When my co-founder and I were the only full-time folks at our startup, we subscribed to individual insurance plans with Blue Shield of California. We had some high deductible plans so we were covered in case of a major accident but had to pay our own way for everything else. I think it costed about $100 per person per month, which seemed like a steal. Fortunately, we did not end up incurring any major medical expenses while on that plan.
Just wanted to note that fiction does have a prominent history in business writing in the form of case studies. Most issues of the Harvard Business Review include a multi-page fictional story about a middle manager and some dilemma he or she faces, along with a suggested course of action from 4 real-life middle managers.
I managed the engineering team at an East Coast startup that produced a Rails app and served as a Rails consultancy on the side. For a good stretch of the company, our consulting revenue actually matched our burn rate, but most of our clients dropped off over the last nine months of the company. The credit crisis affected both our ability to raise funding and the economic viability of our clients.
In life and in death, we focused on our duties to our employees first, our investors second, and our app users third. While we did a good job for our consulting clients, they were much farther down on our priority list. When our CEO decided that running out of cash was inevitable, our first concern was to figure out how to place our employees (about 15) into new jobs. We let everybody know that they were going to lose their jobs about a month before the last paycheck. We also spent a bunch of time figuring out how to transition everybody's healthcare, helping with resumes, and making sure everybody started unemployment insurance claims. As you might imagine, we were not able to accomplish much that last month in terms of actual work. We gave our few contractors the same advanced warning, but we didn't do anything else to help them transition.
About three or four folks from the team were able to find work on their own pretty quickly. We helped a couple folks from the team form a new company to take over what was left of our Rails consulting work. For our other employees, our CEO sent out everybody's resumes to local companies that he knew - one company ended up hiring three people from our team. We also found short-term contract jobs for a couple folks while they figured out where to go next (one went to the West Coast, and one went to India). A few of us talked about starting our next company, and my two co-founders at my current startup are from that team. In the end, there was only one guy who was unemployed for an extended period of time even though we kept on trying to ferret out contract opportunities for him, and he ended up landing on his feet a few months later.
Our CEO wanted to keep the corporate legal entity around for his next venture, so he bought out all of the investors for 1 cent per share, which enabled them to write off the loss on their taxes. He had written a couple of withering status / strategy updates to them while we were losing our contracting clients, so nobody was surprised in the end. I'm not sure how many of them would invest in our companies again, but all of them appreciated being kept in the loop, and I think all of them understood that we had given the company our best effort. I can say with confidence that none of the investors were angry. The code still lives in a github account, and we also have a patent. From time to time, we talk about the possibility of using those assets to launch related startups.
Unfortunately, we were not able to tie things up as neatly with our users. For a couple months after we laid everybody off (including me), we paid a reduced contracting rate to a few members of the core app team to keep the site running and clean up the code while we tried to find a buyer for the technology (and presumably, some of the talent). Due to the nature of our app, we needed a rather complex hosting environment, and we were paying several thousand dollars per month in hosting costs at that point. We tried to find a buyer and renegotiate with the hosting company until a couple weeks before we shut the site down. Ultimately, we ended up posting a shutdown notice for a brief period before the service terminated completely. We had a few thousand (non-paying) users at the end, and we only ended up hearing from about 5 or 10 afterwards. Nonetheless, I do wish we had handled the situation more gracefully.
During our last month, we arranged for most of our equipment and furniture to be transferred off to current and former employees (we didn't have enough stuff to warrant an asset sale). We had inherited a bunch of our furniture from another startup in town, and ironically, some of those same folks came back and took furniture for their new startup. Our landlord was concerned about getting his last month's check and actually locked us out while we were shutting down; our CEO had to meet with him to assuage his concerns. In the end, there were a few large pieces of furniture that we had to pay somebody to haul away. On that last day, our cleaning lady came by to do an extended cleaning; I had a few drinks in the middle of the day and our CEO ended up helping her haul a bunch of trash and recycling down to the dumpster. I came back in the evening to drop off keys, and I think I was the last one from the company in that office.
Needless to say, shutting down the company was pretty painful. It took me quite a while to recover, and I was grateful for the support of my friends from the company through that process. I often try to find meaning from painful experiences, and I certainly learned a lot during the ups and downs of that startup. However, in this case, I felt that there wasn't much emotional growth to be gained from the actual experience of shutting things down. I just tried to focus on surviving and figuring out the steps towards building our next company.
SHORT ANSWER:
Authorize.net and Paypal are the most popular gateways, and therefore have the most community support. To find a processor, I would use http://www.transfs.com/. We used TransFS last year and they helped us find an inexpensive processor.
LONG ANSWER:
The number of players you have to go through in order to process credit cards is pretty crazy. Here's how I'd summarize the different people you might have to deal with.
1. There are credit card companies, like Visa, Mastercard, and American Express. You're affected by their fees and policies. For example, we found out that Visa has been enforcing a policy where they don't allow the capture amount to be different from the auth amount, except for merchants that get tips like restaurants and salons.
2. There are credit card processors, also known as ISOs (for Visa) and MSPs (for Mastercard). They are responsible for communicating your charges to Visa and Mastercard. They're also responsible for figuring out how risky you are as a vendor. If you charge $100, and the buyer claims that the $100 charge was fraudulent or unsatisfactory (also known as a chargeback), and then you go bankrupt and refuse to remit the $100, the credit card processor is stuck with the bill.
3. Credit card processors use gateways like Braintree and Authorize.net to interface with your software. It's much easier for them to use a well-known API than writing their own API.
4. Merchant accounts are accounts where your money get stored immediately after the merchant charges the clients' cards. For most small merchants, the way it works is that the credit card processor has a merchant account on the merchant's behalf, and the funds get deposited from the (credit card processor controlled) merchant account into the merchant's checking account 24 to 48 hrs after the transaction. In other words, if you're just starting out, I don't think you need to worry about getting a separate merchant account from a bank. However, if the merchant is big enough that the float on the funds during those 24 hours actually matters, he or she might get his own merchant account.
5. The process for applying to a credit card processor (2) is fairly complicated. There are people who help you with this - you can call them agents. These agents get paid by the credit card processors for bringing them business.
6. Finally, another tier has emerged recently to help agents attract business - we can call them agent referrers. Agent referrers help you figure out credit card terms and will refer you to both independent agents (5) and credit card processors (2) like Paypal. They endeavor to make the process transparent for you.
We found an agent (5) and a processor (2) through an agent referrer (6) and were quite happy with the process. The referrer was www.transfs.com, and the agent turned out to be www.cocard.com. Transfs.com was extremely clear about the fees we'd incur. I'm not even remotely affiliated with either company except as a client. Before that, we
tried a couple different agents and we also tried contacting our bank to see if they could set us up with a merchant account, but both of those approaches were dead ends.