This article was taken from the May 2012 issue of Wired magazine and features Wendy Tan White, founder of Moonfruit. Read the original article here.
Klaus Nyengaard had witnessed the success of desktop applications for PCs and predicted that the same would happen with mobile phones. So in 2000, he created marketplace Mobli, secured funding and amassed the world's second-largest portfolio of mobile apps. Mobli predicted exactly how the 3G smartphone market would develop. Its mistake was expecting it to develop five years sooner than it did. "If you read reports in 2000, people were talking about 3G being just around the corner. We'd have smartphones in two years," explains Nyengaard, who is now CEO of Just-Eat.com. It was another five years before there was enough 3G coverage to make it a viable business, and eight years before the launch of Apple's App Store. "It's just as bad being too early as it is too late," he muses. Mobli's prematurity, combined with the founders' bullish resistance to accepting funding that gave them a runway longer than six months, meant that their coffers ran dry and they had to close.
Too much funding can be just as damaging as too little. Not only does funding have to be paid back, often at a multiple, but it also makes entrepreneurs lose focus, as Wendy Tan White (right) discovered with website builder Moonfruit. "We went from seed to a few million in funding within six months," she says. "That wasn't enough time to learn who our market was and what core features people were interested in. You end up spending money on the wrong stuff." White then shrank the company from 60 to two people: "In the dark years we learned to generate our own income and adopted what's now called the lean startup model."
The delicate funding balance is made more precarious by the fact that everyone at the table the VCs, angel investors, the CEO with phantom stock is keen to make money out of you. School for Startups founder Doug Richard took other people's advice and sold his company Visual Software for shares instead of cash, which lost 99 per cent of their value within weeks. "Everyone has a different set of incentives. Nobody has your interest, so stop whining and make your own decisions," he says.
One of the most terrifying decisions you need to make is to quit the day job. "If you don't commit full-time, you won't have the impetus to go and find customers or raise capital," says Adil Abrar, director of Sidekick Studios. He built gaming platform Budge, which fizzled out because he ran another company. "There was no real incentive to make it work because our mortgage didn't depend on it."
Assertive decision-making is also critical when it comes to firing a misfit, as Simon Campbell took too long to discover with his web-applications company Conexia. Aged 23, he was dazzled by an experienced former Oracle salesman who had charisma and impressive contacts. The startup agreed to pay him more than everyone else in the hope that he'd make sales. After a month without signing anything, it became clear that he wasn't right for the job, but Campbell kept the faith that he'd come through. He never did, and tried to sue the company when it did ask him to leave three months later. Conexia didn't fail, but the incident zapped morale and set the business back by 12 months.
"Work out what's right for the business and what it can afford," Campbell explains. "If sales people want a massive base, there have to be question marks about what they will deliver. If you realise you have made a mistake, get rid of them as soon as you can."
Just as important as people is the place you start your business, as Luke Johnson, chairman of Risk Capital Partners, discovered when trying to launch mussels-and-frites restaurant chain Belgo in New York. "We completely underestimated the cultural and economic differences between the UK and America," he explains. "The restaurant business in New York is much more competitive than in the UK and with much lower expected returns." Two years and $5 million (£3 million) later, Johnson and his partners retreated from the US.
Even with the right timing, people, place and product, you're not immune from failure, as Eric Ries, author of The Lean Startup, discovered when he started Catalyst Recruiting out of his Yale dormitory. He explains: "We had a really beautiful business plan - with census data, market research, complicated models and strict customer-acquisition budgets. However, we just didn't know exactly who our customers were." Ries classifies his mistake as "achieving failure": being so focused on executing a plan that you don't ever pause to assess if it's good or not, thus wasting energy going in the wrong direction. The solution? To continually test the market and iterate.
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