Lessons learned from 10 failed startup ideas

During last 7 years I have been involved in many projects and along the way I have learned some stuff from building and promoting them. I will look at some of mistakes that were made and hope it helps someone interested in starting his own venture.

1. Krabjiem.lv

fail_krabjiem

Idea: 9gag type of site in Latvia

Started: May 2007

Results: developed and promoted it for several years, got into Top 20 sites in Latvia according to Gemius Audience, and made up to 2000 USD per month from ads, then stopped all activities because earnings were too low. Since then the site is a living zombie – nothing is updated or added, it gets some traffic from Google and generates enough money to pay for hosting and some beers.

Visits per month Rank in Latvia
Nov 2007 43371 30
Nov 2008 92462 25
Nov 2009 182057 16
Nov 2010 83848 35
Nov 2011 48356 48
Nov 2012 29211 58

Conclusion: before investing several years of our time, we should have done some market research to test our assumptions:

  1. If we get lot of traffic, we will get high-paying direct advertisers.
    We looked at the ad prices of the largest internet portals in Latvia – did some calculations and results seemed promising. Turned out – our audience is not valuable for direct advertisers and we could attract only few of them for small campaigns. 95% of revenue came from low paying ad networks. And after the site got blocked from Google AdSense program, situation got even worse, because other ad networks generated less earnings.
  2. Latvian market is big enough.
    We found out that there are only few profitable internet sites in Latvia. Even if you are among Top 3 sites in your category, you still might lose money. Not exactly something to aim for. If I would build something like this again, then with the goal of building a global site from day one.
  3. All traffic is the same.
    As we learned – there is a huge difference, if you have an entertainment site or, for example, a site dedicated to young mothers or sports. If your site is not attracting some specific audience that is valuable to advertisers, then you need a lot of traffic to make any money from ads.

And we did some mistakes as well:

  • we selected and added content on our own. It would take less resources to build a community and let the site visitors generate all the content in the site.
  •  to get more traffic, we tried to add all kind of content – online games, RSS feed aggregator, dating functionality, and lot of other stuff. It took lot of time to build all of that, but did not help much with growing the audience and made the site more complicated
  •  for our dating app to work, we wanted users to add their real names and pics, but that was not why most of our visitors came to the site, so in the end – the users who wanted to be anonymous were not happy, and the dating part did not have much activity as well.

If you want to test out your startup idea without wasting so much time as we did, I highly recommend checking out Javelin experiment board – you can be much more effective by talking to potential customers and partners to get feedback on your assumptions before building something.

 

2. xAuto.lv

fail_xauto

Idea: a social network/community around cars

Started: Jan 2008

Results: we found a CMS that could be used for this, customized it heavily. Spent some time discussing features, but in the end – got no traffic and shut down the project. Wasted couple of months.

Conclusion: we had no idea what we were doing. All of us were geeks and more interested in IT than cars, and as we had no idea how to promote the site or why anyone would use it, this project was doomed from the start.

My advice – look for a problem that you are passioned about and know something about, don’t build a solution in space that you don’t understand just because you can.

 

3. Flash gaming sites

fail_games

Idea: network of flash gaming sites in 10+ countries

Started: April 2009

Results: we bought many domains, used one backend system for all of them, and with help of SEO got traffic to about half of the sites. Some of these gaming sites got up to 2000-3000 visits per day, but it was not enough. We thought that maybe results would improve over time, so paid for domain names for couple of years, but as there were no huge improvements and we had no interest in spending more time, then we shut it down in 2014.

Conclusion: I was used to getting top rankings for any keywords I wanted in Latvia, but it was not that easy in other countries. To get good results, you need to invest lot of time and get many backlinks.

 

4. LabsLaiks.lv

fail_labslaiks

Idea: easy to use weather site

Started: Sep 2009

Results: we launched it quite fast – it was a small and simple site, the most advanced technical thing was scraping weather data from gismeteo.ru and displaying it with our design and language. With help of SEO the site got up to 3000 visits per day and it was active for about 5 years, but was almost useless, because the income from ads was very low. In 2014 we shut it down because gismeteo had implemented some kind of protection, so that we could not use their data anymore.

Conclusion: should have learned this faster, but building a local Latvian site where business model is making money from ads, is a bad idea.

 

5. GroupScript.net

fail_groupsc

Idea: script that you can use as turn-key solution for setting up your own daily deal site similar to Groupon or LivingSocial

Started: Jun 2010

Results: after 6 months of development we launched our script and had only 1 competitor. Sold the script to about 500 customers from 50 countries, but after 18 months the big hype was over – everyone had already built their own daily deal site, and at this point we also had 10+ competitors – some even sold stolen scripts, including ours. We still had lot of support requests, but few sales, and we decided to do something else.

We tried coming up with other ideas, but had no success, and after we closed our office to optimize costs, my co-founders decided to shut off all access to me, and did not reply to calls/emails. Was not happy about it and did not think they were so desperate, but it was my mistake of trusting them too much as well.

I also created a Prezi presentation about GroupScript (in Latvian):

Conclusion: even if this project died, while it was going on – results very quite good, we went from 3 guys with a side-project to 6-7 people team with our own office. And I learned a lot as well:

  1. We had better results selling it at $399 than at $250. In our case cheaper prices meant lower expected value and more customers that ask for unreasonable discounts. After raising the price, we got less annoying clients, but the same amount of sales and more income.
  2. It was a good idea of setting up a landing page, collecting potential customer emails and launching fast, even if the product was buggy and had few features. We got lot of sales in the beginning while there were only few competitors, so speed was more important than quality. And the revenue helped hire new developers and build the product faster.
  3. The product was not that good and our discipline was bad – sometimes I would come at office at 2PM to be first one there. But it did not matter too much – market force is the most important one, and the need for such a solution was there, so we made lot of sales anyway.
  4. Resellers are mostly waste of time, make sure to ask them first to pay for any time you spend on customizations, translations, etc.
  5. You need to trust your co-founders, but also make sure – your relationships are formalized, you have all the agreements in written format, IP is assigned to company, and even better – if you have control over at least 1 critical part of the business. Otherwise it will be too easy for them to do some sleazy stuff, and these kind of things tend to happen when either the startup gets successful or when it is about to die.
  6. It might be a better idea not to sell the script, but offer it as a SaaS solution – this way we could make money from all the successful clients as long as they operate, and some of our clients did quite well. It would also be easier to get started, less problems with upgrades, etc.
  7. It was a bad idea to offer 1 year free support, because when our sales numbers got lower, then we still had lot of old clients to support, that did not pay us anything.

 

6. KeywordRanking.biz

fail_keyw

Idea: SEO analytics tool

Started: Jan 2011

Results: I needed something like this myself, so I just built it and thought that I could sell it to others as well. But I got maybe 1-2 clients to pay for this and later shut it down. It seemed that no one was ready to pay for an analytics tool.

Prezi presentation:

Conclusion: I still think that the tool was quite good and gave good insights for someone that wanted to improve their SEO rankings, but it seemed that it would be useful only for a very small, specific audience that was not easy to reach.

Also – I might have done better, if I had built it 5 years earlier. The market with similar tools was crowded, and even if most of them were crap, it still made hard to get visibility.

And of course as in many other cases – to get good results, you really need to invest lot of time and energy, but as this was just another small side project for me and I did not get the traction I wanted in the beginning, then I decided to focus on other ideas.

 

7. Mobile web ad network

fail_mob

Idea: ad network that would monetize mobile web traffic

Started: Feb 2013

Results: talked with couple of large publishers and created custom solutions that were integrated with their design, but the progress with discussions and implementation was so slow, that after 6 months we still had not launched any campaigns. This was too slow for us and decided to freeze this.

Conclusion: the potential of working with few, but very huge partners sounds promising – but you need to make sure to have patience and enough cash, because these kind of deals take so long you can run out of money.

 

8. BitcoinMixer.eu

fail_bitc

Idea: service for anonymizing your bitcoins

Started: Apr 2013

Results: created the design, built the first version of service, bought domain name with bitcoins, and just before launching decided to talk with legal advisors. They did not know what Bitcoin was, but after me explaining it compared it to electronic money, and suggested – that if someone uses BitcoinMixer service to launder money related to terrorism or other evil stuff, then we could have some problems as well because in a way we would help them.

So this created a problem – either the service would need to store all kind of logs that we could give to any government institutions interested in them or risk with pissing them off. Did not like any of these options and decided not to launch the service. If some part of it might be useful, you can check out the code on GitHub: github.com/kristapsmors/bitcoinmixer

Conclusion: if you have some concerns that might affect the existence of your startup, get them sorted out before building something, not other way around.

 

9. Peer to peer lending

fail_p2p

Idea: clone of bondora.com for Latvia, later – other markets

Started: Nov 2013

Results: I was approached by 4 finance guys, they wanted to build a peer 2 peer lending platform, and had no idea about IT, offered me to be their CTO. I agreed to meet for several times and see if we can get something started.

After learning more details I became very sceptical – the team had no sales/marketing person, no idea about promotion, no investors, and looked like they wanted to launch this as a side-project from their full-time jobs. After 3 months and 4-5 meetings we had created the wireframes using gomockingbird.com and I got an offer from Turn.lv web agency that could develop the MVP.

We had a team meeting, I asked about the go to market strategy and got a response – that it would be done via press releases and social media. After that I decided to leave the project before spending more time or money on development. The other team members were more optimistic – they developed the MVP, but a year has passed, nothing is launched, so I am quite sure, this startup is dead.

Conclusion: if the startup has many risks and challenges, you need to be 100% sure – that you have the right team, all the resources and motivation to get things done no matter what. And it was not our case:

  • Team – besides me no one else had built any business, 3 were working in banking, 1 in real estate. And the other 4 members wanted to work together not because they had the needed skills, but because they were friends, in relationship or related. In my opinion the ideal team would consist of 1 finance/legal, 1 sales/marketing, 1 tech person. But here we had 4 finance/legal guys and 0 sales/marketing.
  • Resources – there were no investors. We could invest our own money for development, but we would not be able to spend anything on marketing.
  • Motivation – it looked like no one was ready to leave their job and work on this full-time. If I could not launch much more simple ideas as side-projects, I had doubts that even a more solid team can succeed with building a peer to peer lending platform while working on weekends.

Besides that there were also many challenges:

  1. Legal issue – according to laws of Latvia, you cannot create this kind of business here. I talked with CMO of a payday loan company and he said they had researched this idea already years ago, but my team members said they have a solution. Not sure if they really did.
  2. Competition – isepankur (now – bondora.com) already operated for 5 years in Estonia, their start was slow, but now they are in 4 countries, and if we just clone them 5 years later with no serious advantage and they decided to launch in Latvia, we would not be able to compete. Another issue – there are several large payday loan companies in Latvia, that could clone this solution in matter of months if they see that we really can get any results, and could destroy us anyway with their resources.
  3. Trust – we had to gain trust from investors and convince them that we would get them good returns. Same for those who borrow money – they need to be sure that they can get better deal from us and it is worth the more complicated process of signing up, applying, sending us all docs, etc. For a new company this would take lot of time or money, which we did not have.
  4. Go 2 market – we had no good ideas how to get to market with no budgets, and even if we had money to spend on marketing – we still would need someone experienced so that we would get results, not just burn it.
  5. Security – system had to be really secure, and if we had any fuckups, there could be lot of legal and other issues to deal with.

In short – it was not rocket science, but probability of success was very low with the team and resources we had.

10. Bitcoin-charts.info

fail_charts

Idea: charts with Bitcoin prices in all the largest exchanges

Started: Dec 2013

Results: Started this as a side project, while I was working also on GetGamers.eu and MaxTraffic.com Built the wireframes and first version. It was sort of working, but there were lot of small fixes needed. During this time I realised I cannot do a good job while working on 2-3 different startups, so I set MaxTraffic.com as my top priority, and forgot about BitcoinCharts. But if you want to check out the code or build something similar, source is available on GitHub: github.com/kristapsmors/bitcoin-chart

Conclusion: if you want to get something done, focus! Even small projects can take a lot of time.

Comments from Hacker News

There are some in good comments Hacker News discussion – I suggest you read those as well, some of my favorites:

“It seems like after the first startup, you realized that Lativa is not a good market for startups. And then you went and created 9 more in Lativa and learned the same lesson over and over.”

“The main conclusion you can draw from this story is that you should read, learn, research and think more before doing something, not after.”

  • icu (about researching the market):

“The way I would go about it is:

Start talking to potential customers. Find out how painful and valuable the problem is. Find out if they are currently using some other solution to the problem (your competitors).

Approach an industry organisation, if there is one, and talk to them about the problem, who has any existing or new solutions and find out if they have market research from their members.

Just a comment about the above two points, you don’t have to pitch your specific solution to the problem but I would still leave the door open when you are talking to people and say something like, “if I were to come up with a solution that would do (insert features and benefits) would you be interested in talking further?” If the problem just isn’t perceived by your customers to be painful or valuable then I would move on.

Now assuming the pain is sufficient and a solution is valuable then start looking at the economics of the business and start ‘building the market.’ What I mean by that is start with some assumptions about customer characteristics, for example demographics, and start putting some numbers together in terms of total market size. Try to do this from different angles and use different assumptions.

Then start playing around with what you think your cost and profit structure would look like with different business models. Think about what your cash burn rate will be and what sort of adoption you will need to hit a ‘cash neutral’ and break even scenario.

Then start applying this to your ‘whole of market’ model that you did before and start thinking if it makes sense. Do you need 1% or 0.0001% of the market to start adopting your solution? What might it cost to acquire those customers in terms of time and money? Start thinking about how that relates to hitting your ‘cash neutral’ and break even scenario.

Take a step back. Does this make sense? How much work is involved? How much capital are you going to need to achieve this? Then multiply that by say 4-5 times to give you a margin for error.

Now start thinking about post ‘cash neutral’ scenarios where you are capturing different rates of the market. How much do your costs ramp up? What is your marginal profitability? What does this equate to in terms of return on capital? If the returns are low then forget it. Investors want you to return their capital plus a big fat profit. If you don’t think you can grow a big enough pie so you can get a slice of it that will satisfy you then forget it and find another opportunity.

If things look like they are stacking up well and you got a good story to sell to investors then good luck. Raising money is a bitch. Assuming you manage to get enough then things get harder because you will now have to execute within the cash ‘runway’ you have been given and well the rest at that point is up to you, your team and luck.

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5 thoughts on “Lessons learned from 10 failed startup ideas”

  1. Nobody ever wants to do market research. Doing so will usually kill their idea.;) Perhaps, not though.

    You can still enter an existing market. And if you thoroughly understand that market, you can build a better mouse trap.:)

  2. This is great. Thanks for the insight. I’m a technical guy (software engineer). I’m really scared of getting something out there.

  3. Great article, love the depth of the insights. The overall conclusion is startups rarely fail because of a bad idea (it always has at least some potential), or a bad technical solution (you did survive for a while with crappy products), it’s mostly about marketing and finding real clients.

    And with this startup hype and everyone cheering startups, it’s a good quote: “Marketing is like sex – everyone thinks they are good at it”.

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