Not to be a bummer, but most startups fail. While the exact percentage and reasons can be argued all day, the fact remains that anyone who founds, works at or invests in a startup is putting a lot on the line.

And things don’t get much easier as a serial entrepreneur. Take for example OtherScreen, a Charlotte-area technology company I’ve come to know over the last few years. Founded by two very successful entrepreneurs, the company built a “second screen” web and mobile application that makes television social. Pretty cool idea, huh?

It is. And when they decided to make a serious play at bringing the concept to market, everything accelerated quickly. They gathered a brilliant team of engineers, won an NC IDEA grant, lined up angel investments and launched the beta version of the app to the marketplace. Best of all, they started lining up real customers to give them money to use the platform.

And that’s where they started to run into problems. See, originally the idea was a consumer play. To build a social TV “game” that could consistently clock 10,000 – 20,000 users and sell analytics against that. But their concurrent usage wasn’t as strong as they had originally anticipated. So they pivoted to becoming an online platform that would be sold to television affiliates so that they could create branded second screen experiences for themselves and their advertisers.

But then a funny thing happened. Their customers – even when successful in generating a return on their investment – didn’t really care. Results just weren’t happening on a scale that mattered to them, even if the platform was generating more money than it cost to deploy.

See, television networks have a very entrenched business model with a long history. It may not be the most efficient, but it certainly is profitable. Basically, they sell 30 and 60 second television advertisements to brands of all shapes and sizes for a boatload lot of money.

Everyone knows that second screen interactions are here (and growing) but the money generated by those interactions – at least at this point and regardless of the platform of choice – just isn’t that impressive to television affiliates that are used to dealing in the hundreds of thousands and millions of dollars per advertiser.

Even worse, competitors weren’t fairing any better. For example, one of the more promising competitors was founded by a good group of folks with a lot of media industry experience. They built a flashy and visually appealing second screen platform and managed to score a big promotion during the American League Championship Series complete with a partner television network giving them more than 15 mentions to millions of viewers and a big brand providing prizing for people who played the game. And the result? Less than 1,000 concurrent users.

Uh oh.

“We’ve both been part of successful companies, and this ain’t it.”

Garth Moulton and his co-founder Chris Halligan launched OtherScreen after some big successes. Garth had previously co-founded a data company called Jigsaw that was bought in 2010 by a little company you might have heard about called Salesforce, for a whopping $142 million in cash plus earn-out. And Chris Halligan had significantly grown revenue, held leadership positions and exited at Dell, webMethods, Mascot Books, Kieden and PoketTek.

So it goes without saying, but Garth and Chris are proven and successful entrepreneurs.

But there came a time – shortly after watching their competitor’s experience with the ALCS promotion and receiving feedback from their beta customers – that they had to call it as they saw it. As Garth said to me:

“Being a successful entrepreneur is all about [knowing what to do when] you get to these… tough decision points. And how to pick the right one. Knowing when to give up on a product feature or even the product itself. You have to know the difference between ‘we’re just facing adversity here and need to innovate and pivot’ versus when it’s time to give up or drastically pivot into something else.”

So what do we do now?

You’re honest with yourselves and your employees. You give the money you have left in the bank back to your investors. You don’t leave a crater in Charlotte’s nascent entrepreneurial community.

If they were first time entrepreneurs one of two things would have happened. Either they would have kept pivoting until they ran out of money, or their investors would have pushed them out of the company and replaced them with more experienced leadership. But because they had past success, they were trusted enough to make the right decisions, even if they were the hard ones.

Learning (sometimes) sucks

Learning is a huge part of what founders do, whether you’ve had previous success or not. I recently caught up with Garth about his experience with OtherScreen and here are a few of my favorite takeaways:

“If you’re putting together a non-transactional app or technology, then the only thing you need to think about it getting and maintaining an audience.”

It might seem obvious in retrospect, but if you are building a technology that is driven by experience and/or usability then it better deliver on that in spades. OtherScreen build a fantastic social game, but people didn’t seem to want to play it over and over and over again. It wasn’t addictive enough.

Or, to quote Garth:

“[We] admittedly got distracted and started thinking about how we were going to raise money and monetize and how we were going to get thousands and thousand and thousands of people to look at this before we solved the most fundamental and important problem: Can we create something that people want to do over and over and over again?”

“Don’t start worrying about how you’re going to put together a viral program until you’re sure that you have something that everyone will want to share.”

There is no such thing as a “viral marketing campaign.” There are only great products that inspire people to fight over each other to get to it. Garth was lucky enough to do this the first time around with Jigsaw. Google did the same thing by creating false scarcity and giving away free storage with Gmail. Doesn’t matter how you do it, but if you build something great, reduce the friction to sharing and intelligently let people know it’s available then they will beat your door down to get it.

“The whole market and the whole environment was too entrenched.”

Sometimes, no matter how good your product is, the market just isn’t ready yet. Great products become huge successes by having exactly the right product at exactly the right time. I mean, Apple sure as hell wasn’t the first to the party on tablet computers. However, they did deliver a fantastic solution just as the market was primed for it.

Ultimately, OtherScreen appears to have faced this problem – as have many of their competitors. Sooner or later, someone will figure out the right approach to second screen interactions. But as of now, the marketplace just doesn’t appear ready for it.

Thankfully, both Garth and Chris – as well
as their team – are staying in Charlotte to focus on new startups and other projects. Keeping their talent in the region is a huge win for the community and sets a very good example that all of us area entrepreneurs can follow. Win or lose.