to make a commitment that you are going to pay them, no matter what. And there’s a lot of manufacturers, whether they do plastics or boards or whatever, who have been burned really hard. And so it’s asking a lot to be able to say, “I might not be able to pay you now. I will be able to pay you later and I promise that I will do that.”

And they literally have to make a judgment call based off of that fact because they don’t know really with a product like this, how it’s going to do in the market, and they just have to trust you and that you’re going to get the cash in the door to pay them. In addition, if things go south which they have done for us several times it’s really important to have open lines of communication as well.

If you’re in a communication vacuum, it’s really easy for your mind to go to a deep, dark place that says, “Dulcie is just trying to screw me over, Rest Devices isn’t going to pay and I’m going to have to lay off half of my workforce or I’m going to have to do X, Y, Z, or figure something else out.” And so I will admit that like I tried to be highly communicative.

But there are always times when I didn’t know what was going to happen and so sometimes I would wait like a week, two weeks, for whatever reason. And the biggest thing you can do as a founder and as a CEO is just communicating. And it’s okay if you say, “I don’t have any cash, I can’t pay you, but I will pay you.” Because they just want to know that you care about them, that you’re continuing to think about them and that you’re continuing to work to get that money in the door to turn around and pay them.

SHIKHAR GHOSH: And so even when you had a situation where you weren’t going to pay them because you didn’t have the money, you would still call them?

DULCIE MADDEN: Still call them, yeah. I think the other part that’s important is keep calling them no matter what. And even if financing was committed but ended up falling apart, still call them and let them know the changes that happened because you want to be able to let them know if money’s coming. But if money’s not going to come, then you really have to let them know.

And then on top of that, I think that it’s just so important to again, maintain that personal connection and to also establish that they will get paid before you pay yourself. I think the CEO sort of has to go down with the ship. And I think it’s important and people will trust you more if you’re trying to continue building your supply chain if you know that you prioritize a relationship over your own personal bottom line.

SHIKHAR GHOSH: So how would you actually do that? Would you tell them, “I’m not paying myself?”

DULCIE MADDEN: Yep, I’d say, “I’m not paying myself either. When cash comes in the door, I’ll pay you first.” And I might say I have to give myself like 25 bucks or whatever, more than that, but to make sure that I can, like, continue to eat. But if I get money in the door, it’s going to be paid out.

And you can also tell them, if there’s a number of creditors, “This is how it’s being split up.” And you don’t have to name your creditors, you don’t have to name the people on the deal that you’re waiting for. But you can say when this comes in, if you owe like $500K, you can say, “I’m only going to be able to give you $20K.”

DULCIE MADDEN: But I’m going to do this and then the next payment will come on this date and will be that much.

SHIKHAR GHOSH: Okay. And so you actually almost open your books to them at least as far as their part of the books and you’re telling them how you’re going to make decisions?

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: And then you live to that decision.

DULCIE MADDEN: And then you live to that decision no matter what.

SHIKHAR GHOSH: So for a lot of founders, that’s a really difficult conversation to keep calling these people who depend upon you, who’ve done the right thing, and you’re going to call them and say, “I’m not going to pay you.”

DULCIE MADDEN: Yep. It’s incredibly emotionally draining when you’re trying to do it every day or every week because you’re trying to maintain the sense of optimism for your team and for the deal to make sure you can get that cash in. But if you’re constantly telling people that you don’t have money and that you’re going to pay them, but you don’t, it reinforces the fact that you feel—or at least I felt— like I was a failure in some way, right?

And you sort of have to take that thought and say, “This is not going the way that I want it to right now. I’m going to take that thought and I’m going to release it and then I’m going to focus on getting money. And it’s okay if these conversations are really hard on me, but I’m going to put them in a box.” I’ll process it later, we can come back to it for me personally or me as a team, but you have to keep the lines of communication open.

SHIKHAR GHOSH: So yeah, this is with suppliers?

DULCIE MADDEN: Yeah.

SHIKHAR GHOSH: When the cash disappears or sort of goes to a level that’s barely sustainable, you have the same problem with employees?

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: How do you manage that?

DULCIE MADDEN: Well, I think that if you’ve been a founder or if you’ve been an employee at a startup before, there are signs that you can spot, right? Like the founders are giving you a handwritten check, it’s probably because they’re trying not to pay taxes which means that they’re going to make a big hole for themselves for which they’ll be liable to the federal government. Don’t do that. But they’ll see those signs. Maybe you’re cutting down on benefits like water or like food, you have to move offices sort of, or bring people into your space.

SHIKHAR GHOSH: Lower-grade toilet paper.

DULCIE MADDEN: Totally. Yep, exactly, all these little signs. And some people might not notice, but some people might. If you think you can string it together, as long as you can string it together and still pay people on time, keep going with it.

DULCIE MADDEN: If you think that there is going to be an ability where you cannot string it together, either through a bridge round from more investors, writing more checks through inventory, financing, whatever, you have to be honest and open with your employees. Because people have their own personal lives, they have families, they have mortgages.

DULCIE MADDEN: They have apartments that they need to be able to do and I think the best thing you can do is when you feel like we’re at this time to be able to say, “I can’t guarantee your salary, there are a number of legal implications of this. If you wanted to stick around, I will pay you back and make the commitment to do that.”

DULCIE MADDEN: But at least then they know the risk and they’re able to make a smart decision about it or to be able to say, “I’m so sorry, we just can’t keep you anymore,” and have a layoff discussion.

SHIKHAR GHOSH: So after you’ve had that layoff discussion, some people would choose to stay, some people will move on? What’s your experience been of the people who choose to stay? Does that change the dynamic of the team in some way or–

DULCIE MADDEN: I think it’s actually sort of beneficial sometimes. Like you want to make sure that the people who are staying are going to be sort of no BS and are going to be able to just put their heads down and work. Because you’re not sticking around to just sort of fluff about, you want to be able to get something done that gets money in the door. And so as long as everyone feels like they can trust you no matter what, because you’re asking them to go out in a huge financial limb, so they really have to trust what you’re saying and you have to not be lying to them or blowing anything up. And you also have to be able to have these hard conversations and know that as a team, it might not be emotional.

But to be able to have a lot of supportive emotional conversations one on one with people when they feel like they’re worried or scared. And you have to start to be this vacuum and receptacle for all of people’s stress and anxiety about what’s happening financially with a company, you just have to take that in. And again, “Say this is happening, I’m going to stay positive and this is what I’m going to do.” But also acknowledge what they’re feeling.

SHIKHAR GHOSH: So you’ve talked a little bit about these negative thoughts, putting them aside, absorbing all the pain, all the anger, all the uncertainty that employees are having, that suppliers are having, all on yourself. How do you keep yourself healthy?

DULCIE MADDEN: I mean, I think a lot of people would say exercise. I totally did not do that. I think you find out what works for you. And I think that I’m sort of an introvert, but I also draw really heavily off of other people’s energy.

And so what I did was surround myself with a band of advisers, mentors, friends who are also going through similar things in the hardware business with startups. To be able to say, “I just need to just dump all my emotion out here and tell you how I’m scared and how much this is–” and then just be able to close it right back up. Because when you go to the office, you have to be able to be strong and positive and just have myopic blinders on about how you’re going to get the deal done.

SHIKHAR GHOSH: And so early on, you establish this group of people? Give me a sense of how many?

DULCIE MADDEN: Oh, I was fortunate to be in a CEO group, so there were three women who I was really close with. There’s probably five investors who I talked to a lot who also had more experience. So I think it’s also important to say, “I don’t have all the expertise that I might need for this or that I could have, so I’m going to go out there and ask people for what they should do.”

I don’t think you want to appear clueless, but I think you want to be able to say, “Has this happened to you before? Is there a creative way that I can get out of this?” And then also have a peer who you can just throw all your feelings at and they can throw all their feelings at you because I think the CEO job can be a lonely job.

SHIKHAR GHOSH: But you don’t share this with your team, even with your co-founders?

DULCIE MADDEN: Nope. Thomas is a different case because he’s my husband and I think there were probably two or three times over a series of dozens of calamities where I said, “This is really hard for me and I need you to be able to be strong for me and also not feel concerned”—right—because I didn’t want to freak him out. He knew what the risk was, he knew what we were doing. He knew what the ending could look like, but sometimes I would just be able to recognize I need support right now.

SHIKHAR GHOSH: Through all of this, through this journey of seven years, you got married and then you had three babies, right?

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: Tell us with all the pressure of the company and the stresses it was in, it wasn’t on a smooth ride. How did you manage that?

DULCIE MADDEN: I think the part of it was accepting some hard truths early on. When we got married, I was 35 which is young, but it’s also older in terms of reproductive age. And I was like, “If I want to have kids, I started to need to hop to it.” And everyone can always say you can try to be ready to have children, but ultimately I think very few people are. And I actually got pregnant literally as almost everything was hitting the fan. And so I-

SHIKHAR GHOSH: So what was happening in the business when you were?

DULCIE MADDEN: –we were being sued by a company that tried to buy us and then tried to sue us into submission to basically sell to them. We were $1.5 million in debt, maybe a little more. I had to do layoffs with our team and was negotiating a non-supportive investor is a good way to put it. And so as that was all happening, I really just thought about the risk profile. And the good news is is that despite a lot of things, I think I’m pretty confident in myself. And I know that if I fail, despite my very best choices, I’m fairly confident that I can turn around and get a job that will let us keep the lights on, feed ourselves, figure out how to get maternal care so I can actually have a baby.

And I think because I was able to sort of take on that self-reliance and I was able to keep going and work through it, that can be really, really hard. And it can also be really stressful when you’re pregnant and you’re exhausted and you don’t know if as a woman you should tell people what you’re pregnant because there isn’t like a really clear set of recommendations about that. And so I just was like, “We’re just going to do this.”

SHIKHAR GHOSH: So you have the ability to make decisions for yourself, when you come in, when you don’t, how many days off you take. Given that experience, how do you and how would you advise other CEOs who haven’t been through this, male or female, to handle this?

DULCIE MADDEN: I think make sure you have a really great conversation with your partner and be able to say, “What do we need in the months leading up to childbirth?” Do you mean about having a baby?

SHIKHAR GHOSH: Yeah.

DULCIE MADDEN: Yeah, in the months leading up to childbirth and also right after that. And I was really lucky in some respects because even though everything was crazy, Thomas and I worked together so we could be together with the baby all the time. And I also asked our team and said, “If the baby’s well behaved to the extent that we can know that, can I bring the baby to the office?”

So that I don’t have to take leave and I can keep sort of pushing the ball forward and to their credit, everyone who I have worked with said, “That would be great.” And so my babies have come to the office. It started when they were seven days old. They have come to board meetings, they’ve come to significant deal meetings. I have done huge meetings on my due date.

I signed a term sheet when I was in labor. And I think, again, as long as you can say, “I’m appreciating this experience and I am appreciating my baby and I’m appreciating my labor and my pregnancy, but I also love this thing that I’m doing and I want to continue doing it,” then you can give that of yourself.

But if you can’t say that honestly, then everyone around you is going to know it and you have to be able to say, “I need to take some time and have that plan.” You define the plan, no one else can define the plan for you, and communicate that to your team, to your investors, to stakeholders.

SHIKHAR GHOSH: So what happens—you can do all this cause you’re the CEO. But if you have an employee who was also pregnant or is going to have her baby, then what do you do?

DULCIE MADDEN: And I’m really proud of the fact that for everyone, we’ve given three months of paid leave for both moms and dads.

SHIKHAR GHOSH: Okay.

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: Even if you’re not paying them?

DULCIE MADDEN: Luckily, no one had a baby. But even with Sonya, when she was out on leave and we didn’t have any money, I made sure that I still paid her. Yeah. Because if you don’t treat your people well, then you can’t expect them to stand by you.

SHIKHAR GHOSH: You mentioned getting sued by a public company. And so it’s one of those things in entrepreneurship that you just, hope never happens to you or anyone else.

DULCIE MADDEN: Yep, totally.

SHIKHAR GHOSH: Because sometimes there’s nothing you did to cause that, there’s a range of circumstances as was true in your case, so what did that feel like? And for an entrepreneur who is on the verge of being sued or getting into a legal challenge with another company, what do you think? What advice would you give him?

DULCIE MADDEN: Know that unless you’re being sued by the mob, right, like no one’s going to die and that there will be an ending. And it might not be the ending that you want, but there will be an ending. And so you can sort of plan on both of those things which means that I think that almost everything else is recoverable. And it might not be in a great way, but you can always figure out a way to navigate a certain situation and use the best information that you have and make a decision. It is incredibly exhausting to A) figure out what litigation is if you’ve never been sued. Very few people understand the litigation process. It costs a ton of money.

We ended up spending about $600K. And there’s just so much work you have to do through discovery meetings, everything else. It can really just sort of weigh on you mentally and realistically is time away from your business, even if you’re still trying to stay super focused on what you’re doing. But I would say call your friends who are attorneys, if you think that they’re awesome, ask them what to do and then find the best possible attorney that you can to represent you. And if you don’t have any money, be honest with them. And then also ask if maybe they can work at a discount.

SHIKHAR GHOSH: And so as you went through this process, the best outcome that would happen would be that you’d get back to where you were before? Because somebody was suing you and it feels like just an incredible waste of time and energy that you don’t have and how did you cope with that?

DULCIE MADDEN: There’s just nothing that you can really do about it. I mean, what’s happening is happening.

SHIKHAR GHOSH: How did your investors think about it?

DULCIE MADDEN: Again, it’s great to be open and honest with everyone that you possibly can. And some people were like, “That is frivolous and that’s a distraction, so just make it go away.” It’s not that easy to make it go away. Some people really sympathized and were like, “Litigation is incredibly difficult, so feel free to call me if you need to vent on what’s happening.”

DULCIE MADDEN: And some people were like, “I don’t really understand what that is, so I’m just going to sort of acknowledge it but not really do anything about it.” Yeah.

SHIKHAR GHOSH: So as you went through the cycle, you were constantly on the edge of running out of cash. You had a couple of instances where investors had come all the way to signing a term sheet and then last minute changed the terms in a really significant way or backed out. At each of those stages—and you ran for, what’s that, seven, eight months with zero cash in the bank so you weren’t paying anybody. How do you know when or how did you decide when you’re going to shut down or not shut down?

DULCIE MADDEN: I think that one is I knew why I was doing this and that’s because I wanted to pay back our manufacturers. And I also want to do literally everything that I could as someone whose fiduciary responsibility to get money back to our investors. And maybe wouldn’t be all of it, but if we just shut down, they would get nothing. Second of all, I wanted to do right by my team and so that was really important.

And so there were two modes of thought where one was as long as I’m not putting investors or our board at risk. Two was as long as my team is with me, then I know I’m good. But at any time I made it clear that people could opt out and say, “I just can’t do this anymore.” And at that point, I still would’ve worked to be able to pay them back salary.

SHIKHAR GHOSH: What about in that hierarchy, where do you put yourself?

DULCIE MADDEN: Last. I mean, I’m there to do literally everything that I can do to leave it all on the field, which is a total cliché. But to make sure that there’s no stone unturned in terms of being able to get money back to people.

SHIKHAR GHOSH: But how much personal risk are you willing to take? There’s one thing that I’m willing to go to zero and willing to not work with salary, but there’s a point at which you get personal liability, you get personal debt, you get–

DULCIE MADDEN: Personal debt’s okay, I feel like I could always put myself on and get another job and start paying it back. I might not have credit, so maybe I couldn’t buy a house, but you can figure that out seven years later. But I think that for me, there’s a lot of things that are enormously stressful, but it’s not like you have cancer. It’s not like you have a terminal illness, it’s not like a loved one has a terminal illness.

So as long as you’ve got that in your corner, a lot of this to me, and this is because I have been very lucky to be well-educated and have a very supportive set of investors and backers and team, to me it’s more of a state of mind. Where if I have the belief that I can do it, then I can do it. And if for any reason I doubted myself and if all of my cheerleaders said, “You know what, you will not be able to do it,” if people started saying that then I would probably take a long hard look and say, “Then we got to wrap it up.”

SHIKHAR GHOSH: And so for you, the standard you’re measuring it against is this is just business. I love the business, I like to do it, but it’s not cancer. It’s not somebody dying, it’s none of those things. And so I’ll survive this and I know I’ll be able to thrive.

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: That’s an unusual and a hard perspective to keep. How do you make sure that people around you have a sense—because the risks that you’re taking shared by a number of people starting with your husband?

DULCIE MADDEN: Yep. With Thomas, my husband, I had to be really open and he was increasingly uncomfortable with the amount of personal risk that we were taking on and the amount of debt that we were physically in. And so it was important to maintain a spreadsheet for our home saying, “This is the amount of liability that we have. This is our projected income as with future salary and this is what I forecast for being able to pay it off.” And if we get to a point, and I asked him to define the point where, if it was too much, it was too much and he could step away or I could step away and go get another supplemental income someplace. Again, acknowledging that I was confident that I could get a job.

Then I would have said, “That’s fine,” and he never asked me to do that to his credit. So same thing with our team of basically making sure that people know where they are, are being honest with themselves and honest with their partner, with their families. And to be able to say, “Are you comfortable with this?” And if they’re not, then you have to be able to help them say, “You don’t have to stay here with me, you can go and do this and I’ll take care of you down the road when we get money in.”

SHIKHAR GHOSH: So you had a couple of points where you investors who had broken your trust. So they had made offers to you that you thought were deceptive, but the logical sort of economic thing to do would be, even if they didn’t give you the valuation they had promised or pushed you into a corner and put terms in that were in your mind wrong, taking their money might still be better than not taking their money and you chose not to do that.

DULCIE MADDEN: Right, yeah.

SHIKHAR GHOSH: And so what’s the thinking there?

DULCIE MADDEN: I think in that case when there are people who haven’t necessarily been good to you and haven’t shown that they have the highest ethics or integrity, at that point, when you’re so far in the hole then I think it’s really important to think as a founding team and as a CEO about, “What is important to me at the end of the day when this is all resolved?” Because I don’t think you necessarily want to drag people through the fire with you and then end up working for a bunch of people who really don’t respect you because then they’ve been through this incredibly difficult shared experience where then they just hate everything at the end of the road.

And so I think the more important thing is to say, “This is the option at the end of the road. Is this something that’s exciting to us and that’s worth all of the blood, sweat, and tears that we’ve done?” And for us, working for people who we thought were disingenuous and didn’t have our best interests or our company’s best interest in heart, we said that is not worth it. We would rather close down the business than sacrifice that.

SHIKHAR GHOSH: It’s a really interesting perspective that if you take their money, they own a part of the business and then a significant part of your time is working for them and it’s a question of who you want to make money for.

DULCIE MADDEN: Yes. And one of our investors said that and I really wish that I had thought about that way back in the day. And I think that’s probably the most important thing that you can know is at the end of the day, at the end of your company, who do you want to make money for? And is it just a really mercenary relationship where you don’t care about what they’re doing? Or is it something that’s deeper and more personal and you want to really care for the people or at least respect the people that you’re trying to make money for?

SHIKHAR GHOSH: So in this phase of the business, you have an AI-based platform and you’re using it with large pharma companies. And so you have a couple of clients that are established big public companies and you see the life that the partners that you have there live, right?

DULCIE MADDEN: Yep.

SHIKHAR GHOSH: They come to work at 9:00, they go back at 5:00. They have pretty steady jobs, they get paid, they get benefits. They don’t have to worry day to day about whether the business is going to be around and financially they do reasonably well. On the other hand, you have made a ton of money, you’ve sort of gone through this ringer and you’re continuing to be in that environment. Have you ever thought, “Wouldn’t it be really nice just to come in and have a desk and to get paid and–”

DULCIE MADDEN: And not have to be the one who’s sweating cash flow? For sure. And I think that every founder, every CEO that I’ve ever talked to, the rest of the company is so jazzed payday and the CEO is like, “Oh man, another hit to the balance sheet.” I’ve thought about it and I’ve been offered jobs at other companies and that’s great.

But at this point, our team is like a family and I have been so committed to them for so long that I would want to make sure that I’m still with them because I love them. And I think they’re really fun and the smartest and most hard-working people that I know. And I don’t think I can replace that necessarily with a large company.

In addition, as a result of all of this, I love really difficult problems. And so even though we’re stable now as a company, there’s a part of me that’s like, “What’s the next big thing that we’re going to have to tackle?” Because that’s what’s interesting and trying to figure out how to make a success of something that almost everyone says can’t happen. And I still don’t know if that can happen, but I’d rather keep trying.

SHIKHAR GHOSH: So if given a choice of working in a big company versus working in an entrepreneurial company, could you see yourself working–

DULCIE MADDEN: I thought about it. It sounds like a vacation, honestly. It sounds like something that’d be totally great and I could sort of just go and sit in some meetings and add some value and have a great salary.

SHIKHAR GHOSH: Come home.

DULCIE MADDEN: Yeah, come home.

SHIKHAR GHOSH: So someone described it as if it’s like dessert.

DULCIE MADDEN: Yeah, totally.

SHIKHAR GHOSH: And you can have it once in a while, but I don’t want to eat it all the time.

DULCIE MADDEN: Yeah, totally. And I think also as a mother– and granted that some people could say that would be better for my family because I have a secure cash flow and salary, but for me, I don’t want to be leaving my children every day to necessarily go and do that. And that’s a deeply personal decision and there’s many people who would say that what I’m doing is irresponsible because it is uncertain. But that’s just how I’m happiest when I come home at the end of the day. And I think that makes me a great mom, hopefully, a great mom.

SHIKHAR GHOSH: So last question, you have been married to your co-founder and then you’ve got your third co-founder and you’ve been through this incredible journey of ups and downs and lots of downs. How has that affected the relationship that you’ve had?

DULCIE MADDEN: Yep. Honestly, Carson’s like a brother to me and so maybe not every family is like this, but if he asks me to cut off my leg-

SHIKHAR GHOSH: Carson is the other–

DULCIE MADDEN: Carson’s the other one, yeah. And if he asked me to cut off my leg, I would do it. And if he asked me to loan him $100,000 dollars, I would figure out a way to take out a line of credit so that I could do that. Just cause we have so much implicit trust that if there’s something that he needs, I will do it for him and I’ll try to make sure that he’s got what he needs to be successful in his life.

SHIKHAR GHOSH: But what about with your husband?

DULCIE MADDEN: Same thing, yeah.

SHIKHAR GHOSH: The pressures that you go through, how has that changed or modified what you’d imagine a more regular relationship?

DULCIE MADDEN: It’s, again, like brothers where you could probably want to kill each other sometimes based off of whatever you’re doing in code land, but they always have each other’s back. Thomas is always in Carson’s corner ready to say that what he’s doing is the very best thing he can do.

SHIKHAR GHOSH: And what about your relationship with Thomas, your husband?

DULCIE MADDEN: Same thing. I think he’s the smartest person I’ve ever met and I want to make sure that he is continuing to do work that he’s passionate about and that he’s continuing to learn and that he loves.

SHIKHAR GHOSH: Because you know there’s one stream of thought which says marriages are hard in the best of circumstances, having children, dealing with the day to day, all of that. And what you’re doing is just amping that up because on top of that you’re adding all of the stresses of the business and both of you being fully engaged in that. How do you manage to make that work?

DULCIE MADDEN: I think it’s just block and tackling. And I think that we always know that we’re on the same team and that we will always support each other and that we’ll figure out whatever it is and that there’s almost nothing that’s not recoverable. And that we’ll do what we can to make sure that our children are becoming the best little people they can be.

We don’t know, and we’ve talked about this a couple of times, like I don’t know what it’d be like to not work with Thomas and have like a really traditional husband and wife team because we’re together literally 98% of the time. And so we have like a shared existence where we automatically know what’s happening at work, we automatically know what’s happening with our finances. We automatically know what’s happening at home and so having to like actively communicate about that could be interesting, who knows? Yeah.

SHIKHAR GHOSH: Great, thank you.

DULCIE MADDEN: Yeah, awesome.

SHIKHAR GHOSH: All right.