Dugdugi was arguably the hottest startup in Bangladesh for a while. Emerging out of StartupWeekend, it was one of the very few ideas from such business-model presentation competitions that launched into the market. With a meteoric rise, the launch of an outstandingly polished web app, massive contracts with the largest labels in the country, it looked unstoppable.
But trouble was brewing underneath, as the team became dysfunctional and the company eventually imploded.
Dugdugi began in January 2013 at the first ever StartupWeekend Dhaka. That is where I met Wakil Ahmed Isnad, a BRACU engineering student I had met in SW Dhaka had been my companion during the grueling 54 hours of the event. He introduced himself as someone who knows the music scene in Dhaka, has had experience in organizing events, and possesses a good network due to his volunteering work. His work ethic, energy and approach was appreciable throughout.
Asif Rahman, a self-made entrepreneur we met at SW Dhaka, became the first partner to help Dugdugi get off the ground. His expertise in social media, with his massive online news portals with millions of users, was quite unprecedented. He helped us create quite a lot of buzz in the early stages as he poured his own capital for the purposed of marketing Dugdugi in social media. Our partnership was undocumented as we had a verbal agreement to give him 20% of the stock when the company finally incorporates as a limited company.
Angelique Yasmeen Khan, from San Francisco, California – our angel investor with massive credentials. She had worked for Oracle, Cisco and Sun Microsystems, specializing in the fields on SaaS, PaaS product management (among other things). The agreement myself and Angelique had reached was 15% equity for approximately 24,000 USD. However, she had no previous experience being an investor. But her roots in Bangladesh and passion for music drove her to invest in Dugdugi from her monthly pay check. She wasn’t an ‘investor’ per se, but can be thought of as an angel backer who believed in our cause.
I had met Shifat Adnan Shuvom through a friend, who happens to be a fantastic back-end engineer, who had almost single-handedly built our software platform within 7-8 weeks, whilst working another full-time job.
Myself, I had done everything from UI Design and front-end coding, to drafting contracts, maintaining investor communications, building mentor relationships, while managing the team to deliver my vision of the product.
With the aforementioned stack of expertise, it appeared we had an invincible team that can build the next big thing. We checked all the boxes and more.
Dugdugi launched its first public beta in late April, about 3 months after the StartupWeekend Dhaka event. The initial feedback was outstanding, as the site received thousands of hits on the first night of launch. It was exciting times.
The site continued to grow as musicians contributed their music to the platform. We manually created the profiles of every musician and uploaded every track. By the end of August, the site had over 150 independent musicians, mostly unsigned by record labels, with profiles and music on the platform.
With myself and Shifat actively developing the site, new features were rolling out weekly, and the beta platform was quite stable.
Asif Rahman was actively investing small sums of money on Facebook promotions, and our social media campaign was rolling quite effectively. However, there was a concern with the actual percentage of people converting to users, as opposed to people ‘liking’ the page and its posts on Facebook.
Meanwhile, communication with Angelique had started to take shape and we reached an agreement by mid-August about the funding required and the equity amount to be exchanged.
The action plan was this:
- Acquire content from the largest record labels in the country,
- Hire interns for social media management, cataloging and events,
- Ramp up marketing, both online and offline,
- Build a stable, solid and complete product, learning from the experience of building the beta,
- Integrate e-commerce with the country’s largest mobile payments platform, bKash.
Starting September, we hired two interns, and two engineers after a series of interviews. The team gelled quickly and we were in action. The stable product was dubbed ‘v2’ and the UI design and engineering were in full motion. The team set itself up in Asif Rahman’s spare office space.
We were going to launch the solid product with a bang, ramp up the marketing reaching vast numbers of people and carve out the niche for our business. We had an office, investors, inflow of investment capital, a larger, more competent team, a direction and big dreams. It was time to buckle up and get serious.
The team churned out an incredible amount of work within 10 weeks:
- The final product was nearing completion, which is incredible given it was almost a complete rewrite and redesign from the ground up,
- Integrated bKash and small amounts of revenues were trickling in every other day, albeit very small amounts (think 100 taka or less),
- The marketing channels were flowing consistent and actionable posts,
- The contract with two of the largest labels were complete and their catalogs were handed over. We were indexing the catalog in the system,
- We held one of the largest concerts Dhaka has ever seen, at the Russian Cultural Center, with the big reveal of our new platform,
- Offline sales processes were developed, i.e. scratch cards, which were sold at the event.
The new platform and the concert brought tons of traffic to the site and the word-of-mouth reached the furthest corners of the country. We were making a breakthrough.
Meanwhile, the company was being incorporated. We reserved the name ‘Dugdugi Private Limited’ and were preparing the documentation for the incorporation. This is where the downward spiral had begun.
Angelique insisted that the company be incorporated via her personal lawyer in Bangladesh, to which there were objections from both myself and Asif Rahman due to a possible conflict of interest. However, Angelique had sent funds to this attorney for the purpose of incorporation without any consultation with any other partner, whilst insisting that incorporation must be done with her prescribed person. It is worth mentioning that the attorney in question has represented her in past and was representing her and her brother on ongoing cases.
As the founder, I was reluctant to relinquish the power of attorney to an individual I do not know, and whom happened to represent another party in the business. I believed it was an unreasonable demand for a foreign investor to have her personal lawyer incorporate the company considering neither co-founders nor Asif Rahman had legal representation to look after our best interest in this scenario.
I had proceeded to incorporate the entity on my own accord. I refused to be strong-handed into compliance. Angelique developed resentment due to my refusal to comply.
Secondly, the matter of equity percentages became a matter of bitterness. Some key points:
- The business had been running until August (prior to angel funding) almost entirely on my investment. I spent almost my entire life savings on the development of the app, the networking and business development. I had paid for the logo design, and a myriad of other costs including paying our engineer Shifat competitive fees for his freelance work.
- The co-founder, Wakil Ahmed Isnad, had invested absolutely zero sum of money. He was a co-founder in a sense that he was physically present when it was founded and had been my companion through the journey. Also, given his technical expertise is minimal, he played no role in the design and engineering of the app. His role was limited to maintaining our Facebook profile during most of the time.
- Asif Rahman invested a few hundred dollars on social media both prior and after Angelique’s involvement.
We received a part of Angelique’s investment money and paid for the staff, the concert and a myriad of other costs. Our accountant had kept all costs properly documented, we had budgets for month-to-month and quarterly operations, each attached to milestones and benchmarks for progress.
We faced a few hard questions during the incorporation process:
- Wakil, despite not technically being a business co-founder in the sense that his cash investment had been nil, he had contributed quite a lot in effort from the very first day. If the business were to incorporate with the traditional system of authorized capital and paid up capital, he would receive zero shares. Only myself, Angelique and Asif Rahman would be the shareholders of the company.
- We wanted a retain Shifat and other future employees in the company by giving them a stake in the company.
Thinking about the best interest of my ‘co-founder’ and my top engineer, I had devised a mechanism to calculate and incorporate sweat equity. The abstract points were:
- Calculating each individual’s fair market value of labor, i.e. the salaries they would have otherwise received had they presented their skills to other companies. A good starting point is the wages given by their previous employer, added to the rate of inflation.
- The fair market value of labor over a period of time (in this instance, prior to incorporation) would be their total sweat capital contribution.
- Any cash fees taken prior to incorporation, as was the case with the engineer Shifat, would be deducted from total sweat capital contribution to deduce the value of shares to be distributed to each party.
As it happened, Wakil’s fair market value was minimal, since he had never held a full-time job before and never received a regular salary anywhere. Myself and the investors assigned a minimum monthly wage to be his fair market value, given his complete lack of experience and qualifications. Myself and the investors believed that the value of shares assigned to Wakil was more than fair and respectable.
Our engineer, Shifat, had a significantly higher fair market value, given he is a qualified engineer with many years of professional experience under his belt. However, since he was compensated with cash for the work he had done, it had to be deducted from his total sweat contribution. The value of shares to be assigned to Shifat was quite significant even after the deduction.
The idea of sweat equity resonated well with everyone. With the two parties given respectable sweat equity and a comprehensive framework for assigning equity on the basis of value of labor, we were breaking new ground in Bangladesh – being innovative not just with software but how the company was structured.
Another major issue was the valuation of the company. Since we were selling 15% equity at USD 24,000, the valuation stood at USD 160,000 (August, 2013).
However, the Register for Joint Stock Companies (RJSC) only takes the paid-up capital as the valuation. Therefore, in order to give Angelique the 15% of the shares in exchange for USD 24,000, we had to declare a paid-up capital of USD 160,000, which meant we were issuing more shares than necessary.
The additional shares, dubbed “parked shares” in the Shareholder’s Agreement, were not supposed to be assigned to any individual since they would be used for the purposes of vesting.
However, since RJSC does not permit unassigned shares, the idea was to allocate all parked shares to an individual, without the implicit rights that come with share ownership. That is, the temporary ‘owner’ of the parked shares would not be allowed to sell the shares and exercise any voting rights on its grounds.
These terms were incorporated in the Shareholder’s Agreement and were signed by all parties.
Just two weeks after our big launch at the Russian Cultural Center, our marketing efforts were in full steam – with our booths set up at Dhaka ComicCon, Dhaka RockFest and a myriad of shows across town. The concentrations of youth at these events presented us with the perfect opportunity to show our product demo and get the word-of-mouth even further.
We were in the middle of an event, when the most sudden and disastrous thing happened. Angelique sent an email to the entire team, including the interns, that she and Asif Rahman would be exiting from Dugdugi.
I was in the middle of Dhaka RockFest demonstrating the product to a number of musicians and the general public when members of my team called to notify me of the email. I was left shocked and the entire team was thrown in a state of complete chaos. One of my engineers and an intern rushed to the event, and I could see the panic in their eyes.
It took me a while to figure out what happened and to connect the dots to come to this conclusion:
- Angelique had lost her job, which she mentioned a week prior to this incident. She was in a high-level executive position in the Bay Area. Having suddenly lost her job, i.e. having her contract expire and not being renewed, she was thrown into a financial uncertainty. With this uncertainty, it was difficult to maintain her commitment to Dugdugi as a financial backer.
- Asif Rahman, who’s office space we were partially occupying, had played an instrumental role in creating a negative impression.
My staff rarely showed up on time as I was flexible about their time in office. We were goal-oriented and I was happy as long as people produced results and did not enforce a 9-to-5 schedule. I found my engineers having discussions on our message board at 2 A.M at night and new code being committed to the repository even later at night. It was obvious that my team were working very hard and were personally and passionately committed to producing the best results.
That, however, did not go down very well with the old-fashioned folks who believed in a strict office schedule. This was communicated in the worst possible way to our financial backer in USA, and was perceived as being unprofessional kids who are squandering their funds.
There was a mismatch in the way we managed our teams, the communication language gap had created bad impressions and the cracks had started to show.
Her email was dramatic, but as it was proved later, her threat to leave was a manipulative mechanism to enforce stricter controls over the company. My team, however, took her words literally and was deeply upset by the turn of events.
G-Series, the largest record label in Bangladesh, signed an agreement to license all of its content to Dugdugi. We signed the contract and their entire catalog was handed over The advance royalty to be paid to G-Series was broken down to three installments, first being the 1st October, the second being 1st November and the final installment on the 18th November, 2013.
We had paid the first two installments on time, as the funds from Angelique had arrived in advance and the cheques cleared without an issue.
However, with the email from Angelique just two days before the payment of the final installment threw the company’s contract in jeopardy. Not being able to pay for the content we had already acquired would be akin to fraud and it would damage our impression towards our biggest partner.
Asif Rahman stepped in to ensure the cheque does not bounce by injecting his own money. It was a temporary arrangement to maintain our integrity until Angelique delivers on her investment promise.
Dugdugi had incorporated the company with the shares prematurely assigned based on the promise of future investment. Angelique never paid in full for the shares that were assigned to her.
Dugdugi got out of Asif Rahman’s office space and got itself into an under-construction co-working space in Dhanmondi. It no longer made sense to stay with people who would botch up communications and jeopardize the future of a startup because of their sudden loss of job.
Dugdugi was cataloging the content acquired from G-Series, as well as the content being voluntarily submitted by a myriad of musicians. We were active in social media and trying our best to keep content flowing hoping that it would lead to more and more users and revenue.
But the downward spiral, by then, had reached a critical point. With no further funds to pay the staff, to invest in social media, to acquire users, it was bound to die an abrupt death.
A few things were obvious at this point:
- The financial matters were not clear to the either of the backers. Asif Rahman’s social media expenses were not disclosed before the incorporation, therefore it was impossible to quantify his financial contribution to the company. The payment plan with G-Series had not been clarified to the backers and Angelique was under the impression that the two backers would split the costs 50/50 when, in fact, it was entirely from her investment promise. It also shows that she understood very little of the financial projections we presented her with.
I had prepared detailed spreadsheets to clarify every detail, documented all costs and made projections for future costs. But the financial documents were not either read or fully understood by either of the backers.
- Our product roadmap was unclear to the backers, as they were concerned with the office time as opposed to what in being done.
- The overall company strategy of user acquisition and demonetization was made cloudy over miscommunication, and just irrelevant noise.
One example of the irrelevant noise would be:
Angelique was convinced that the future of our platform lies in API-licensing. She continued to send us documents and research about API development and licensing, and tried to steer development in that direction. What we were doing was to build a solid streaming platform, catalog content and acquire as many users as possible. Her direction was absolutely detached from reality as there was no possible scope of selling API-licenses in Bangladesh as there are no companies to sell such a service to. She had missed the point entirely about what were trying to achieve.
My co-founder, Wakil, had been disillusioned since the incorporation. He had previously agreed to all the terms and signed the RJSC documents as required. Somehow, he had changed his tone and began to express discontent with the percentage of shares assigned to him.
I had taken the time to explain, in three separate occasions, the simple math that led to the valuation of the company, the number of shares issued, the value of shares, and the percentage ownership per director. However, he was under the disillusioned idea that he owned 50% of the company at the beginning, and that the two co-founders would have their shares dilute equally when outside investment was injected.
I communicated clearly why there was a disparity between our shareholdings, because I had invested my life savings, and that his financial capital investment was literally zero. His bitterness went beyond reason and logic.
He built a rapport with Angelique over their Skype conversations and convinced her that he is responsible for almost everything that goes on within Dugdugi. Furthermore, he got Angelique to double his salary without even consulting me.
I now had a co-founder who goes behind my back and talks an investor into doubling his salary without the CEO’s knowledge of it. My co-founder was trying to enrich himself by taking advantage of the gullibility of Angelique.
Angelique sent me an email, along with our accountant, about doubling Wakil’s salary for past months, meaning we would have to retroactively amend our past quarterly budget and accommodate her whimsy by allocating funds from our current quarterly budget.
It was a preposterous proposition and I resisted with full vigor. It not only built resentment for both of them, we no longer had trust between ourselves.
This was a part of the unnecessary noise that sidelined what was really important.
Angelique came to Dhaka and held a secret meeting with Asif Rahman, Wakil and Shifat. I was not invited. In fact, I was not even told that she had landed in Dhaka.
I acquired her number and called her. She did not pick up. I texted her. She sent back a text threatening to sue.
Cooler heads prevailed over the next week, as she invited the entire team to a meeting in her hotel lobby. I defended the company, its marketing activities and presented solid financial documents to back them up.
Over the next few weeks, we had reached some common ground:
- We would sign the shareholder’s agreement to legally bind all the terms.
- We would develop comprehensive roles and responsibilities documentation for each member of the board.
- We would clear all the dues of the company, and seek outside investment for further user acquisition and monetization.
There was a silver lining.
We acted according to this roadmap, drafted and signed our agreement, created roles and responsibilities and had a productive meeting as a team with one of the most prestigious institutions in the country, Bengal Foundation.
It seemed were going to survive the turmoil after all.
Three days after signing the shareholder’s agreement:
Angelique changed her tone entirely. She no longer agreed with the legally binding document she signed three days ago. She wanted to re-incorporate the company via her lawyer or leave it entirely. She demanded her money back and threatened to sue.
We sought consultation from another attorney and held a meeting late at night in his chamber.
Despite the solid documentation presented at the meeting, the distrust between the directors led to a shouting contest which ended up in myself storming out of the office. I lost my cool, for the first time since I had started running Dugdugi.
It was obvious that outside influences had changed Angelique’s mind and she was no longer reasonable. She had lost trust and I had lost patience for her whimsy and fickleness.
As it stands today, Dugdugi is no longer operational. The team has fallen apart, the site has been offline for almost a year, and our company’s status is in limbo, with no common ground between the partners.
Every silver lining was met with an wave of whimsy, fickle and deliberately destructive actions from one or more of the partners, abruptly reducing the number of possible resolutions to the problems, until no solution was left.
Dugdugi was a dream come true. We set out to build a truly great product that disrupts a market, and carves out a niche in the marketplace for digital services. We built a great product. In fact, I would argue that our product was both aesthetically and technically superior to most similar services globally. The technical team produced the best work of their lives to make something truly exceptional.
We were gradually breaking into the market and maybe with time, we would have acquired large numbers of users, monetized and become sustainable.
I know 9 out of 10 startups fail. I personally do not blame anyone but myself for the failure. Dugdugi was mauled to death in its infancy. It was my brainchild and it was painful to watch it wither and die. Dugdugi, once the poster-child of the startup scene in the country, is now reduced to just a statistic.