21–30 of 36 posts
I built a postcard sending product called babygrams over the last few months: http://babygra.ms After 5-10 iterations over 6 months, 500 or so paying customers, almost 100 4+ star reviews, and a decent amount of data, I concluded the business model doesn't work. Citing vanity metrics like number of downloads and even revenue (as was done here) is a nice way to obscure this fact. The catch is that to get people to sen…
Most of these inventory-financing deals for physical products seem like they would be much better dealt with via loans, unless the equity stake is really more of a quid-pro-quo for whatever connections the sharks have.
I've wondered about that. Take your PO to the bank, and they'll be more than accommodating in setting you up with a revolving line of credit. Why give up equity? Sometimes they do say "go away, you don't need me", but other times they snap the company up.
You can tell the ideas that the sharks think are good because they talk about how much of their time they're willing to give, not just the money.
Earlier quoted context omitted.
Could you expand more on why its absolutely vital to give one out for free? I sorta see two different customers here. One looking for a free postcard to send real quick (the non converters) and the others that are just out there searching for something like this and pay. Are the numbers that much worse not including a free postcard?
Yes, in my experiments removing the free card basically killed the conversion funnel, so your marketing costs per paid user skyrocket. Not only that, but the people who did convert paid for a single postcard instead of bulk credits, obviously, since they wanted to try it out first before spending big bucks. Bulk credits are essential for the business to even have a chance since you need to get your paid users to send…
You get far, far fewer purchases, but each purchase is a far, far more qualified customer, plus, you can almost break-even on the one-and-dones, and you may make enough money on the breakage to make it tiny profitable.
I get that tiny profitable isn't a VC's goal, but for a side project that's dying anyway, this might make the runway infinite, which you could use to rattle around and maybe find a winning model, or just let it run and not cost you much.
Zynga's not a great example because startups got a foothold and are now doing well why Zynga flounders. Kabam, Kixeye, etc. Zynga's audience was 100% casual users, and they've been unable to use any cross-promotional muscle to get into the mid to hard-core segment. Also there aren't real economies of scale and there is no third party distribution problem.
One example of this was the Flip video camera. [...] These huge companies put pricing and margin pressure on the category, and about a year from the acquisition, Cisco shut down the Flip business altogether
I'm not sure this is a great example: most of the press at the time claimed that Flip was still profitable and that Cisco shut Flip down not so much because of the company's profitably as because it wasn't profitable enough for Cisco, which had too many product lines and distractions.
Was this analysis accurate? It's hard to say, and I liked the company but found the narrative around itself shutdown unlikely: http://jseliger.wordpress.com/2011/05/08/will-we-ever-find-o....
Perhaps the strangest thing, as noted at the link, is that Flip had a new suite of products ready for rollout the same week Cisco shut the company down.
Earlier quoted context omitted.
Yes, in my experiments removing the free card basically killed the conversion funnel, so your marketing costs per paid user skyrocket. Not only that, but the people who did convert paid for a single postcard instead of bulk credits, obviously, since they wanted to try it out first before spending big bucks. Bulk credits are essential for the business to even have a chance since you need to get your paid users to send…
What if you made the app cost $0.99 and that included the first postcard? You get far, far fewer purchases, but each purchase is a far, far more qualified customer, plus, you can almost break-even on the one-and-dones, and you may make enough money on the breakage to make it tiny profitable. I get that tiny profitable isn't a VC's goal, but for a side project that's dying anyway, this might make the runway infinite,…
Zynga's not a great example because startups got a foothold and are now doing well why Zynga flounders. Kabam, Kixeye, etc. Zynga's audience was 100% casual users, and they've been unable to use any cross-promotional muscle to get into the mid to hard-core segment. Also there aren't real economies of scale and there is no third party distribution problem.
Flip video isn't a great example either, for reasons I left in a comment there: One example of this was the Flip video camera. [...] These huge companies put pricing and margin pressure on the category, and about a year from the acquisition, Cisco shut down the Flip business altogether I'm not sure this is a great example: most of the press at the time claimed that Flip was still profitable and that Cisco shut Flip d…
Earlier quoted context omitted.
Shark Tank also takes 2% stake regardless if they get funded or not.
Not really, it was 5% equity or 2% royalty and according to a Forbes article[1] ABC hadn't asked the two people interviewed for any money. The article also said their source claimed ABC wouldn't be asking for either in upcoming seasons. [1] http://www.forbes.com/sites/jjcolao/2013/06/13/is-shark-tank...
http://a.abc.com/media/primetime/sharktank/SharkTank3OpenCal...
I built a postcard sending product called babygrams over the last few months: http://babygra.ms After 5-10 iterations over 6 months, 500 or so paying customers, almost 100 4+ star reviews, and a decent amount of data, I concluded the business model doesn't work. Citing vanity metrics like number of downloads and even revenue (as was done here) is a nice way to obscure this fact. The catch is that to get people to sen…
Payment options: While the situation is slightly better in the US, accepting micropayments is still very difficult. You can basically count on losing 25-40% of the end user price to payment processors. More if you accept credit cards. But with Mastercard Secure et al. rolled out all over Europe these are useless for mobile anyway thanks to the abysmal usability of those systems. In-app payments don't work because those are only permitted for virtual goods (though I've seen some competitors do it for a few months before being shut down). Selling batches of cards (we called them "voucher codes") is a neat workaround but customers aren't huge fans of the idea in my experience.
Lack of control over user experience: You can spend as much time and money as you want on making the app perfect and perfecting the print process (sth. the Sharktank guy didn't do--since when are postcard glossy on both sides?). In the end you hand the card to the mail carriers and those suck all. I'd estimate that 1% of cards don't arrive due to mail carrier error, with USPS causing so much trouble that the US market seemed unatttractive. Those 1% of disappointed customers whose card didn't arrive are 50% of your app store reviews and 100% of your Paypal disputes. And because a postcard is a physical product, Paypal will ask the vendor for a tracking number. Don't have one? Get your Paypal account frozen.
What surprised me in Sharktank episode is that they guy who invested seemed to consider the idea novel when in truth it's been tried and tested since the first opening of the app store. I haven't been involved with that app for several years now but they seem to still operate and last time I checked I could find around 20 competitors. Does that mean the sharks make their investment decisions without any research into the markets they are getting themselves into?
Most of these inventory-financing deals for physical products seem like they would be much better dealt with via loans, unless the equity stake is really more of a quid-pro-quo for whatever connections the sharks have.
A lot of the Shark Tank investments seem like bets on the underlying technologies or products, but against the entrepreneurs themselves. When Mark Cuban (for instance) invests in Company X on Shark Tank, he basically buys the founders out of their controlling stake for what amounts to pennies on the dollar, figuring that he can always monetize whatever inventions the entrepreneurs have developed. From Cuban's perspec…
His most valuable asset is time, and he's already loaded up on investments. He doesn't want to run the companies, so most of the time he prefers to retain the entrepreneurs or not invest, and he makes that clear routinely on Shark Tank.
Kevin is the shark that most frequently seeks complete buyouts.
Earlier quoted context omitted.
A lot of the Shark Tank investments seem like bets on the underlying technologies or products, but against the entrepreneurs themselves. When Mark Cuban (for instance) invests in Company X on Shark Tank, he basically buys the founders out of their controlling stake for what amounts to pennies on the dollar, figuring that he can always monetize whatever inventions the entrepreneurs have developed. From Cuban's perspec…
I've watched Shark Tank from the first season. The radical majority of Cuban's deals in fact are minority positions. He very rarely buys controlling stakes. His most valuable asset is time, and he's already loaded up on investments. He doesn't want to run the companies, so most of the time he prefers to retain the entrepreneurs or not invest, and he makes that clear routinely on Shark Tank. Kevin is the shark that mo…
That said, I've seen most of the show (perhaps not much of the first season, but most of the series since then), and I would guess buyout -- or at least buy-to-flip -- deals are the majority and not the exceptions.