10 Lessons from My Failed Startup
In 2011, I left my well-paying corporate job to work full-time on my own startup. Fifth Room Storage was going to revolutionize the storage industry. Only, it didn’t work out that way.
If you’ve ever lived in a cramped place – like, say, an apartment with roommates in a bustling downtown – you know space is expensive. Not only monetarily (e.g., higher rents), but also from the perspective of peace of mind – clutter often causes stress.
The idea behind Fifth Room Storage was simple; it was like Dropbox for physical items. Instead of customers having to rent an entire storage unit (and schlep stuff back and forth), we’d pick up and store individual items. Customers only paid for what they stored. And, when customers wanted stuff back, they could go online and request a delivery.
Within our first 4 months of operation, we had acquired nearly 100 customers in metro Atlanta. Then the wheels came off. Here are some things I’d do differently today.
1. Spend less time on market research
We launched our service in February, nine months after I left my salaried position and nearly a full year after my co-founders and I started talking about the idea. Much of the first few months was spent on market research, which, when it came time to launch meant almost nothing. We didn’t realize at the time that business plans are a waste of time for startups
2. Spend less time on product development
When launching a startup, it’s easy to focus on the product, the “what” we provide. Don’t get me wrong, products are important, but the value they provide is way more important. Particularly with software products, you accumulate code debt as soon as you start writing software, so only building features you know customers want is imperative.
3. Spend More Time Understanding Customers
Startup guru Steve Blank promotes the notion of customer development; which is essentially a means of understanding who those people are who really give a damn about your value proposition. It should happen alongside – and inform – product development. We didn’t do that. As a result, our initial marketing costs were erratic and unfocused, which made it hard to attract customers or realize any return on marketing dollars. To be fair, we had hypotheses about our ideal customer (even if we didn’t use those words), but we didn’t have a good customer validation strategy prior to launch.
4. Accept Feedback Selectively
Everyone has opinions and ideas for how to help your business do x. Some feedback is good, some is not. The best feedback comes from customers. We were not as discriminate with accepting feedback as we should have been. As a result, we lost focus as a management team and stymied the growth we were already realizing. We should have listened more intently to our customers and perhaps less so to outside opinions.
5. Understand the Business Value of Features
Even when listening to customer feedback, it’s important to understand the business value of new features. Does feature x justify y expense (in terms of dollars and time)? With Fifth Room Storage, we ran some small tests and, as a result, we redesigned our entire user experience. I think that was overkill.
6. Invest in Marketing over Operations
As operations guys, we liked thinking about the logistical problems of managing this business. And I contend we could have done it awesomely. Only, we didn’t have enough customers. And ultimately, paying customers are what pay the bills that allow you to operate. I would shift more of our dollars to marketing over operations.
7. Don’t Optimize When There’s Nothing to Optimize
Entrepreneurs love to optimize – whether it’s their site, their marketing, their user experiences, their SEO, whatever. I think our perfectionist tendencies help us to see and capitalize on opportunities. But they also get in the way. Shipping early and often is more important than “optimizing” – especially when there’s nothing to optimize.
8. Account for Salaries
The most expensive part of any startup? Salaries. I didn’t account for my salary in our partnership agreement or budgeting. A HUGE rookie mistake. If it’s off the books, it doesn’t get managed and, as a result, my financial contributions were significantly under-represented in our budgeting, partner agreements, etc.
9. Manage Financials Early
This is actually something I think we did well, largely because we were all business guys. We understood our cost structure (minus the huge oversight with respect to salaries), the impact of operational decisions, and most of our margins. This is the stuff that helps you to understand the health of the business. It’s important to start measuring this stuff early and often.
10. Be Frugal, not Cheap
One consequence of watching our financials and measuring all of our transactions/budgets was that we were cheaper than we should have been in some cases (e.g., marketing expense). Entrepreneurship is largely about the efficient allocation of resources, organized to generate a return on investment. Deploying capital efficiently is part of that equation. That means, there should be a strategy for how we place dollars and we should execute on the strategy. Not spending money on things that could advance the strategy because “they seem too expensive” is as unwise as frivolous spending is.
Launching a startup is fun, but harder than most people think or expect. I’m still learning from my past experience as I encounter problems in my new company. Many factors play into it – timing, the team, the strategy, how many resources are available, etc. Less than a year after we closed our doors, Makespace, a company which does the exact same thing, closed a $12M round. And that’s how it goes. Still, the experience has helped me to grow my current company a little bit faster, with a little more confidence, and a little more perspective. Fifth Room Storage was more expensive than my MBA, but, I’d argue, a much better education.