I was saddened to read of the demise of the startup UniFyo (originally Handy Elephant) founded by a friend Benjamin Wirtz. The full postmortem blog article can be found here.
Of course, it is sad that after 3.5 years Ben’s startup failed but as I’ve heard from many a wise entrepreneur before, it is not the fact you have failed that is the end game but what you can learn and how you can help others learn from the mistakes you’ve made that counts. I think the original quote is paraphrased from The Life of Reason, George Santayana, “Those who cannot remember the past are condemned to repeat it.”.
I met Ben around 2011 while he was a solo entrepreneur running Handy Elephant and I was finishing up my MBA. I wanted to practice some management strategy with him. I dug into the product/strategy he had and gave some feedback. I managed to dig out the presentation and feedback I gave him and I thought it might be interesting to see if there was any overlap with Ben’s post-mortem.
I know it is horribly old-fashioned and not very Web 2.0 to start by charging your customers. At the time I met Ben, Handy Elephant’s product was a free Android app. I recommended he start a paid for version ASAP. I’ve heard CEOs complain that you shouldn’t focus on revenue too soon if you hear this call the board and get him fired. Build features your customers want… certainly a lean approach which I am in favor of.
But one experience I’ve learned the hard way is if you ask people what they want and they have no skin (or money) in the game then you get asked for all kinds of random chaff. If you asked them to pay for these features they would actually say no. If people see your pricing (and it is not free) then those that part with their hard earned cash are voting with their wallets as to whether your product is of tangible value (unless they are family and friends doing you a favor for charity). If at all humanly possible get the customer to pay in advance for a new feature. Test your pricing using a landing page before you sink all that time and effort building something that no one wants. Customers, often do not know what they want (e.g. “If I asked my customers what they wanted, they’d say a faster horse”, often attributed to inventor of modern-day motor car, Henry Ford) so the use of a well-designed landing page with product mock-ups and highlights of the key value proposition may help tease out what your customers will pay. I recommend looking at LaunchRock or KickOffLabs. Free apps, with advertising as the revenue model, or freemium apps with a free and paid for version also work but in my opinion try to get customers who want to pay for your app – great free cash flow and real, motivated users of the app (their feedback is worth listening to).
I did some basic Porterian analysis (more on that in his book: Competitive Advantage) of the competitive landscape for Handy Elephant. I identified that some of the potential buyers for the product might be large enterprises.
These players have the potential to be lucrative big enterprise revenue streams but they are a pain in the posterior to jump through the hoops to close the sale. The sales cycle is long and arduous. Ben points out some of the related issues they encountered, particularly the lack of team skills to sell into enterprises and the length of time it took to close sales with these big players. You’ve got to love your initial customers, they will help iron out the kinks in your product. Assuming there is a market of other customers who are similar to your initial customers, this sort of focus and attention to detail makes sense as it will make subsequent customers easier to sell the product to. Unfortunately, if you have a fragmented market or the product has to be customized for each customer then you don’t have a very scalable business, it becomes more like bespoke consultancy/engineering. This is fine if you can extract the sort of consultancy rates you need to survive. Clearly, there were lots of integration issues in the product for each new customer. This can burn your time and money for a small startup team. One option, though not entirely a panacea, is to provide an API and access to that API for third parties (with some mechanism for recovering a fee). In this way, you can get someone else to do the consultancy work while still getting revenue from the usage of your platform. Of course, this sales through an intermediary has a number of issues, not least of which are: diluted brand identity, lack of control over the sales channel and sharing revenue with your intermediary. I’m not convinced the API play should be plan A for a startup, finding customers who you can sell (relatively easily) to directly should be plan A but, if you are shrewd about your platform architecture, and have an API build from day one, then when someone comes along with a customization you don’t have the bandwidth for, you can point them at consultants and/or the API. If it becomes a big enough sales opportunity, you can always bring it in-house as part of the main product portfolio.
Ben points out that the company pivoted (changed product strategy) 6 times in 3.5 years. Ben also laments that he did not solidify/write-down the company culture early on. I think there are a number of issues here if you unpack them. Probably not having a culture/vision set in stone helps you be more agile (The O’Reilly book on Agile Software Development by Andrew Stellman and Jennifer Greene is a good reference).
It is super hard to successfully effect cultural change. Culture helps create a common set of beliefs and learned responses to given stimuli in an organization – this is good when the environment around you is fairly static and congruent with those beliefs but is bad when there is a rapidly changing environment around you incongruent with the cultural norms. Changing culture takes a generation (in a firm sense) and often fails. The people you have to start with who adopted the old culture may be incapable or unwilling to adopt the new one. There are tomes on organizational behavior that go into this. So, I suspect that Ben’s lack of solidified company culture actually was a plus when they had to pivot (change strategy) so much. But… 6 pivots in 3.5 years… I don’t know how radical the pivots were but surely this is too much change in such a short time. Each time you change what you are doing as a company, time is wasted deciding on the change, throwing away defunct work, reskilling and relearning the new direction/strategy. You may also have paying customers for your old product that are not going to be supported with the new product strategy – this can lead to bad PR if not handled sensitively. Ultimately, I think it boils down to two key resources that are wasted with all this pivoting: time and money, neither of which are unbounded or amply available to a seed backed startup. Rather than keep pivoting, it may have made sense to try one or two things then sell/fold the company and start again with a new vision, team and set of investors. Investors tend to get nervous if you keep changing strategy, all the while burning their seed capital.
I think the fail fast, fail early approach has its merits. Best to keep the capital and time burned to a minimum in failed strategies. Keep the team and vision aligned around the strategy at hand. This is, of course, easy to say but painful to execute, failure is not always viewed favorably in the UK. Still, so long as you learn the lessons from each failure, and pick yourself up, I think it increases the odds of you succeeding in the future (or at least not making the same mistakes). Good luck Ben with the next startup!
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