6 reasons why my startup, which received funding, failed
During dot com boom, my friends and I started a startup where I was the technical director. We have developed a knowledge management system. It was a combination of blogs, wiki, document management systems, social bookmarks. We started in 1999, which was a bit early for wiki and blogs (Movable Type entered the market in 2001). Social bookmarks, in fact, were exactly the same as Delicious would later become. In addition to these new and remarkable ideas (at least for 1999), we had three distinct features:
We had some money - the seed investments that we received from the venture capital fund, and we quite happily and successfully developed our application. We showed it to many users and received very favorable reviews from large companies. So why did a startup fail and I'm not a millionaire?
There were a myriad of reasons for this, but, as I wrote in the Rules for Successful Business , the rules for a successful business are simple:
Thus, the most important thing is to sell, but many startups forget about it. And so do we. After many thoughts, I came up with the following 6 reasons for failure (besides the fact that the venture capital market collapsed when we needed money and nobody could find a source of funding):
Now more.
We did not sell anything, because we did not have a product that could be sold. As good engineers, we wanted to wait until the product is ready, and then start selling. We started selling when we had an almost finished first version. This led us to focus too much on development and not on sales. We thought that without a finished product we could not go to customers and try to sell. Slowly we learned two things:
We did not sell anything, because we did not have a sales manager. Bummer. No, well, of course we were looking for a sales person, and even in our business plan it was written: “The top priority is to hire a person who will be engaged in sales”. It took time and resources, but we did not have them. If you want to sell something, take a sales manager or hire someone from the beginning.
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We did not sell anything, because customers would not buy anything. The product was excellent, and the reviews are great, just customers have been resolved for too long. We wanted to sell a knowledge management system from bottom to top: to project managers, and through them to companies. But each time the next boss heard about the knowledge management system, he decided that this decision should be on his agenda. Thus, the question moved along the chain of command, and there was no person making the final decision. We talked to irrelevant people and lost a lot of time. Ask people if they have the authority to make a decision about buying your product. Leave only those who answer “yes” quickly. We had several large companies in terms of sales, and I am sure that, sooner or later, they would have bought our product, but as a startup we did not have the opportunity to wait. SAP, for example, can easily wait a year before selling. Selling corporate software takes a long time.
The market “window” has not yet been opened. No one has ever heard of blogs, wikis, or tags. We had to explain to our customers the benefits of the wiki (Everyone can edit! Everything! How dare they?), Blogs (Everyone can have an opinion and express it! Absolutely everyone!) And tags (They can build ontologies! We need a committee to define an ontology for everyone! Otherwise we will be swallowed by chaos!). A few years later it would be much easier to sell a blog, wiki and tags.
As founders, we were passionate about technology. We worked with EJB (not yet mature enough technology at the time), we spat XML everywhere and transformed it into HTML using XSLT (not fast enough), wrote our ORM - what a stupid idea (Hibernate was not yet available), tried everything CSS driven (but we didn't have enough knowledge). This led to repeated rewriting and took a lot of our time. Discussions about technology took a lot of time and drove us down, and we should have talked about our customers.
There is no place to be easier: we had the wrong business model. Selling software can make a lot of money one day, but it takes time. We invested money in development, sales took a huge amount of time, and we lost all the money, and without receiving any income.
A better business model would be to: advise clients on knowledge management and start with an open source product.
We advised companies on how to organize knowledge management correctly, how to use a wiki, but we didn’t charge for it, because it was part of our sales process. By focusing on consultations and billing, we would ensure a stable income.
I later worked on open source products when developing SnipSnap. SnipSnap borrowed a small part of our startup ideas - wikis and blogs, and distributed freely. Many people downloaded it and installed it on their computers. We made the installation process really simple, because SnipSnap spread very quickly.
I once talked with the boss of one very large company, and he said that the wiki somehow did not take root - it was all very unstructured and chaotic. In fact, I knew that they had several installations of my program in the company. :-) How many are doing now - we could insert a foot into the open door with our open source product, and then sell them support and bells and whistles. Later, companies paid us money to add new features to SnipSnap, to make it more scalable, and more. But in 1999 we did not know so much about business models as we know now.
What can you learn from my mistakes? I do not know, but start selling. I personally learned a lot - how to manage, how to create a product, what business models are, where money comes from and how to be a technical director.
- Everything could be assigned to tags: skills, people, links, documents, blog posts, wiki pages. Something that is now called folksonomy . Labels could be related to other labels and form ontologies. Tags could refer to other documents, posts, people.
- Everything could be rated from 1 to 5.
- We had a smart fuzzy search based on tags and ratings. For example, when searching for “people with knowledge of Oracle,” SQL Server specialists were also included in the issue — for example, to staff the team if there were no free Oracle gurus.
We had some money - the seed investments that we received from the venture capital fund, and we quite happily and successfully developed our application. We showed it to many users and received very favorable reviews from large companies. So why did a startup fail and I'm not a millionaire?
There were a myriad of reasons for this, but, as I wrote in the Rules for Successful Business , the rules for a successful business are simple:
- The consumer is the most important thing in your business;
- The best business plan is to sell people the things they want;
- A business is successful if your income is greater than your expenses.
Thus, the most important thing is to sell, but many startups forget about it. And so do we. After many thoughts, I came up with the following 6 reasons for failure (besides the fact that the venture capital market collapsed when we needed money and nobody could find a source of funding):
- We did not sell anything;
- We did not sell anything;
- We did not sell anything;
- The market “window” was not yet open;
- We were too focused on technology;
- We had the wrong business model.
Now more.
We did not sell anything, part 1
We did not sell anything, because we did not have a product that could be sold. As good engineers, we wanted to wait until the product is ready, and then start selling. We started selling when we had an almost finished first version. This led us to focus too much on development and not on sales. We thought that without a finished product we could not go to customers and try to sell. Slowly we learned two things:
- You do not need a product to start selling it. The first meetings with clients were quite possible, we had only screenshots, slides and interface prototypes. Since the topic was new to our customers, first of all we had to sell them the very concept (wiki, blogs, tags), and this could be done without a finished product.
- Start selling before you start a company. Start selling now! You do not need a company to sell new ideas to customers. Start selling now! When people really want to buy your product - register a company.
We did not sell anything, part 2
We did not sell anything, because we did not have a sales manager. Bummer. No, well, of course we were looking for a sales person, and even in our business plan it was written: “The top priority is to hire a person who will be engaged in sales”. It took time and resources, but we did not have them. If you want to sell something, take a sales manager or hire someone from the beginning.
')
We did not sell anything, part 3
We did not sell anything, because customers would not buy anything. The product was excellent, and the reviews are great, just customers have been resolved for too long. We wanted to sell a knowledge management system from bottom to top: to project managers, and through them to companies. But each time the next boss heard about the knowledge management system, he decided that this decision should be on his agenda. Thus, the question moved along the chain of command, and there was no person making the final decision. We talked to irrelevant people and lost a lot of time. Ask people if they have the authority to make a decision about buying your product. Leave only those who answer “yes” quickly. We had several large companies in terms of sales, and I am sure that, sooner or later, they would have bought our product, but as a startup we did not have the opportunity to wait. SAP, for example, can easily wait a year before selling. Selling corporate software takes a long time.
Market "window" has not yet been opened
The market “window” has not yet been opened. No one has ever heard of blogs, wikis, or tags. We had to explain to our customers the benefits of the wiki (Everyone can edit! Everything! How dare they?), Blogs (Everyone can have an opinion and express it! Absolutely everyone!) And tags (They can build ontologies! We need a committee to define an ontology for everyone! Otherwise we will be swallowed by chaos!). A few years later it would be much easier to sell a blog, wiki and tags.
We were too focused on technology.
As founders, we were passionate about technology. We worked with EJB (not yet mature enough technology at the time), we spat XML everywhere and transformed it into HTML using XSLT (not fast enough), wrote our ORM - what a stupid idea (Hibernate was not yet available), tried everything CSS driven (but we didn't have enough knowledge). This led to repeated rewriting and took a lot of our time. Discussions about technology took a lot of time and drove us down, and we should have talked about our customers.
We had the wrong business model
There is no place to be easier: we had the wrong business model. Selling software can make a lot of money one day, but it takes time. We invested money in development, sales took a huge amount of time, and we lost all the money, and without receiving any income.
A better business model would be to: advise clients on knowledge management and start with an open source product.
We advised companies on how to organize knowledge management correctly, how to use a wiki, but we didn’t charge for it, because it was part of our sales process. By focusing on consultations and billing, we would ensure a stable income.
I later worked on open source products when developing SnipSnap. SnipSnap borrowed a small part of our startup ideas - wikis and blogs, and distributed freely. Many people downloaded it and installed it on their computers. We made the installation process really simple, because SnipSnap spread very quickly.
I once talked with the boss of one very large company, and he said that the wiki somehow did not take root - it was all very unstructured and chaotic. In fact, I knew that they had several installations of my program in the company. :-) How many are doing now - we could insert a foot into the open door with our open source product, and then sell them support and bells and whistles. Later, companies paid us money to add new features to SnipSnap, to make it more scalable, and more. But in 1999 we did not know so much about business models as we know now.
What can you learn from my mistakes? I do not know, but start selling. I personally learned a lot - how to manage, how to create a product, what business models are, where money comes from and how to be a technical director.
Source: https://habr.com/ru/post/89706/
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