Why my startup failed

http://jamesmaskell.co.uk/2013/why-vinetrade-failed/

by jmaskell • 13 years ago

146 93 13 years ago

jamesmaskell.co.uk

_pmf_2• 13 years ago

> Consumers had been crying out for this, claiming that they no longer wanted to speak to a real person or pay the premium for doing so.

Was that only an assumption?

objclxt• 13 years ago

From reading the post, it sounds to me as if people trading wine weren't necessarily crying out for an automatic process, but were in fact looking to cut out the middleman.

But because the market was so insular, once you cut out the middleman it turned out you probably knew the person you were buying from anyway, at which point you became far more willing to engage with them directly.

jmaskell14• 13 years ago

Consumers/collectors wanted a better deal (they were paying minimum 10-20% to middle men when buying and selling).

We did a lot of customer development work (and were customers ourselves) to validate these issues. The problem was keeping people on the site - they reverted to email and phone once the novelty of doing it online had worn off.

ryen• 13 years ago

In retrospect it seems yes. But my guess is that "consumers" here were probably friends and family and they told the OP what he wanted to hear.

mryan2• 13 years ago

Interesting writeup James, thanks for sharing. The point about talking to salespeople being "part of the fun" is interesting - it's counter-intuitive to my engineer's mind, but I can see how the sales process is actually part of the value they are paying for.

jmaskell14• 13 years ago

Agreed. It's an interesting lesson for tech focused people.

I think you can get around this by introducing social or gaming elements to the product. We didn't have the resources or the time to try that (and the size of the opportunity/market didn't justify the investment required).

mryan2• 13 years ago

Social, perhaps. Showing off your collection could be a motivating factor. But gamification I'm not so sure about. IMHO the typical wine collector will not be impressed by a "bought 10 bottles" badge, or something along those lines. Keep in mind I know nothing about the wine industry though, maybe the big collectors are all big kids at heart!

juskrey• 13 years ago

And last, but not least - wine market is a bubble itself. As one of my friends, very high profile sommelier, tells me every time - never pay more that 7 euros for a bottle, everything more expensive is a fluff.

mootothemax• 13 years ago

And last, but not least - wine market is a bubble itself.

Wow, just did a very quick Google, and some graphs look incredibly scary:

http://www.bbr.com/fine-wine/investment-wine-prices

http://blogs.reuters.com/globalinvesting/2012/07/09/investor...

http://bordeaux-traders.com/wine-investment/stock-performanc...

I admit that I know next to nothing about wine as an investment. Are the above a fair representation of the market over the last few years?

If so, I start to understand why I'd been hearing so many people talking about wine investments.

jmaskell14• 13 years ago

There was a huge bubble, that popped. Our timing was off completely (a lot of our target sellers want to sit on their stock until prices go back up), but the other problems we faced (outlined in the post) were greater.

As for wine prices - they're starting to creep back up again. It's an interesting commodity - a finite amount is produced each year. It tends to improve with age, while supply decreases and demand increases.

Prices increased so much (more than the normal 10-15% per year) because newly minted Chinese people got a taste for it and bought everything they could get their hands on.

RobAley• 13 years ago

> wine market is a bubble itself

I believe the domain specific language is "sparkling"...

unclebucknasty2• 13 years ago

Thanks for sharing this. You clearly understand well what your core challenges were.

The interesting part is that you probably knew all of this going in. Perhaps you were so enamored with your idea, that you wanted to believe these were not the insurmountable challenges that they were. Reminds me of couples who marry knowing of certain glaring problems, but proceed anyway because they are "in love". Whether they downplay the problems, convince themselves they can overcome them or otherwise, these are frequently the very problems that lead them to failure (divorce).

But, more frequently, we probably just think these challenges will melt away or work themselves out somehow. Maybe that's why these businesses always look so good going in!

This is not to lambast you--quite the opposite actually. I have been there and I am still susceptible. I applaud you for acknowledging your challenges and getting out relatively early.

Good luck to you on your next venture!

jmaskell14• 13 years ago

We knew exactly what the problems were - we just had a vision for how to overcome them and how things could be different. Every business starts as an idea, with a set of hypothesis to validate (even if you don't realise this at the time).

It was tough to decide to stop - but when you take a step back, look at the data we had, it was the right decision.

unclebucknasty2• 13 years ago

That's absolutely true. I think it's very common in the startup world to tackle fairly big problems with known challenges--armed with a set of hypotheses--only to be later stopped out by those same challenges.

But, how much confidence in our hypotheses is enough when it comes to the key "show-stopper" challenges? How clear should we be on the path before moving forward? Speaking from personal experience and observation of others, I would say that we founders tend to be optimistic when assessing these challenges at times. There's a little hope in there.

I suppose a certain degree of that optimism is necessary, else no one would move forward. It's just a bit painful to fail for all of the reasons you knew beforehand.

Because, testing the proposed solutions can be exceedingly difficult and resource-intensive. I've often wondered if there's a better way to test assumptions than just going all-in. I've found the much-lauded MVP approach to solving this doesn't cut it for me or for a lot of models/founders. For models that require things like network effects, brand credibility, and more advanced functionality to even be usable the "MVP" is, effectively, the full product. And, this doesn't even consider the marketing/PR/etc. that must be put behind it.

Given all of that, you actually did well to move on in only 18 months. Congrats on making a tough choice and freeing yourself up for the next opportunity.

aeden2• 13 years ago

Reading this post I can't help but think that if they had built services that the middlemen needed that they would have succeeded. For example, take the following two quotes:

"We wanted to revolutionise the fine wine industry, a market with many layers of middle men, and one that has traditionally eschewed technology, failing to patch it's many inefficiencies."

"Unfortunately, the service offered by all of these warehouses is poor. Again, we see little technology (basic online systems, preset passwords, refusal to spend money on an SSL certificate), and lots of human errors (such as very expensive wine being moved to the wrong accounts)."

If these statements are true then there are very real pain points here. Selling services to these vendors, solving their pains, is likely where there is money to be made.

jmaskell14• 13 years ago

We tried this. The middle men simply weren't willing to pay for software (or at least enough to build a viable business).

It's a very antiquated market - with a lot of independent traders. Their view on software (particularly web based) is often that it's something you can get a teenager to build on the cheap and isn't worth spending real, hard cash on.

moron4hire• 13 years ago

well then, it should be a simple matter to WalMart them out of business.

aeden2• 13 years ago

I would have enjoyed being a fly on the wall to hear your sales pitch. I don't know the market well enough to know whether they truly would sieze the opportunity to make more profits or not. Anyhow, sorry it didn't work out for you and good luck in your next venture, whatever that may be.

philipberman• 13 years ago

Having read many of Paul Graham's essays about his time trying to start a company selling web services to art galleries, I can totally relate to the fact that there are indeed still many industries that are extremely archaic and uninclined to change the way they do business (even if small changes would make their lives simpler and their businesses more profitable).

triplesec3• 13 years ago

Found it. thank you for the tip http://paulgraham.com/bronze.html

raverbashing• 13 years ago

Well, this is a very interesting writeup

"Unfortunately, over time we found that while people used the site once or twice, they quickly reverted back to emails and phone calls. We always knew that people bought this wine for fun."

Do you know why is that? It's not only about 'fun'. It's about knowing about the wine.

For the technically minded people it is easy to assume this 'wine talk' is BS (I'm not saying there isn't BS) but most of it isn't.

So the experience of buying it with someone who understands it is superior to seeing lists of pictures, prices and generic descriptions.

Also, I bet most wine consumers that would go for this service don't care to learn an iPhone app.

1st lesson for startups: Know your market! I can't make a "disruptive marketplace removing inefficiencies" for selling sand at a beach (absurd example, but you get the spirit)

How is it done today? Remove the pains, but don't take the good things out.

Another analogy. People won't exchange eating pineapples for bananas because bananas are easier to eat, rather, remove the pain of peeling the pineapple, but sell pineapple.

mgkimsal3• 13 years ago

" Another round, and more time, was possible, but it wouldn't have been right to take more money for something that I no longer believed would work."

While I understand the sentiment, and I don't suspect it was done lightly, the rationale here is superficial. "I no longer believed would work". Well, whether it would work or wouldn't at one point you believed, and now you've got a team of people working for you. Closing primarily on the basis of your beliefs (which, apparently, were faulty before - perhaps they're faulty now too? market might turn around? network connections might kick in in 6-12 months?) comes across as selfish.

I don't think you actually were or are - I've no doubt there was a lot more going on that you didn't summarize in this one blog post, and it came across a bit off-handed. I say this as someone who's had to close down something with a team of people - I don't think anyone ever takes this decision lightly.

rohern2• 13 years ago

This doesn't make sense as a critique. There is no other way for a person to make a decision to continue to do something than to base it on their belief in its possible success. The frailty of these beliefs as proven by past failures in judgement is irrelevant. Imagine the absurdity of the situation:

VC: So how do you feel about this company going forward once we give you another round of capital?

Owner: I believe we will fail. I am going to take your money and continue anyway.

If the VC did not interpret the owner as being irrational, he would be suspect himself. You are suggesting that it is selfish to give up things you believe are doomed. What other criteria is there for giving something up?

jmaskell14• 13 years ago

Exactly. I'd have had to lie and mislead investors to get the money. That's fraud and something I wasn't prepared to do.

mgkimsal3• 13 years ago

VC: So how do you feel about this company going forward once we give you another round of capital?

Owner: I believe this is a lot harder than I originally anticipated, and have learned a lot about the industry that invalidates some of the original assumptions. Continuing down the same road isn't a good option, but I'm thinking there are some other opportunities that we've identified which would be more profitable to pursue. Given that you have paid for this education and research, would you be interested in continuing to support us during a change in direction?

fbeans• 13 years ago

So you are saying that your start-up failed and you are not whining any-more? ;)

nemesisj2• 13 years ago

The statement about wine buying being part of the fun is the crux of the issue. I'm not into wine but I am into whiskey, and rather than buy from an online merchant, I much prefer walking into the local shop and getting a recommendation. That process is extremely enjoyable, and one I happily pay a bit more for. Same with craft beers. There are some really great high end sites that cater to luxury goods which are great examples of providing this experience online, but they require a lot of time and design experience, and are about as far from a marketplace as possible, conceptually.

marban• 13 years ago

With 'recommendation' you mean tasting? Otherwise i don't see a necessity for a physical process.

jt2190• 13 years ago

From the article:

  > We always knew that people bought this wine for fun. 
  > The buying process, and talking to others about the wine,
  > turns out to be part of that fun.

So yes, you can strip out all of the fun bits and come up with a very efficient transaction process, it's just that the customers want the fun bits more.

nemesisj2• 13 years ago

Yeah, that's kind of what I'm getting at. Sometimes it involves tasting, but not normally.

wtracy• 13 years ago

I suspect that a lot of it is just about the opportunity to shoot the breeze with a salesperson who shares your passion.

In principle, you could make this work over something like video chat, but in practice I just don't see that working.

comrade_ogilvy• 13 years ago

If you have not tasted that exact label from that exact winery, you have no idea what you are getting. Same grape, same winery, same year is not necessarily good enough, especially when dealing with interesting and not well known wineries.

jmaskell14• 13 years ago

It's a little more complex - a lot of our customers were trading wine to make a profit, and were far more price sensitive. They traded on the site in the early days.

Sadly, the novelty soon wore off, and it turns out the social element is one of the reasons why they enjoy their trading.

colnect2• 13 years ago

Which social elements did your site include to accommodate that and make their experience online fun as well?

n_coats• 13 years ago

Why do you think people resorted back to phone orders, etc? Did you have some type of recommendation component for users?

For example, when someone places a phone order (especially for wine), they may ask the associates preference or suggestions. It would be awesome if you had a program that took drinkers preferences into consideration and then suggested maybe 3-5 wines.

damoncali• 13 years ago

In hindsight, I suppose it's not surprising that an industry that prefers expensive, unreliable corks over cheap, reliable screw tops might eschew technology. If only it were that easy to figure out ahead of time.

jamestnz• 13 years ago

As an off-topic aside, it's worth noting that not all parts of the industry are so backwards in regards to bottle-sealing technology http://www.screwcapinitiative.com/ [edit: beware somewhat spammy industry-association link]

For instance, pretty much all New Zealand wine producers/exporters have been using screw-caps, even on expensive fine wines, since 2001.

triplesec3• 13 years ago

OTOH that's also a data issue: some of the top quality US and even French producers are trying the Stelvin and other new tech closures, but it'll take 30-40 years to know if they're as good as the cork (but without the 10% spoiling problem). They hope so. Prmeability, reduction and all sorts of complex chemical issues are on the line, and it's not a linear, rctuangular, clockwork modernist problem!

And.. it's again a customer-driven thing. People like the ritual of a cork. It's soft data, but oh so important. Take a long time for people's expectations and preferences to change as many blind-utopian technologists find to their cost.

czzarr2• 13 years ago

This is one of the most interesting "Why my startup failed" type post I've ever read. You brought up real insights and didn't fall into the "I'm just gonna generically rehash 4 Steps to Epiphany and Lean Startup to look smart" trap. Thank you for taking the time to write it up, really excellent read.

rcirka• 13 years ago

I'm not sure if this was similar to your business model, but there is a site called cinderellawine.com that does daily deals for wines and does pretty well. I had a co-worker that was addicted to it, I don't think he even drank the wine. It does show that there is a market for "mail-order" wine that isn't based on personal connections.

bjornsing• 13 years ago

> people were often happy to spend £5,000 on a case of wine, but not £10/year for proper storage

Irrational stuff like this really pains me, especially when it's part of the reason I'm failing. But people are the way they are, for better or for worse. You have to find a way around it.

axusgrad• 13 years ago

Include 10 years free storage and charge £5,100? :)

czzarr2• 13 years ago

Not sure if you were serious or not, but assuming you were, this type of "promotion" just doesn't fly for high-end goods such as fine wine.

tonyblundell2• 13 years ago

> The market is valued around $5-6bn per year, with around $1.5-2bn based in the UK.

Does the UK really make-up a third of the world wine market, or did I misunderstand?

jcampbell12• 13 years ago

I think this is just the market for $300-$5000+ bottles of wine.

tonyblundell2• 13 years ago

Still a decent effort :-)

I wonder if it's something to do with UK companies importing/exporting between the US and Europa

USNetizen• 13 years ago

Not every problem "needs" a solution, or wants one for that matter. Good market research can help avoid these types of situations.

jmathai• 13 years ago

Sometimes the only way to prove a solution won't work is to create it and find out. Even then, you don't know that it won't work for someone else in the future.

Do your market research but disruptive innovation isn't something which can be formulated. Else we'd be much better at it by now.

randall2• 13 years ago

You should take your technology and apply it to the nursing industry. I've been saying it for years: Healthcare is an inefficient marketplace. Hospitals always have a hard time filling nursing demand, so they go to extraordinary lengths. For instance, we currently live in Portland, OR rent free while my wife makes more than she would if she lived here, all because they don't have enough nurses. My wife has a recruiter, who sends her loads of paperwork.

There's totally a startup that could make a lot of money. Maybe start out as software for recruiters to manage their "inventory" of nurses? Then expand into a full on marketplace, eventually disinter-mediating said agencies.

mej10• 13 years ago

I would like to hear more about taking advantage of the "Hospitals always have a hard time filling nursing demand"

My wife is a nurse and we are moving to a new city soon. Seems like a good time to optimize her employment if we can.

With free rent it sounds like she is part of a travel nursing program or something like that?

randall2• 13 years ago

Yeah, Traci is a travel nurse. She's also done "registry" nursing, which is like local agency nursing on a shorter term basis. When she was a registry nurse, she would work at different hospitals, once or twice a week.

simonsquiff• 13 years ago

There are already quite a few products that do exactly that. I work for one of those companies - we specialise in nurse scheduling (though also cover doctors and other healthcare staff), and have systems that both manage the hospital's demand (and using their own permanent and temp nurses), and systems for agencies to manage their 'inventory' to fill the gaps. You're right that it's a massive problem and therefore there is a good market here. The full on marketplace idea is also starting to be a possibility but isn't really a big deal yet.

It's also (unsurprisingly) really complex and I'm sure very far from their wine marketplace technology!

peteretep• 13 years ago

I was expecting this to be yet another navel-gazing exercise, and was pleasantly surprised by how informative and upbeat it was.

triplesec3• 13 years ago

Quite! Also interesting is that you came even though you were expecting navel-gazing, so you must find value even in that.

caseorganic• 13 years ago

This is a truly wonderful writeup. I especially appreciated the insight that "Marketplaces need a big disconnect between buyers and sellers".

I try to tell this to startups that try to add indoor location-based technology to businesses like Men's Warehouse. What they fail to understand is that those places run better because they are staffed by people who understand their customers. When someone drives into the parking lot of a Men's Warehouse, they are already there to buy a suit. They don't need discounts or information about the products from an app on their smartphone, they need real customer service.

A skilled salesperson can upgrade anyone on warranties and other items. Having a piece of software do it, especially one built by a group of programmers and marketers that know nothing about suits, is ridiculous, and so is the idea of training skilled salespeople to also be system administrators for software that's not needed.

msrpotus• 13 years ago

One thing that a lot of tech people forget (including, frequently, myself) is that there are reasons systems are the way they are. It might be inefficient, it might be stupid, it might waste everyone's time, but if they wanted to change things, they'd already be looking for a solutions. That they aren't is evidence that they don't see it as a problem.

001sky• 13 years ago

This is a good point. There are two types of people in the world: thos that say "this is stupid" and those that say "oh, I get it".

MMXII• 13 years ago

Efficiency only makes sense as a concept if you establish the context it's measured in.

Geeks tend to fixate on efficiency in the time/cost dimension, but there are many other dimensions in which something can be efficient.

And efficiency in those other dimensions is why many given systems exist as they do.

jacaranda• 13 years ago

yes, creating an app to supplement an existing business (Men's wearhouse) can yield sub-optimal results at best. A better way to do it is to disrupt the model like IndoChino did. They realized that buying a suit is all about the materials and the fit and did everything possible(refunds, alteration fee) to ensure that customers were satisfied.

meerita• 13 years ago

Good article. I enjoyed from start to the end. I wish you the best luck on new ventures, as I stated on Twitter. I'm doing something right now wich has similar things (not wine) and it was good to read what happens and all the things that are in the game.

epoxyhockey• 13 years ago

I'm sorry to hear about the closing of your start-up, but your write-up really shows how much you have come to understand the business of solving peoples' problems. You aren't in denial about how the start-up failed and it is very refreshing to see!

In my opinion, you are poised for incredible success in your next start-up, because of what you learned at Vinetrade.

jmaskell14• 13 years ago

I hope so. I can definitely understand why investors prefer second or third time entrepreneurs so much!

tapertaper• 13 years ago

My impression of the wine biz is that supply is fragmented. In which case the network of relationships is complex (many-to-many) and so costly to maintain. In my business (insurance) disintermediation only followed massive consolidation on the insurer side. Many-to-many became Many-to-few. Cheaper to maintain, easier to scale.

sopooneo2• 13 years ago

Is this largely an illustration of the value of domain knowledge? And I mean as an industry insider, not just a consumer. You don't even know what you don't know when you enter a new world.

I bet having someone on the team that had spent a couple years in the fine wine industry would have made a huge difference, though perhaps that difference would have been to discourage the entire endeavor.

jmaskell14• 13 years ago

We did. I had a year of experience (on the operations side), our sales guy had several years of experience.

Many people in the industry were surprised when we closed - they fully expected us to do well. There are a lot of buyers who are very price sensitive (and happy to do things themselves / hunt around for bargains) - they assumed we'd scoop them all up in time.

sopooneo2• 13 years ago

Interesting. Thank you. I stand informed.

aurelius83• 13 years ago

"Marketplaces need a big disconnect between buyers and sellers".

This is an interesting statement. I'm not sure I quite understand it though. Can you elaborate further?

It seems to me that you are saying that if buyer and seller know each other then they would eschew the market for a more intimate trading arrangement.

jmaskell14• 13 years ago

  It seems to me that you are saying that if buyer and seller know each other then they would eschew the market for a more intimate trading arrangement.

This is exactly what I'm saying. E.g. Airbnb wouldn't work if hosts and guests already knew or could easily find each other some other way.

jordan_clark• 13 years ago

Excellent write up and thoroughly honest. Great insights.

colnect2• 13 years ago

Hmmm... interesting to read http://jamesmaskell.co.uk/2012/inspiration_for_startup_found... now...

dmd149• 13 years ago

I wonder if the customer in this case (the wine-buyer) is misunderstood. Not only does he go in for the relationship, but I suspect he wants to be able to show off the wine and tell stories about it to his friends/guests/people he's trying to impress. Buying a case of wine with a fantastic story may justify the premium, as opposed to a case of wine ordered directly from the vendor that comes unceremoniously in a fedex case.

Why my startup failed

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