Lessons from Startup Failure

Post by
Scott Francis

It is hard to pick over a startup's failure and learn from the lessons, without sounding like sour grapes. But sometimes the learning is worth the risk.? Just recently, Outbox shut down.? They were an Austin-based startup with a mission of redefining mail delivery.? They had cache, they had buzz, they had press coverage. They had the iphone app.? They attacked a real problem that people have (junkmail), and made your physical mail more like email.

It all sounded great. But they recently shut down, and posted a shutdown letter, for which they're getting widespread kudos in the investment and startup community.? But there are maybe a few things missing from the story, as an outsider, who doesn't have the information that the investors and founders have.? I'll add some perspective as an outsider, unpersuaded by the personality and charisma of the founders.

First, by all accounts, Outbox was off to a great start, running a trial with USPS, and expecting to build alongside the USPS value chain.? However, after a CNBC interview, the Postmaster General called them in into a meeting to tell them that the project was dead, as far as their concerned, because it interfered with junk mail: "USPS made it clear that they would never participate in any project that would limit junk mail and that they were immediately shutting down our partnership."

What wasn't said: The CNBC interview was too much exposure, too soon.? It exposed the real threat to USPS existing business model, before a new successful business model was apparent to USPS, or to anyone else (outbox included).? Also, the phrasing makes it look like the USPS leadership just loves junk mail. But the point is that junk mail is what keeps USPS in business.? They may not love it, but they can't have that revenue stream dry up overnight.

Outbox went back to the drawing board and re-envisioned their model as a new type of last-mile delivery channel: "one subsidized by our users in return for collecting and electronically delivering their postal mail. If we could simply break even on the mail business, we would have built a valuable last mile network able to be monetized in many ways." Pretty cool idea, but very hard to execute.

On the technical side, sure looks like they pulled it off. Customers loved their service in Austin.? When I read that they were expanding to SF, I reached out to try to subscribe.? And that's when I found out something that wasn't stated in the goodbye email.? The press release about San Francisco said "we've conquered Austin, so we're coming to San Francisco"... But in fact, coverage in Austin was spotty at best.? I live in what is considered North Central Austin, but I wasn't able to sign up for Outbox.? In fact, they stopped taking on new customers in Austin, even while they were pursuing in SF.

There are lots of ways to interpret this.? But at least one interpretation, from the outside, is that they didn't "figure out" Austin before going to SF.? Maybe the model required a more dense population than Austin has, in order to monetize efficiently.? Or maybe, they just needed to focus on Austin and how to make the model work in one place first.

A core principle of lean startup is to figure out product-market fit and business model *before* you attempt to scale.? Is moving to San Francisco an example of searching for product-market fit?? No. But is it an attempt to figure out business model, or of scale?? Hard to say from the outside, but I'm going to give the founders benefit of the doubt and assume it is that they felt the business model didn't work in Austin, and they were hoping to figure out one that would work in San Francisco.

But as a business owner myself, I'd rather see them figure out how to make it work in Austin.? Because if it works in Austin, you could probably figure out how to make it work almost anywhere (Austin is diverse enough to test a lot of different population densities).?? Did they try partnerships with apartment buildings and condos downtown or near downtown?? Did they beat the pavement to make it work in Austin, or did they over-rely on electronic media and technology?

But you know what? It may all boil down to the fact that they found another idea, along the way, that may be better than Outbox.? Even in failure there are new seeds sown.




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