Startup Archives - That's Not Market

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.

Uber, France and Protectionism

France moves to ban Uber while homegrown ridesharing service BlaBlaCar continues to grow.

Carsharing service (or unlicensed taxi service, depending on who’s talking) Uber has faced enourmous regulatory hurdles where local taxi cartels try to protect themselves from the popular service. Europe is no exception as several there is a movement in several countries to stop or regulate or extract fees from Uber. However, Europe has lagged the U.S. in startup activity and success and has taken action against many prominent U.S. tech companies, such as the recent antitrust actions against Google and previous antitrust actions against Microsoft that seem so quaint now.

With that backdrop, let’s take a look at France and Uber.

The French government recently declared that some of Uber’s services would be banned in 2015. Like many places, there are some consumer protection rationales.

““Currently, those who use UberPop are not protected in case of an accident,” Mr. Brandet told the French news channel BFM TV, on Monday. “So not only is it illegal to offer the service, but for the consumer, it’s a real danger.””

Anyone anywhere who has ever taken a licensed cab knows this is silly. The real answer? Regulation and protection of a local cartel.

“Critics contend that the service represents unfair competition for other taxi operators, and falls afoul of many licensing rules across Europe. That has led cities across Europe, including Brussels and Berlin, to outlaw the budget car service.”

But what happens if a local company makes good?

“The 28-year-old student is one of a growing number of people across France relying on ride-sharing to travel long distances. Driving the change is a homegrown startup called BlaBlaCar that is challenging state-run railway monopoly SNCF by creating an alternative transport network out of empty car seats.”

Is longer distance safer? What about how everyone loves European trains and how every U.S. city wishing to be considered “world class” wants more trains?

It turns out that when given a choice, people prefer not to take public transportation.

“BlaBlaCar’s ascent has come partly on the back of a deteriorating public-transport system across the continent.”

Even better:

“Its business model responds to the flaws in train travel his association has been complaining about for years: high prices and bad service . . .”

It makes you think that maybe a homegrown company has advantages over a foreign company providing what the local authorities cannot.

Or maybe they simply don’t like it when people make money in an unregulated environment.

“Because it keeps fees so low that drivers are sharing costs rather than making profit, the company argues it is quite different from a company like Uber, which also uses some nonprofessional drivers and bills itself as “ride-sharing.”

“There has been such a hijacking of the word ‘ride-sharing,’ ” said Mr. Brusson. “The key is about the driver not making a profit, and the driver going to his destination anyway.””

And yet, BlaBlaCar has business aspirations, as long as the drivers don’t make money.

“BlaBlaCar was originally called covoiturage.fr—simply the French word for “carpooling”—but its founders changed the name to BlaBlaCar to ease international expansion with a non-French brand they could own.”

France moves to ban Uber while homegrown ridesharing service BlaBlaCar continues to grow.

Where I Add to the Pile of Opinion Regarding Corporations vs. LLCs for Startups

I got another (non-client) question about whether I prefer corporations or LLCs for startups.

Short Answer:

It depends.

Long-Winded Answer:

I have found that an LLC will often provide more flexibility in terms of division of rights and responsibilities from the default rules in many business entity statutes. In addition, there is more flexibility in terms of pass-through tax treatment with an LLC than with a corporation, even with a Subchapter S election.

If there are a small number of owners, or it is owned by a single person, they can usually get to the same result regardless of the entity type. In that case, the most important thing is to have some type of limited liability entity in place, and a corporation and an LLC are similar enough that the same results can be achieved through a variety of strategies.

Many people suggest a corporation because it is easier to attract investors, but that is not necessarily the case. Only a small portion of small businesses attract the type of institutional investors (such as venture capital firms) that would require the company be organized as a corporation. Investors in some industries may expect specific organizational forms for their investment. For example, real estate or natural resources investors may expect the company to use a limited partnership.

If an entrepreneur is in discussions with, or knows it may want to approach, an investor prior to organization, the investor’s concerns can be met up front. However, in the beginning the organizational form should be driven by the entrepreneur’s and business’ needs. Unless the entrepreneur knows who will make the investment and what their criteria is, there is no way to predict the terms up front as every situation is different, and there is likely to be some required restructuring done prior to the investment in any case.

Google Buys Waze, Among Biggest Startup Exits Of The Year

Deal demonstrates need for growth in mobile applications.

Waze, a community-based traffic and navigation app whose users share real-time traffic and road info, announced it was being acquired by Google.

Google confirmed the acquisition and noted that the Waze team will remain in Israel and operate separately for now.

The purchase price was reportedly in excess of $1 billion, rivaling Yahoo!’s purchase of Tumblr for mega-deals for private tech companies this year. Deal terms were not announced, but a even a cash deal would not be a problem for Google as it had over $15 billion in cash at March 31, 2013.

Waze has been the subject of acquisition rumors for months, with many of tech’s biggest names as purported acquirors, including Apple and Facebook. This deal demonstrates again that while “social” is okay for a business strategy, it is “mobile” that is driving growth.