Learning from the failure to maximize value
September 1, 2012 by Guest Contributor
Jeremy Snyder is the CEO of The Sharing Engine with a past work experience that includes 3 other startups. All three startups were eventually acquired but here he shares what he learnt from their several failed, missed opportunities. Jeremy can be found on Twitter: @sharingengine.
It’s become pretty cliche to discuss the acceptance of failure as a pre-requisite for a healthy startup ecosystem. Articles and pundits point out that failure is almost celebrated in Silicon Valley. Some famous angels and VCs won’t invest in an entrepreneur who doesn’t have a failed startup on their resume.
But it’s not the cultural aspects or checking a box that’s really crucial – it’s what you learn from the failure experience. You learn more from startup failures than from a successful startup.
Don’t get me wrong; making it is way more fun than not making it. Trust me – I’ve done both. And I use the phrase “startup failures” explicitly – not all startup failures lead to failed startups.
“I talk about the lessons learned from a startup’s failure to maximize its value, seize market opportunity, or deliver right.”
The enterprise-to-SaaS turnaround
The first startup I joined was the leading localization and translation memory software provider. I was roughly employee number 30 or 40 worldwide. The company was Microsoft’s first venture investment outside the US, and a key Microsoft partner and vendor, and this was in a time when Microsoft really dominated computing. I was there as the company doubled revenue, grew to 250 employees, and took in more than USD 15M in funding.
Of course, I was also there in 2001, when revenue shrank and the company did 4 rounds of layoffs. This was a painful process – death by 1000 cuts, sort of like Yahoo or RIM right now.
1st Lesson learned:
Always understand that macro conditions around you can change. Have an idea of what you would do if the market fell out from under you tomorrow.
The company rebounded in 2003, after closing offices and doubling down on a product strategy. My job was to transform its enterprise product into SaaS. Enterprise software was already dead in the market. So I built a SaaS offering that ran with a 60%+ profit margin until the company was acquired in 2005. In the end, we made a relatively successful exit out of what could have been a failure.
Fighting the market
After that exit, I moved on to a difficult startup, originally an enterprise software company. I was part of a group hired to solved two problems:
1. Customers couldn’t understand what the company did. The segment for this company’s offering was generally called “Telecom Expense Management” (TEM), but the company insisted that it should be “Enterprise Telecom Management” (ETM) because the software offered ‘so much more than just TEM’.
2. The enterprise package wasn’t selling. In the year I spent there, only one on-premise license was sold. All the other deals were for hosted solutions: my team’s SaaS offering. But the salesteam wouldn’t sell it. Why? They weren’t paid commission on SaaS deals.
2nd Lesson learned:
You can fight the market for a while, but the market usually wins, part 1.
You can spend time trying to educate customers on the uniqueness of your offering, but every minute you spend explaining is a minute you don’t spend getting closer to a sale.
3rd Lesson learned:
You can fight the market for a while, but the market usually wins, part 2.
Go with it. Sell in a model that your customers want to buy.
After this, I started a SaaS consulting business that was acq-hired in 2006. Honestly, I didn’t learn very much from that experience, except that running a small consulting company is tough. You have to be constantly selling your next deal while working the current one.
Real world learnings from virtual world creation
My third startup with lots of learning experiences was Metaversum, which has been covered here on SGE in the past. Twinity was a product with a fantastic vision – a virtual world connected to the real world. Yet, we failed to take advantage of that opportunity at several key turns in the company.
Our first real misstep was in over-engineering in phase 1. We incorporated and started building in late 2006. Second Life was all the rage at the time, even famously getting on the cover of BusinessWeek. We had what could have been an MVP in January or February 2007, but we rejected launching it for fear of it not being good enough. Yes, it was buggy, and yes, it crashed a lot, and no, the social chat and multiplayer features didn’t work well, but we had enough to show our vision.
In fact, we spent almost all of 2007 continuing to polish our alpha and beta versions. The first posts about the alpha, like this one from Sered, didn’t appear until January 2008. And the opening of the first city, Berlin was in September 2008 () and the second city, Singapore, was in August 2009.
Of course, by 2008, the Second Life hype cycle had more or less died. In 2009, it was completely dead.
This didn’t mean that the prospects for Twinity were completely dead – just a lost opportunity, and the company had built a lot of its plans around selling real-world connected virtual advertising.
4th Lesson learned:
Launch early. Launch often. Test, measure, iterate. The worst that can happen isn’t nearly as bad as you think.
5th Lesson learned:
If you have a business plan built on assumptions about market trends, make sure you get to market at a time when those trends are still relevant.
In 2010, Twinity was at a crossroads. We had a solid product (finally), a userbase of around 500,000 worldwide, and some very interesting technology. Unfortunately, we were short on cash. We faced a tough decision – how do we keep the business going and growing? We investigated three different paths forward. All three involved a significant pivot, but all three showed good potential.
At this point, we tried to go back to startup roots and do customer development. We went around to different markets, testing hypotheses with different potential buyers. All showed promising initial potential, but all required additional development. This is pretty standard – you start with an early product and you get it in front of early customers. But in our case, we were late to bring it to them.
6th Lesson learned:
Do your customer development and market-fit discovery early, while you still have all the necessary resources to pivot.
Twinity went through a second phase after my time there. The company re-organized and pushed harder into social media, leveling and awards, and was later acquired by ExitReality.
The reason that I say “startup failure” instead of “failed startups” is that all the companies here were eventually acquired. The learnings come out of those companies’ missed opportunities.
About The Author
Jeremy Snyder is the CEO of The Sharing Engine, a company removing all the barriers to launching an online marketplace. Before The Sharing Engine, Jeremy drove sales for Southeast Asia for cloud computing giant Amazon Web Services. Jeremy previously served as VP APAC, Operations & Community for Metaversum, makers of the online virtual world Twinity. Jeremy’s past work experience includes 3 other startups, most notably in the area of Software-as-a-Service (SaaS). Jeremy has a BA in Linguistics from the University of North Carolina at Chapel Hill (USA) and an MBA in Enterprise Management from George Mason University (USA). Jeremy has lived in 4 countries, speaks several languages, once went 3 days without seeing another human and another time got kicked off a train in central Sweden.
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