So many time I’ve told my girlfriend that a particular startup is dead (or in most of the aspects, have no future). There is so many ways a startup could die. From having no money, to having too much money. From having too many specialist to too many generalist. During one of the coffee breaks I had with my interns I told him Captivoo is dead. We were on the topic of the future of the company…
There will be two questions when you hear such thing from the founder.
- Why is the business dead?
- Why are you still persevering then?
Why is the business dead?
Margins vs Operating Cost
Just a couple of month ago, we found that our biggest business competitor has gone in the grave. Their website was down and there was no longer news about them since. And a couple of weeks ago, Ensogo, a publicly listed company disintegrated into thin air. Their share price plummet in matters of weeks (nothing compared to Brexit of course).
So what could have been the problem with these companies that also plague us? Part of it got to do with operating cost.
Let’s just say that we earn about $100 per merchant in a month. If we have 100 merchants on board, that will give us about 10k per month. That is hardly enough to sustain the cost of employing 4 full-time employee.
There are two ways to solve this problem. The first is to increase the margins by a gross amount. The second is to scale at an enormous rate (growth hacking).
We know of a competitor who charges the merchants a gross amount, exploiting government claims. Their margins are a multiple of ours and has got a couple of merchants under their belt. Sure, this can be a method to earn quick cash but I would rather believe that a sustainable business model is what I’m looking at. At the end of the day, if the customer (re-)acquisition cost is much higher than the average margins from the customers for the merchants, there is no benefits in using a customer retention system. If government grant is what the business is after, the true value in that particular business is their ability to trick the systems. These businesses are already dead.
Another way of tackling the problem is definitely growth hacking. If the business is able to grow the client base by a rate exponential to the number of staffs, then the business is able to survive on a smaller margin. At this point in time, we have salespeople working on sales, but the numbers are growing too slowing to sustain the business. At this rate, we will be plateauing soon. Death will soon follow.
Why am I still preserving then?
As most founders will say, they believe in their product. I do not believe in the product, but rather the underlying concepts.
I believe that amidst the increasing complexity and competition of the market, business needs a different way of communicating with their customers to have an edge over the other businesses. In addition, businesses have been too focused on customer acquisition and in that process have lost valuable customers. On contrary, by focusing on existing customers they tend to earn more and spend less on acquisition.
There are still hope
Identifying the problem is the first step of solving it. Now that we have identified the issues, albeit not all, we are able to steer it away from death. At this moment I think it is stll too early to tell if those plans will work in a long run.
Death is not the end
The death of a product does not mean the end of it. Many startup failed on their first launch and pivot into another product. We are currently working on another similar product without the inherent problem of low margins. The development of the new product will be funded by a B2B company that is trying to implement their loyalty program. Once the program succeed in Singapore, we are going regional.
At this point in time, I’m looking for help in terms of growth hacking. If you know of someone who is great at it or is willing to try their hands at it, give me a shoutout. Also, if there are node.js developers who are interested in getting their hands dirty to build the new product, let me know as well.