Don't Let Your Startup Get You Sued

Come to Order!

As I mentioned a few months back in I'm a Startup Rancher, I tend to create startups, let them run for a while, and see if they have any traction. Some flop due to difficulties in the business model, or in the marketing, or just because I didn't solve a problem that many people had. So the failed startups get taken offline and are heaped onto the compost pile. But once you have paying customers, turning off a service that people depend on can have big consequences.

Let's say you're hosting web sites for customers. You can't just turn it off. Your customers may have their business running on their site. This situation is one of the hardest. You have to work with the customer and help them migrate. If you just shut down their site with little warning you'll be getting calls from lawyers.

You may be wondering, if a site actually has customers, why would you shut it down? Good question. Sometimes it's just not financially feasible to have a handful of customers. You'll have to do the math for your situation.

Powering up

The site shutdown scenario doesn't affect just web hosts. What about a Flickr-style site? Are you going to do one last backup then turn it off? If your site has the only copies of the photos from some kid's third birthday party you're going to have some anger heaped upon you should you take it away. In this case, where you're storing items for little or no cost, and you can't make enough to afford the scaling issues, you've got to give plenty of warning to customers and make a way to get them their files.

Any startup that holds information for a customer, whether it be images, a social graph, transactions, even links (like tinyurl or bit.ly), can create legal troubles if taken away.

The safe thing to do is to never start this way. Make sure your business model can support itself.

For small self-startups, freemium can wipe you out. You may overestimate the ratio of free vs. paid customers you're going to get. Then you're stuck with a crippling amount of data to manage/store/serve and the costs involved.

With the right business model where revenue from paying customers dwarf your operating costs, you're in the clear.

Photo courtesy CJ Sorg and roens and CC BY-SA

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