I think Jill Felska said it best when she said that failing at a startup is like being kicked hard in the shins right after being dumped, all while standing in the pouring rain with no cabs in sight, only to have a huge truck drive by and splash mud all over you. Yep, it hurts.
Entrepreneurs are naturally optimistic people so the decision to shut down is often harder than the decision to keep pushing on. And while the experience is painful, it’s also great to step back and realise the journey has taught you a lot and you’re 10x better for the experience. Every startup is different but here are a few things that we learned, in fact you’ve probably heard these before.
1) What looks like product market fit, may not be
Our startup solved a real problem that people paid for but unfortunately there weren’t enough of these people. If you’re targeting a huge (global) market and you strike paying customers, then you can usually build a big business around these people. If you’re targeting a local, niche market to begin with, you don’t have this luxury. Because we had happy paying customers, we thought we could optimise for better conversion. But we eventually discovered a fundamental problem with our product offering for the larger portion of our target market. It’s not called “product fit” for a reason, you need to add “market” and ensure enough people want what you’re providing.
2) Pick up the phone
How users interact with your product tells you a lot. But the real magic is finding out the motivation behind those interactions and you can only do this by talking to users. Surveys help but nothing beats talking. Sounds easy but it’s not. People don’t have time to meet with you and over the phone they’re impatient, plus you won’t always get direct or honest answers. But you need to persist. We recommend short phone calls that lead with open ended questions. This is not a survey, nor a sales call, but a genuine conversation about your customer’s needs. Our biggest insights came from prospects and leads that didn’t convert – if you can capture the details of these people and follow them up, you’ll get all the answers to your startup’s challenges. Read why startups should use the phone.
3) Choose a highly fragmented market
To use our market as an example, suppliers (smash repair shops) rely on insurance companies for the majority of work. This influences the way suppliers operate and this had a negative knock-on effect for our marketplace. Even though we were chasing a different customer segment (the private market), the pure existence and dominance of insurers did restrict how much we could tweak our product offering to fit our target market. If you’re building a marketplace, ensure both supply and demand is fragmented (ie. no dominant players who control over 60% of the market on either side). It’s much easier.
4) A marketplace needs to serve a frequent need
Our paying customers absolutely loved us….but our relationship was like a one night stand. Given the infrequent nature of car repairs, all our hard work in wooing customers and delivering outstanding customer service meant little repeat action. This resulted in a low lifetime value which impacted how much we could spend on customer acquisition. Of course there are exceptions to this rule (carsales being one) but it depends on the market and your business model. You know the mantra, repeat business is good business.
5) Don’t rely on another startup for validation
We had a US competitor who was VC funded with a brainstrust that included the Groupon Founders. This gave us a lot of confidence but not even they could overcome the cost of acquisition problem. Direct competitors might have a large bank account, fancy offices and kick ass advisors but that doesn’t mean they know any better than you. There is no road map. It really comes down to this: the startup that knows their customer the best, wins (and winning can be failing quicker or pivoting when you still have the means to do so).
As founders, we had some hard knocks but we also had some wins. With every lesson, there is something we did well and would apply again. We’ll be back in future, wiser and stronger. As for this startup, well it’s driving off into the sunset.