Business Strategy Archives - That's Not Market

Why Startups Fail – Crowdfunded Tech Startup Shuts Down With Open Letter to Backers

Despite successful crowdfunding campaign, tech startup KANOA shuts down after bad product review without sending out products.

KANOA, would-be producer of some sort of wireless earbuds, shut down. They announced their demise with an open letter to their backers.

They began with their founder’s initial capital spent on market research and design study by an engineering firm.

It appears that their crowdfunding may have been a pre-order campaign, but information is scarce at this point.

KANOA, crowdfunded tech startup, describes its demise

However, KANOA has said that they hired internally and engaged a contract manufacturer. They began to ship a few units, but they were absolutely savaged by one YouTube review, which seems to have been the knockout blow. Ironically, according to the reviewer, KANOA reached out to him as an influential personality to review the earbuds and garner publicity. iTwe4ks has about 486,000 subscribers, and some of his videos have exceeded 1,000,000 views. He did like the free t-shirt, if that is any consolation.

KANOA claimed in their farewell letter that they are in negotiations with investors for funding or an acquisition, but they do not have enough money to continue operations. Backers or pre-ordering customers are out of luck. They will not be fulfilling more orders.

Some farewell letters give a detailed post-mortem explaining what went wrong. They leave a memorial to what went wrong.

It is difficult to see what happened to KANOA, or at least what KANOA thinks went wrong, other than they ran out of money. Too many employees? Ineffective design and manufacturing? Lack of market?

No. They were too honest and transparent:

Unlike on typical crowdfunding platforms we allowed backers to ask for refunds at any time. This policy kept us honest, but also added vulnerability once we had made major financial commitments. Setbacks and some bad publicity, like reviews of non-shippable beta units, stirred our audience. Most significantly and to our unpleasant surprise, our investors recently backed out of our funding round. We do not blame them, but this was a pivotal setback since capital was essential for ramping up production.

Perhaps the actual story will be uncovered in the class action lawsuit. However, a lawsuit is unlikely if there is nothing to go after.

When Innovation Is More Than Technology: Software Company Allows Customers to Steal Their Software

Freakshow Industries implements innovative business model for its music tech software by letting customers “steal” the software.

As Freakshow says:

We fight crime by legalizing it. You can’t break an agreement you never made.

Creating products in the digital world can be difficult. Anyone can steal and reproduce your products at will. Copy protection is weak and generally only hurts your paying customers by making their experience inconvenient. I have a pile of license fobs as testament to this.

Some companies provide freeware and simply don’t charge. Others put out a tip jar. Freakshow Industries takes it a step further and provides a link for customers to steal their software.

It does not come without a cost. First, the thief must endure a Q&A with insults around why he or she chooses not to pay, with options including ‘Money is Tight,’ ‘Software Should Be Free,’ ‘I Am A Dick,’ and “I Changed My Mind and I Want to Pay.’ Each provides some additional commentary and ways for the thief to do a little on their part, such as pay less than full price or to provide a tip. However, the ‘I Am A Dick’ tab replies with “Well there is no fixing that. Download away asshole.”

Why would Freakshow do this? Resigned to their fate, perhaps? As they say:

Stolen product licenses are fully functional, they are just not eligible for any upgrade stuff. We do not otherwise taint these licenses in any way.

Also, if you steal a license then we’ll be using our own discretion around just how much we’re going to support you. Just be a good person and we’ll probably help you out. Yeah.

Don’t get us wrong. We would definitely rather you actually buy our software. But we realize that some people, for whatever reason, just won’t. So, if you’re going to be that person, then we would rather you steal directly from us than catch some shitty computer cancer from whoever else would be hosting our work.

Basically, stealing is inevitable and they don’t want to make life worse for their legitimate users. They also recognize the risk involved in acquiring pirated software on the streets, or at least through p2p networks. They probably also recognize that users of cracked software may actually come back and buy stuff if they decide they like it. Freakshow also provides easy access to links for buying their other merchandise, like t-shirts. Nonpaying customers may become paying customers, of some sort or another, eventually.

Whatever their reasoning, it is refreshing to see a company that cares about its users, paying and otherwise. It is refreshing to see a new take on this issue.

Obviously developers want to sell their products, but no amount of wishing is going to offset the reality that the cost to reproduce and distribute digital goods is zero. If you make your software unwieldy to validate and use, people will crack the copy protection or go elsewhere. Cultivating these users may actually turn them into paying customers, even if they wind up paying for other goods and services apart from the original software.

Freakshow Industries previews its Backmask plugin.

Understanding The Startup Failure. Its not you its me, or the other way around.

I hear about people’s startup ideas all the time. Some sound great. Some leave me doubtful. Some great-sounding ones fail. Some not-so-great-sounding ones go on to great success.

Sometimes there is an idea that seems to solve a problem for a business but learns later that the cause of the problem cannot be solved by that business.

Go Dish had an interesting idea based on an identifiable problem for restaurants: there are times when the dining room is empty and they would like customers. Go Dish offers same day deals to drive customers to the restaurants when the restaurants need them.

“Unlike traditional restaurant deal services, Go Dish gives restaurants complete control over the discounts they make available throughout the day and week. Restaurants incur costs at all hours, whether they’re serving customers or not. We help them fill the restaurant with more customers, when they want them.” [emphasis added]

Makes sense, right. There are lots and lots of e-commerce coupon apps out there, so businesses and consumers must want them. Go Dish seems to fill a need. What could go wrong?

What if you identified the problem, but misdiagnosed the cause?

Go Dish released a goodbye letter and invitation to various whatevers announcing that they are closing shop. In the letter, they again recap why they thought they had a winner:

“We embarked on this adventure because we saw a win-win opportunity to send more business to restaurants at their quieter times while helping you guys save a few bucks on lunch here and there.”

It seemed to make sense at the time:

“We’ve sent our restaurant partners over 30,000 customers and received a tremendous amount of positive feedback from restaurants and customers alike … “

But the problem with “quieter times” was not about pricing and incentives for customers. It turns out people stay away from restaurants during “quieter times” because they have more important things to do based on obligations to others that cannot be overcome with 50% off of tacquito appetizers.

” … but it turns out it ain’t easy for most people to eat at off-peak hours. And everything that gets in the way of sneaking out of the office for an early or late lunch proved too high of a barrier to overcome for the Go Dish model to be sustainable long-term.”

Startup failure and success are not just issues of execution, “solving problems,” and “making the world a better place.”

In Go Dish’s case, a seemingly good idea for a seemingly logical problem missed the mark because the cause of the problem was both different and deeper than expected. As a result, their solution did not address the actual problem. I hope all of the other similar coupon companies out there take note.

Why Startups Fail – Mint vs. Wesabe

In an old blog entry (that I just found), one of the founders of Wesabe thinks back to why his company lost to Mint.com and shut down. For those who don’t remember, Mint was high-flying personal finance site that was sold to Intuit in 2009 for about $170 million.

Wesabe and Mint went head-to-head. Mint won. Here's why.

Marc Hedlund writes an honest article about his take on why Wesabe eventually shut down. First, he knocks out four myths, including that Mint launched first, had a better name and design and went viral.

Then, Hedlund discusses what he saw were the drivers behind the success of one and the failure of another. At the end of the day, it comes down to familiar themes recognized by those of us who work with businesses, particularly startups.

“I think in this case, Mint totally won at the first (making users happy quickly), and we both totally failed at the second (actually helping people).”

Mint gave people what they wanted and made it easy. Wesabe wanted to help people change their financial behavior, which is a value judgment with which the consumer himself/herself may disagree.

Hedlund notes that some of the things founders obsess over are really not important:

“You’ll hear a lot about why company A won and company B lost in any market, and in my experience, a lot of the theories thrown about – even or especially by the participants – are utter crap. A domain name doesn’t win you a market; launching second or fifth or tenth doesn’t lose you a market. You can’t blame your competitors or your board or the lack of or excess of investment.”

He does get to the crux of the issue about how to succeed:

“Focus on what really matters: making users happy with your product as quickly as you can, and helping them as much as you can after that. If you do those better than anyone else out there you’ll win.”

That’s it. Give people what they want to meet their needs and solve their problems.

Hedlund still believes that there are problems to be solved. However, imposing your judgment on people’s behavior will not have the same success as meeting people’s needs and desires.

“So, yeah. Changing people’s behavior is really hard. No one in this market succeeded at doing so – there is no Google nor Amazon of personal finance. Can you succeed where we failed? Please do – the problems are absolutely huge and the help consumers have is absolutely abysmal. Learn from the above and go help people (after making them immediately happy, first).”

First Public Bitcoin Company, An Ecommerce Reseller Of Consumer Products, Goes Public Using A Reverse Merger

First Bitcoin public company (sort of) went public through reverse merger.

Charles Allen, CEO and CFO, of Bitcoin Shop recently went on CNBC to discuss why a reverse merger was the best choice for his company to go public. His reasons included:

Publicity from being public
Transparency
Time to market, merger done in three weeks
They wanted to be the first public Bitcoin company
Ability to raise funds

For this post, let’s overlook my opinion that reverse mergers are generally a terrible idea. You never know what you are getting into, such as Bitcoin Shop’s recent extensive revisions of two years worth of financial disclosures following the notice of nonreliance on previously issued financial statements and audit reports.

Bitcoin Shop goes public through a reverse merger transaction.

There are private companies that not only can navigate the process, but have the systems set up to successfully transition to being a public company. However, they are few and far between. In addition, the fundraising seldom materializes. To Bitcoin Shop’s credit, they did raise about $1.8 million in a private placement related to the reverse merger.

As to Bitcoin Shop’s Bitcoin-related business, as Mr. Allen described on CNBC, it basically is an affiliate seller of products for other sites. It lists products and permits payment by Bitcoin. It has a goal to be a leading virtual currencly marektplace, but it is not a “Bitcoin” company. It markets stuff sold by others and processes payment and takes fees. It currently has a single vendor, but it plans more.

Bitcoin Shop may be able to earn revenue through markups on products and processing fees and undercut credit and debit card processing fees. Time will tell if this is a viable strategy. But, for all of the technical discussion in its investor presentation and SEC filing discussion the transition, Bitcoin Shop is an ecommerce company that lists products for sale by another vendor and processes payment denominated in Bitcoin.

There is nothing wrong with that, and I would not be surprised to see many more follow suit. However, I am reminded of seemingly hundreds of companies with little relationship to technology slap a “.com” at the end of their name back in the 1990’s. Is history repeating itself?

Startup Tips: Knowing When To Add Salespeople

When you work in the startup world, you see it over and over again. A company has founders, a product and, maybe, some angel or friends and family investors. It is time to get that product out the door and some cash in your pocket.

Many founders believe that their wonderful and innovative idea combined with their passion will explode into sales. This is not always the case, particularly when your target market is other businesses.

Being an inventor, administrator, financier or (even) attorney is not the same thing as being a salesman. Selling is a talent and a skill. Not everyone is born with the ability to sell. Not everyone has taken the time to develop this particular skill. However, if your business depends on personal sales calls to buyers, whether they are end users or intermediaries, you may want to consider whether you should hire a dedicated salesperson.

Generally, when the product has been tested and is ready for entry into the market, it is a good time for the startup to have a committed salesperson on board. Preferably that person would know the industry and show up with a ready-made contact list, as ‘Rolodex’ is so-old economy. However, even a person who has sales experience and can understand the product will be preferable to an inventor or founder who may not have the right experience to turn an opportunity into revenue.