Editor’s note: No matter how good the idea, how promising the opportunity, how hard the entrepreneurs work, not every business fails. 

In our New Bull City series, day four, Matthew Davis shares the inside story of a good idea gone bad.

Davis is in the early stages of a new career as director of product marketing at Raleigh-based apps developer StepLeader. But in September 2011, he and a partner launched their own company, GetZeek, through which they hoped to capitalize on mobile coupons.

In his LinkedIn profile, Davis explains: “Building a software-as-a-service business from scratch includes everything from in-depth customer research, product strategy development, project managment, creating the company’s marketing platform, deploying multiple systems to scale across multiple geographic markets, building and managing complex databases to track, manage, and market to four separate stakeholder groups, financial reporting, and building key strategic relationships with industry partners.”

The business failed.

Moving on, Davis chose to share his story of what he calls “the underbelly” of business startups. He first wrote about his experiences in a series of blog posts. WRALTechWire read them and asked Davis if he would share the stories. Davis has edited those posts into two presentations. Read – and learn. 

DURHAM, N.C. – The underbelly.

Typically hidden, and a small portion of an otherwise giant beast. Spend anytime in the startup scene and the giant beast is a great thing: Successful companies, conversations with successful founders, great press, great products, random people linking to you on LinkedIn, non-stop high-fives. It’s fantastic.

Standing in stark contrast to that is the brutal reality that 90% of startups fail, rarely discussed and rarely exposed, self-shamed into silence. But no more. Here’s my tale of five reasons why our startup went bust, with a note on how to fail gracefully, and a few things that went well.

We quit our jobs and started full-time in September 2011 to found our company: GetZeek – The world’s first completely mobile coupon book fundraiser.

 We did everything right. Except make enough money. When that happens, there’s only one place to point the finger: yourselves.

Execution

The first reason why we went bust = Execution. It almost sounds like a dirty word, conjuring up images of a firing squad.

We built the merchant relationships to power our mobile coupon book. Close to 600 in three markets. We built customer relationships with the schools and non-profits to sell it. Over 40 in 2012. We geared up for a big Fall fundraising season and got everybody everything they needed to sell. We executed … but either not enough or not in the right spots.

Looking back we needed to triple the number of groups we worked with and make our sales process so incredibly frictionless and smooth it would have been butter. More on the former later. Tripling that number would have required us to reach more than 50% market share in our first year, which no company in our space has ever accomplished. So for us to have survived we would have needed Herculean proportions of execution that only very few companies ever achieve.

Anyone can come up with an idea. The challenge is bringing that idea to life so that it’s sustainable, repeatable, and profitable.
If you don’t execute, you really do get executed. Like it or not, you are both the firing squad and the blindfolded schmuck.

Goal Setting

The second reason we went belly-up is goal setting. Sounds backwards, but stay with me. Back in November 2012 I thoroughly enjoyed writing a guest blog post for ExitEvent on “The Case for Startup Community Goals“. [Thanks, Joe]. In the article I posit:

“Goal setting is a religion at our company. Every startup that wants to be the next big thing, especially those with investors, sets goals. There’s so much talk of goal setting, milestones, and KPIs it’s almost nauseating, but goals work. Period.”

There’s a downside, albeit a necessary one, to goal setting. Should you completely miss those startup goals you set, you will have very difficult decisions to make.

In our case, we did miss our goals. With our business hinging upon one busy season, we had to execute or perish. The upside to that downside of missing goals? We had done a good enough job setting goals that the decision to pull the plug was an easy one. And when I say easy, I mean we agonized over it for 3 weeks and it was one of the most difficult emotional stretches of entrepreneurship that we faced.

Goal setting didn’t cause our startup to bust. Having the foundation of goal setting allowed us to stay grounded in reality, not in the emotions of shoulda/woulda/coulda, and ultimately make the right decision.

Timing

Market timing better be on your side if a startup is going to succeed. Some of timing is intentional. Mostly timing is just your best guess or buried under entrepreneurthusiasm. I think I’m going to tweet that word into existence.

Intentional Timing – When we quit our jobs to work full-time as startup founders, we really didn’t know that our company’s busy season ran Sept 1 – Oct 31st. Well, maybe we did, we just didn’t appreciate the significance. We should have.

The flip side: Had we tried to capture that first 2011 season we would have crumbled. Our processes, pitches, and product were not fully baked. Having a year to build our markets, hone our pitch, and test on a smaller scale put us in a much better position to capitalize on the 2012 season.

The re-flipped side: Because we had to wait a year to “cash in” on the busy season, we burned through all of our cash reserves. The timing forced an all-in, make-or-break situation. We should have been more intentional about our timing.

Best Guess Timing

No matter what chart, graph, infographic, or article we read, it told us that mobile coupon adoption was skyrocketing. We believed it all, and made our best guess that those numbers applied to our business as well.

I’m here to tell you … don’t believe the numbers from the charts, graphs, and infographics. Ever. They might give you comfort, but it’s false. All they serve to prove is that you’re not a complete idiot for being a startup founder, just an idiot with an educated guess. Use them in your pitch to investors if you must, but know they’re meaningless right now. The only numbers that matter are your own.

After we concluded the 2012 busy season, we knew our timing was off by about 3 years. How did we know that? That’s how long it was going to take us to start paying ourselves a salary. Without that kinda cash in the kitty, the timing was no longer in our favor. That’s also how long it was going to take to educate the market, which is me teeing-up the next “why we went bust”: Friction.

Friction

“Friction” means you’ve got an education problem. “Education problem” means you’ve got one or multiple groups who need to be trained / learned / reprogrammed in some way to make your business grow at a fast enough pace to survive. Friction in the sales process means trouble. Having two customer groups that need education doesn’t double your friction, it squares it.

With our startup, our product required both the sellers to sell in a new way, and the buyers to buy in a new way. The way they had been buying hadn’t changed in 70 years.

Old way: Someone asks you to buy wrapping paper, cheese, cookie dough, baked goods to support their cause. You can see it. You can touch it. You can flip through the glossy catalog. You give cash. You get goodies. You get fat. You give tackily wrapped presents. Simple.

Our way: Someone asks you to buy a mobile coupon book. You ask to see it. Seller probably doesn’t have a smart phone and can’t show it. Seller shows a flyer instead. If seller has a smartphone and tries to show a demo, maybe it works. Seller shows a flyer instead. Buyer gives cash. Buyer gets activation code, not the actual product. Buyer goes to computer or phone to enter code to activate account. Buyer has to learn to navigate the site. Buyer must redeem virtual coupons.

Seems pretty obvious that this was going to be a tougher sale after writing it out, doesn’t it? Cue the sad trombone.

What conclusions can we draw?

1. Frictiony sales = reduced sales or no sales = less cash = sad founders/investors.
2. Educating a market takes a long time. Take your best guess, double it, then add a week.

If your awesomesauce new product that’s gonna disrupt the [choose your niche here] industry requires re-training sellers, buyers, or any other group critical to the success of your startup, you are in for a long, long, long road. Plan on at least three years minimum to teach the market.

That’s probably generous.

And sometimes your startup just goes bust because the forces of nature are working against you. That’s my final “why”. Bad stinking luck.

Coming Friday: Bad luck