Profitably, a startup trying to bring deep financial analytics to small and medium businesses, was founded two years ago, in March of 2010. Exactly one year ago this week we reported that the company raised $1.1 million in seed funding to grow its team.

But in the last week, things have gone from bad to worse, leaving CEO Adam Neary as the only full-time employee still with the company.

The company was part of the first class at New York’s General Assembly, and Neary recorded in detail how being a part of the hot co-working space helped to double the size of their seed round. Profitably pulled financial data from a service like Quickbooks and showed small business owners where they were succeeding and what their trouble spots were. Then it offered concrete recommendations for how to build on that success.

Sources began reaching out last week to say something was up with Profitably. When I first heard the company was in trouble, I contacted Neary to get his perspective on what was happening. The rumor was the company was shutting down. He responded by email:

It’s really not that simple. I definitely appreciate you reaching out to me ahead of publishing. The reality is, we’re signing up 200-250 small businesses every week. We’ve just rebuilt our platform from the bottom up to handle all the traffic we’re seeing, and right now we’re making some tough personnel decisions in terms of setting ourselves up for the next phase of the company’s growth. 

The above is not a throwaway PR line–it’s where we are. The members of our team have wives. We have children at home. We’ve all left very lucrative careers to try to do our best to build a product for the country’s small businesses, it’s tough work, and none of these decisions are being made lightly.  

Bottom line–it wouldn’t be appropriate for me to get into the details of various staffing decisions we’re making right now, but please give me the benefit of the doubt that it’s not as simple as “you laid off most employees and are bootstrapping.” Given the traction we’ve been seeing and a number of fantastic partnerships we’re pursuing, that would obviously paint a false picture of where the company stands and gloss over some pretty subtle stuff.  

I’m doing my best to show everybody involved as much respect as possible–I hope you do the same!   Warm regards, Adam

It was difficult for me to sort out the discrepancy between Neary’s email and what I had heard. I knew that one of the company’s co-founders, CTO Francis Hwang, had left in November, and the rest of the team had left or been let go last week. Shortly after I got hold of an email from Neary himself, written to investors. It paints a different portrait of what happened, and where the company might go from here. The email from Neary is after the jump.

From: Adam Neary

Date: Tue, Mar 20, 2012 at 3:53 PM

Subject: Tough news for Profitably

Team, I have some bad news. Profitably has survived a lot of ups and downs, but last week was a rough one.

Quite a week

It’s amazing to me how fast things can change. We just finished a re-build of the entire back end and front end of our app. The work was hard, but we rallied as a team and got it done. We celebrated on Tuesday with a BBQ lunch and demoed the results to David Mars, who was quite pleased. In fact, we have been talking with David for some time about $650k in bridge financing that would take us comfortably through the end of 2012 and beyond. On Tuesday I felt confident that we could secure that funding and that the team was really cranking. On Tuesday, it felt like we were there, and I think I exhaled for the first time in 7 months. Less than 24 hours later, Chad–a co-founder in our company–offered his “two week notice.” It was abrupt and unexpected. To be honest, I was shocked not only at the decision but at how cavalierly he delivered the message, and that certainly didn’t go unnoticed by the rest of the guys, either, as I will explain.

People work at will, though, right?

Yes and no. Cofounders leaving companies are watershed events. Back in November, when we had to send Francis on his way, I asked each member of the team to reflect on their commitment. I could explain to our customers, partners, and investors the reason why people might leave at that point, but future drop offs over the following several months could kill this thing…”so if you’re gonna leave in the next six months, I need you to leave now” was the name of the game. Everyone spent a couple days thinking, and I was very pleased when each member individually reaffirmed their commitment to the team, including Chad. David and I even chose to grant extra options to each of the guys as a thank you for that commitment, and we got back to work. In light of this, you can understand why Eric was so turned off with the way Chad handled himself. Eric spoke to me the next morning…seeing Chad take off like that really sapped the wind out of his sails. He had been working way too hard for a company where a founding member doesn’t have enough respect for his peers to make sure his exit is stable. His confidence was sapped, and he wasn’t sure if we’d be able to raise funds at this point, so he was out. At this point, Ned in turn followed suit. If Chad and Eric were out, we wouldn’t be able to raise funds, and that’s that. Understandably, Graham then had little choice. He has two kids at home, after all. I regret the decisions Eric, Ned, and Graham felt compelled to make, but I give them credit in earnest for showing me respect on the way out. So, on Tuesday evening we’ve got a brand new product, a new wave of customer signups, channel partners we’re pursuing, relative financial security, and a productive team. Thursday at noon…I am the only employee left. I can still hardly believe it.

So what now?

I’d be lying if I didn’t reveal a little emotion in this email, and I hope you don’t hold it against me. I figured there’s nothing worse than sending an upbeat or robotic email about something so visceral. So, you get a window into that hard reality. At the same time, my commitment to you hasn’t faltered. You all put your hard-earned cash on the table and took a risk with me. And I made a commitment to you that I would work my ass off for you and stop at nothing until we figure it out. And when the dust settles and you look at what we’ve got, hell. We might not have a team left, but we have a killer product that’s just been rebuilt. We’ve got customers continuing to sign up left and right. And we’ve got old-fashioned persistence. I am going to keep fighting the fight. From here on out, we’re bootstrapping with what we’ve got, and I am going to do my damnedest to make something of it. There are already potential acquirers at the table, and David Mars and I are setting up meetings this week. If the timing isn’t right I am going to keep fixing what’s broken and push forward.

I am sorry for the bad news. I really am. -Adam

Is this the whole truth? We emailed Chad Pugh, the co-founder whose departure Neary blames for the companies unraveling. “The decision to leave Profitably was not handled lightly by me,” Pugh replied. “I took care to leave the team in a good spot. I continue to believe in the product, stand behind it and wish it and its investors continued success.”

 The person who forwarded Neary’s letter to investors wrote, “Interesting take on reality.” Chatting with an investor today we heard more of the same. “This isn’t transparency,” the investor growled. “How about telling me how much of our money you have left and if you’re planning on giving any back. Everything is going great, but everybody quit? That’s hard to swallow.”
The part that Neary left out in his letter? According to sources, after Pugh departed Neary gave employees an ultimatum: 24 hours to decide if they were in or out for the long haul, even if that meant no more salary without a new fundraise, which seemed unlikely. Given that binary choice, they elected to abandon ship.