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Startups – Four Ways to Redefine Failure

Martin W. Smith November 6, 2012

FoundObjects.com Logo For Atlantic BT blog

 

Internet Summit: Startup Summit

As I’m attending Startup Summit, part of Raleigh’s Internet Summit, it feels appropriate to discuss my 4 startups. Have you ever failed as an entrepreneur? This post looks at how and why the four companies I have created (so far) “failed,” what other entrepreneurs can learn to avoid the traps, and some pain startup entrepreneurs should avoid if at all possible.

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Company 1: Found Objects & FoundObjects.com

Years in Existence: 10

Date Range: 1993 – 2003

Gross Revenue: $16,000,000+

Startup Capital: $20,000 (from my 401k)

Biggest Accomplishment: Created multimillion-dollar markets for Magnetic Poetry Kits and Zen Boards. Made the first sales of both gifts and represented them through their startup phases.

Closed: 2004

Failed Because:
Found Objects didn’t understand what business it was in. The company believed it was a specialty gift distributor when it was really an information company. The Internet was about to level the karma of middlemen in general and specialty gift distributors in particular.

In the end, the only thing with value was the website, FoundObjects.com launched in 1999. Other companies such as BoingBoing.net and DailyCandy.com were just starting and demonstrate where FoundObjects.com should have gone.

The costs associated with running a warehouse don’t favor small niche companies. When we moved out of our house into a small warehouse, we tripled our fixed costs just as our largest revenue partner, David Kapell (inventor of the Magnetic Poetry Kit), was stolen away by other “gift reps.”

Startup Lesson:
Know what business you are really in, don’t increase fixed costs until it is an absolute must, and then do so carefully. The answer is usually in there already, so look harder and make one more pivot.

.NeoGoGo Games Logo for Atlantic BT Startups blog post

Company 2: NeoGoGo Games

Years in Existence: 4

Gross Revenue: $119,000

Startup Capital: $40,000 (from Found Objects profits)

Biggest Accomplishment: Created the Poetryslam magnetic board game, a Scrabble-like game played with words instead of letters.

Failed Because:
Board games are tough. They require “family time,” and what little there is of that tends to go to Milton Bradley (such as Monopoly, Scrabble). We printed 5,000 games. We private labeled games for The Museum Company (now also RIP) and created 6 “Add On” kits with different word sets. We were lucky to get our money back on the 5,000 games. It took three years, more than 50 “in store” events where I sat at a table hacking Poetryslam games (all kinds of fun LOL).

We were also left with more than 1,000 “Add On” kits with business, art and science words and no way to sell them. I read a story about the surrealist art movement. The story shared how surrealists loved to play a game where they cut up a newspaper, put the words in a bag, would draw them out in random order and then create sentences.

I pivoted, naming the add-on kits Dada Box (via a small lunch bag labeled with an ink stamp) and including printed instruction cards. Dada Box sold faster than Poetryslam. By the time we made the last sale, we’d recovered just about everything we spent and didn’t have the heart to continue. My co-founder and I got divorced, and Dada Box was lost.

If that last sentence sounded a tad bitter, I apologize. Gift reps had their karma leveled too, so we learned valuable lessons. Lessons that have me here writing this post today. What was the most important lesson from our Found Objects experience? Know what business you are in, or about to be in, and play at least five moves ahead of the next market move.

Startup Lesson:
When something shows signs of life, feed it. Don’t let the failure of X push you off of the success of Y.

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Company 3: Story Glasses

Years in Existence: 3

Date Range: 2000 – 2003

Gross Revenue: $20,000

Startup Capital: $5,000 (from Found Objects profits)

Biggest Accomplishment: Created cool-looking glasses.

Failed Because:
At the time, the technology to print on drinking glasses was variable and hard to find in the US. The print runs necessary to test concepts were large, requiring lots of capital risk. There was no Café Press then to test concepts prior to full launch, and there were considerable competitors in existence, including Crate and Barrel (famous for knocking off good ideas).

Startup Lesson: You aren’t in business alone. Make sure your potential partners and stakeholders are viable, since your future is tied to theirs..

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Scenttrail Logo For Atlantic BT Startup Post

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Company 4: ScentTrail Marketing

Years in Existence: 6 (and counting)

Date Range: 2007 – present

Gross Revenue: $0

Startup Capital: $0 (time and sweat equity)

Biggest Accomplishment: A handful of Google #1 organic listings and more than 116,000 views from more than 40,000 visitors.

ScentTrail Marketing Plan:
ScentTrail Marketing is a blog I created to learn how Google thinks. I never intended it to be anything other than a sandbox to experiment with Search Engine Optimization (SEO), but ScentTrail Marketing is now showing signs of a network effect.

A network effect is achieved when your creations do more and more as you contribute less and less work. Network effects pull in the social nets of others into your sphere of influence. The chief traffic cop of this content is Google, so achieving organic #1 listings is what drives a network effect.

ScentTrail Marketing, if it is to survive and scale beyond me, needs a platform approach. Platforms marshal UGC (User Generated Content) to increase the volume and presence of a website. The demand for content is greater than you or your team can ever supply, making UGC the key.

The plan is to create a New ScentTrail Marketing capable of multi-author contribution, with common avenues for UGC such as reviews, comments and profiles, then add a gamification layer to promote engagement.

Ultimately, ScentTrail Marketing is in the same position as most of Atlantic BT’s customers. It needs to open its doors to input while reducing the friction that prevents people from joining and contributing.

Summary of Startups: Four Ways to Redefine Failure 
Hope these lessons help. I read a great thought by Eckhart Tolle in his book A New Earth. “Whatever is happening is exactly what is supposed to be happening,” Tolle wrote. This sentence should help you think of whatever you’ve been able to create as a success, since it got you here now. Never give up, keep learning, and share, share and share some more.

Speaking of sharing– If you have startup lessons from your business, please share, and I will curate it in here.

Thanks, Marty

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