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Tuesday, December 11, 2007

Deconstructing a Struggling Start-Up: MyCarpoolStation.com

Interesting story for a cold frosty Tuesday morning:

My name is Philippe and I’m the co-founder and CEO of My Carpool Station International Corp. I believe it’s time to share the story of our struggling start-up with the blogosphere. You see, things are not going as planed. I’m not a millionaire lounging in my umpteenth apartment, downtown Bangkok. I’m not mingling with fellow captains of industry, preparing to launch my own venture fund on the side. Instead, I am quietly distancing myself from my pet project, my baby which I poured my heart and soul and mind into. Why would I do such a thing to something I hold (or held) so dear?
No more money (and none coming in).
We invested 30,000 US$ of our own capital, excluding an estimated 50,000 US$ of sweat equity. With that, we built a working prototype but did not manage to get a customer-ready product out the door. No customers equals no revenues, and since we have not yet secured additional funding, we are officially stuck. Clearly, we needed to present a better pitch deck to VCs, network our way into governmental grants, or come up with some creative financing strategy such as a tax shelter. Emailing 700 VCs our poorly written 12-page business plan was probably not a good idea.
Our market research was not convincing.
What are customers actually willing to pay for? How many customers are out there? What is the cost of customer acquisition and retention? It’s hard to raise capital when you can’t answer those 3 questions with confidence. “We’ll figure it out later once we get traction” is an answer, but a weak one, all things remaining equal. We did do market research, to a certain extent. We used secondary demographic data: 14 million people carpooled to work in 2004 in the U.S. We used primary data: about 33% of our survey of 50 people said they were willing to pay 1-5$ monthly for a carpooling service. We highlighted the trends of high gas prices, environmental sensitivity, web-based social networking, pop culture relevancy, etc. We thought we had done our homework until one of the partners at InnoCentre suggested to me that we would have no repeat customers. He said that when people find a carpool partner, they usually stick to the same person and call them directly, and in doing so they effectively bypass our website (unless they really want us to tabulate how much GHG they reduced). Of course, I argued that university students, part-timers, and random travellers change schedules often enough to qualify as repeat customers. But our research was not as comprehensive as it could have been; I was caught off guard by this plus other questions regarding security and legal liability. In the end, they offered to work with us but we turned them down because we thought a 25% equity stake + fees payable was a bit steep for consulting. Maybe we were wrong. The bigger problem though, is that we were (and are) still unsure whether our customers should be ad-supported end-users (students, travellers, etc) or organizations paying us a software licensing fee (governments, companies, etc), or both.
We did not find the perfect product/market fit.
My original vision, circa 2005, was “to supply web-based, community-run carpool stations to schools, workplaces, and regions in the U.S. and Canada” (i.e. to build a Facebook clone but for carpooling). We would make money off ads exclusively. By the time we finished building our Alpha in 2007, we ran out of resources and realized that we needed to build something different to execute my 2005 vision in 2007/2008: we needed to build a Facebook app, an OpenSocial app, a stand-alone website, and offer enterprise-branded carpool stations with an API. Of course, if you’re bootstrapping you’re going to have to build traction and release these one at a time. The business model would probably change as well. It would be ad-based for app users and membership-based (with no ads) for website users and enterprise users. There’s also the possibility of a token-based economy. On the web, the product/market fit we were chasing is usually achieved through multiple, rapid Beta releases, but we never got there due to lack of skills and resources. Web products basically consists of features, user interface, and customer benefits. The features list we have is quite extensive: carpooler search, carpooler ratings, MapQuest maps, carpool fare calculator, green house gas (GHG) calculator, savings calculator, privacy controls.., upload text, pics, songs, videos, invite friends, create groups, create organization-branded carpool stations with news feeds, etc. The user interface however, did not win rave reviews from the Montreal tech community. And unfortunately, there are still a few outstanding bugs in our PHP code which makes the website difficult to use at the web 2.0 consumer level. The other way a product/market fit is achieved is when you talk to customers during the development process. Customers will tell you what benefits they are looking for (eg. reliability, privacy, etc).
Marketing to early adopters is easier than selling to big organizations.
We didn’t meet with big account customers, big organizations to which we could sell software licenses too, and we failed to develop a product and business model around their needs. That was a mistake. You see, big organizations have money to pay for memberships. They have an environmental reputation to uphold. They have a community of users which travel to the same place on a regular basis. Their users are usually accustomed to using web apps. They are the perfect customer. Since launching our Alpha, over 40 organizations have requested carpool stations, including The University of South Florida, University of Waterloo, CGI, Wachovia, GMTMA, kindergartens, hospitals and more. Our next step should have been to get these organizations to sign letters of intent to purchase memberships from us for our upcoming Beta product, built around their needs. Evidently, it’s easier to approach VCs with a few orders on hand. Our lack of a sales strategy didn’t help our capital raising efforts.
On the other hand, it’s our belief that general marketing and buzz building in North America is nothing more than signing a check. The only exception is opportunity-based PR stunts, such as promoting carpooling to all local radio stations and newspapers during a public transportation strike. Otherwise, ads can be outsourced to Google, Federated Media, Spot Runner, etc. Direct marketing can be outsourced to Campaign Monitor, Quantum Mail, etc. SEO can be outsourced to ACS SEO. PR can be outsourced to The Comotion Group, Social Poster, E*Releases, etc. Everything is measured these days, making it easier to determine the ROI. Plus, when you market to the web 2.0 early adopter crowd and you have a killer app, word spreads virally. So I don’t think we had a problem with our marketing strategy. We just didn’t get there because we lacked the skills and resources to build the killer app in the first place.
We were missing key business relationships with partners.
I’ve got friends and acquaintances in the Montreal web community. I’ve met with angels, incubators, and VCs. But we didn’t meet with big strategic partners like the gas companies, car companies, transportation authorities, car navigation companies, and map companies that we originally envisioned as our partners. This excludes an extremely awkward Q4 2006 phone call to MapQuest director Jeff Greenwald, when I stumbled while trying to convince him to give us an extension on our MapQuest API free trial and partner with us for the long term.
The competitive environment was, and still is, manageable.
Partners give you the competitive advantage you’re looking for, but competition itself did not kill MyCarpoolStation.com. I used Competitious to track over 80+ carpooling websites in the U.S. and Canada across a feature matrix of over 75 features. The competition is getting its act together (NuRide, Goloco, ZimRide, Amigo Express, etc) but it’s fair to say that the carpooling industry does not exist yet. No one has figured out the perfect combination of user interface, features, and business model to pierce through the market and gain significant traction. Yes, there is a low barrier to entry in building a web-based product. Generally though, you can say that we have been lucky since no major competitors are dominating the space with a killer app. The other way of looking at it is “the market sucks ‘cuz no one’s making sustainable money”.
Core team of outsourcees and part-timers were lead by an extremely driven, although inexperienced, non-tech-savvy CEO.
This project began as a “coup-de-coeur”; a project sparked by pure passion to build something great for people to use. We were also “driven to drive away pollution”, or so our slogan went. Me and my father thought we’d grow a business out of the transportation needs of Western students such as myself who travelled back home for the summer or holidays. Why use Greyhound, VIA Rail, or Air Canada when you can split the gas with a buddy and ride shotgun instead? So we began recruiting friends of mine who were “good with computers”. One was a software engineer and the other was a web designer, but neither could commit full-time or buy in 110% into the vision we had. So we decided to outsource our coding to India. In our subjective experience, Indian web design shops are intelligent and cost-effective, but are not creative nor are they on the leading edge of web 2.0. Most importantly though, they are contractors by nature and therefore build websites for their clients, not for the end-user. In hindsight, I realize the obvious: one must build a strong team of entrepreneurial web developers as co-founders before launching into a new web venture. We failed to follow Jim Collin’s Level 5 leadership tenet: “First Who [core team]… then What [product strategy]”, and as a result we have a Alpha website with outstanding bugs, boasting a features list and UI developed solely by me, the non-tech-savvy CEO and co-founder. This is not to say that our outsourcees didn’t go beyond the call of duty- they did. Or that because I was in charge of product strategy I knew how to manage a software project- I did not. At least on the positive side, I am now 3X more knowledgeable about business and technology than I used to be in 2005. I’d also like to thank TechCrunch and AskTheVC for their contribution.

Currently, we are 10 team members/shareholders. This includes myself, my father, my mother, my brother, an accountant, a software engineer, a electrical engineer, a web designer, an IT/business consultant, and a programmer. Currently, 3 are active (but not very active) and 7 are passive (read: hello?). We do not have any full-time web developer/software engineer staff. That’s a problem.
Our process was/is entrepreneurial, which is good. However, without any resources it is difficult to maintain operational momentum. When we were going through the most difficult stages, negotiating with our outsourcees over payment terms and source code ownership, I shed a tear. That was a learning experience. But there has been numerous setbacks (albeit less dramatic) which have contributed to our loss of strategic and sales momentum as well. At this moment, we’re tired and we need a breath of fresh air.
Growth strategy?
We’ll probably throw up a new landing page and re-brand ourselves while we try to figure things out. We’re currently facing the classic chicken-and-egg problem. What comes first: the financial and technical resources or the product and market traction? We score low on both at this stage, even though we’ve got an Alpha product stimulating demand, a decent amount of industry knowledge stored on our BaseCamp account, and local buzz. With resources, we could figure out exactly what our big customers want in a Beta product and are willing to pay for. With resources, we could launch an ad-supported Facebook app and OpenSocial app to generate buzz and learn about end-user habits. We’re always recruiting, even though we only offered stock-based compensation. If you’re extremely resourceful, note that the CEO post… is also open.

"Philippe Kiethun Chrun is the co-founder and CEO of MyCarpoolStation.com. He has a bachelor’s in Management and Organizational Studies from The University of Western Ontario and is currently pursuing an MBA at Concordia University in Montreal."


1 comment:

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