How we did 15 startups in 21 months: Part 1
Ali, and I sold Peanut Labs about 3 years ago. Peanut Labs was our first real venture funded company. Initially started off as Xuqa.com, and after missing the social networking bubble, we morphed it into a monetization network for social games. The model worked well and we found a blue ocean in the Facebook platform and the new emerging social gaming trend. We partnered with all the major game companies and delivered value to their users. We scaled the company over 3 years (2007-2010) to $15M in annual revenue and eventually had a decent exit for the company, employees and our share holders. I had always thought making the first million or selling your first company was always the hardest. In a way it is, but here is the untold story of what came afterwards. This is the story most repeat entrepreneurs will never tell.
We stayed on board after the acquisition for 8 months. During that time, it became apparent to us that due to internal issues at our new parent company, we were not going to be able to hit our earn out metrics. Due to confidentiality issues, I can’t say much more here, but the situation sucked. We had delivered on everything we had promised and yet we were going to not hit the earn out metrics. Ali and I got disheartened and decided to leave to start a new company. After all, we’re entrepreneurs at heart and when you can’t control the situation, its best to walk away.
We decided to start a peer to peer service for high end cars. Think getaround.com / relayrides.com but for nicer, more aspirational cars. We called it HIGEAR.com. Ali has always loved sports cars, but owning one is just downright impractical. So we thought, here is a great service that allows anyone to have access to greatest inventory of sports and luxury cars without the trouble of actually owning one. People would line up by the hundreds to use this. And in a way they actually did!
Given we had just sold Peanut Labs, fund raising turned out to be quite straightforward. While raising money for Peanut Labs, I literally pitched and got turned down by 32 VCs. That equates to over 100 actual meetings on Sand Hill road. This time around, we did maybe a dozen meetings and in 3 weeks raised $1.3M at very decent terms. We ended up raising money from eVentures, Battery Ventures, 500 Startups and about 8 angels. With $1.3M in the bank, we were set to hit the pedal hard.
At this point, most people would have said, hold on! Go on a vacation. Get some rest before starting your next company. I did not feel tired or exhausted. In fact, being small and nimble again, I was energized and full of excitement. Success solves a lot of problems, including energy, and we were off to a great start.
Launch to Shutdown in 5 months
We spent 3 months building a working V1 of the website and launched it August 2011. Had a phenomenal launch party, got covered on Techcrunch countless times etc.
We spent a lot of time and energy developing the brand. We had a hi-fi website, lots of pretty professionally done photo shoots. Models, sexy cars, apparel. You name it and we probably did it. And we did this all this in an extremely short amount of time (5 months total). We were very lucky to have some extremely talented people work with us. Dan Geily as CTO, Nabeel Khan, lead developer, and Sigouy Mo as our lead designer.
3 months after launch, due to our aggressive marketing we were doing $60k/ net revenue month. At the time, that was more revenue than either of the other peer to peer car sharing guys were going. They had both raised $10M+, had been in business for 1-2 years each and had much bigger teams than us.
But during this time, Ali and I both were getting pretty uneasy about the fundamental business model. We had an incident where 4 cars got stolen. But in reality that wasn’t that bad — within a month all cars were recovered (including my BMW!) and the total bill was less than $5k.
The elephant in the room was the shitty business model. We kept 30% and the owner was paid 70%. After we accounted for insurance, incidentals, user acquisition costs, we were running a negative margin business. Now in startup land, the VCs encourage this kind of practice. Its OK to lose money, and everyone thinks you’ll make it up in volume / repeat biz. That rarely ever happens. You can’t escape basic unit economics. And we felt the entire P2P car sharing space, had extremely bad unit economics. So after 3 months of having an incredible run, we decided to pull the plug. Shut down the service because we did not feel we could ever turn around the negative unit economics.
After TechCrunch ran the story, we were approached by Rent2Buy. They had recently sold their company to Hertz and were veterans of the car rental industry. We made full disclosures of our challenges and sold Higear.com, and its assets to them.
Interestingly enough, during this process, Ali and I became friends with the founders of other car-sharing services, like GetAround, Wheelz, & Relayrides. We actually told all of them why this model sucks, and they need to pivot ASAP to keep their companies alive. I think once you’ve raised $10-20M, its very hard to back to your investors and say “Ooops, we were wrong. This won’t work”. History will tell how this space turns out, but for now, I can safely say, our predictions on the business model were spot on. Most of these guys have either shut down, merged or pivoted the business model.
My only regret from HIGEAR is I should have had the insight (aka. balls) to do ride sharing (Uber, Lyft etc). We considered the model, but thought, “Hey there is NO FREAKING WAY the city will allow that. Its soooo illegal!!”. We could have been there way before UberX, Lyft etc. *sigh*. Live and learn.
18 Months — 22 Product Experiments.
So it was now April 2012. We had $750k in the bank (of the $1.3M raised). A a completely blank slate. So began the craziest, most creative, & and downright painful period of my startup career.
I thought as you do more, it gets easier. In a way it does — you have a lot more insight and hopefully don’t repeat the same mistakes twice. People return your emails more often, its easier to raise money etc. But here is the part that doesn’t get easier. And you’re not going to have a successful company without this bit, no matter how good you are at recruiting / raising capital / selling.
FINDING PRODUCT MARKET FIT
Product market fit is sort of like finding love. You don’t find it, it finds you. You just have to keep working hard, and hope you’re ready when it does find you. And its not absolute — you can have a product market fit for a product that will scale to $1M in revenue, and not beyond. Its truly difficult to find product market fit for some thing that will scale to $100M+ in revenue. And the problem with being a repeat entrepreneur is, $1M just isn’t exciting anymore (such ungrateful brats we are!). Its not black or white — its freaking 50 shades of gray.
Here is a list of products/experiments we launched from April 2012-December 2013.
- Corporate greeting cards
- Mobile dating app - (Apple rejected it).
- Hedge fund — (seriously!! looked into starting a hedge fund).
- Buying existing internet companies and scaling them (looked at 30+ companies, made some offers, but didn’t close any).
- 5 different versions of monthly gift box subscription clubs like Shoe Dazzle — (got CPA down to $75, but weren’t excited by the biz).
- HireVsNot — (ratings for biz professionals)
- Jobs Newsletter — (sending daily jobs newsletters. Generated $10k/month).
- BizChat on Mobile — (whatsapp but for biz. SMS invites are not viral. Wasted 4 months trying to learn mobile).
- MangoLabs — (MOOCs for corporate training)
- FabDates — (got initial traction, but kept getting our ads account banned by FB. CPA was 3x of LTV).
- Numbersgame.co (dating site that is a ad network — allows you to target exactly who you’re looking for — running into same issues with FB as Fabdates).
- League of Legends PRO Gaming team — VULCUN Gaming. — (started last of the league, finished #3 in North America. Became too distracting so sold it off).
- Themepot.com — wordpress theme site. Got to $10k in revenue. Hard to see it scaling into a big biz so dropped it.
- FB Birthday calendar app — got to a few million users. Very little re-engagement. Fizzled out.
- Business productivity apps — about 7 different apps with varying levels of success. Combined users, about 3 million. Hard to scale beyond that.
Part of what helped us do such rapid iterations and so many experiments, is Ali and I learned to design and code. All of the products we did post Higear, either Ali or myself did the front end development for. Nabeel & Salman, being the super stars they are, did all the backend. So in total most of these experiments were run by a total team of 4. In general i’ve found, smaller the team, the more you get done.
The jury is still out on what works, whether we’ve done the right things, and how this all turns out. Think of this as a mid way report. I’m sure when I look back after this is all done, the line to success or failure will seem straight and direct. But right now, while we’re still figuring things out, its quite jumbled and messy. The path an electron takes to get from A to B — to us it seems like a straight line, but in (quantum) reality its passed through every possible path, and then arrived at point B.
For now, here our our half time stats. Last month, our products received about 1.2M visitors & generated sufficient revenue to keep us profitable. The search continues for product market fit for the big one.