Falling Forward- three failures on the road to profitability, and how we moved past them
I’m writing this from a hammock on a small Panamanian island, light breeze, gentle water washing up onto shore- life is damn good and sales are higher than ever. But, at the same time, there’s been a lot of near death experiences in the process of getting to a point of scalable profitability.
Here’s how we’ve screwed up!
1) Wrong market, wrong idea, wrong execution, wrong timeframe, wrong funding.
This should have killed us.
A year ago we set out to build a music company, Spreadsong, to make music free and free music profitable. Where dozens of companies fought tooth and nail to build businesses around a mess of RIAA lawsuits and licensing deals, we would blaze a trail forward into independent, free music- download everything! Spread the music! Tap into the Creative Commons and craft an amazing service.
The truth is, we did build a damn good service- just the wrong damn good service. We built the free service first and got it to the point where it was really, really solid. As we drew closer and closer to launching one big problem became apparent- the paid part sucked! It wasn’t useful, it wasn’t fun to use, and it was nowhere near as good as the free component.
Little detail: when dealing with music, freemium with 0% premium is a recipe for disaster. In recognizing this, after a year of hard work, we immediately took a deep breath, regrouped, and moved forward to build a side-business around another idea atop another platform. That side-business was Free Books, and its since become our entire focus. Something about profitability on a Panamanian island is kind of addictive, call me crazy.
2) Wrong structure.
This is a biggie- we originally brought on a third guy. Very experienced, background on the tech side of the music business, great backend skills, really into what we were doing. We agreed to vesting over IM, stating that we’d all work for equal amounts of equity. Little problem- nothing was written down.
After about four months he decided that he didn’t want to continue- the three of us weren’t gelling as a team, he had much higher fixed expenses that needed to be paid, there was a lack of distillation on what we were really building, and in general it was just a low point for the company. He announced without warning that he was going to quit- bad enough. But, to top it off, he intended to use our code for his own projects, despite the earlier agreement.
This elicited a moment of panic, given that this wasn’t what had been agreed to- we had all been working for a to-be-formed company in return to sweat equity, being paid for our contributions in equity and returning back the intellectual property of our work. But, we didn’t have a written agreement- just agreements spread through various conversations in email and IM.
We wound up getting properly incorporated, got vesting set up officially, and did indeed resolve the IP dispute. Doing so was expensive, however, and lots of time was eaten up, time that should have been used to get to market sooner.
Morale of the story- it’s ok not to incorporate, but you absolutely MUST have a written contract between all parties. Braindead simple, and I feel like an idiot for not having done so originally, but just get it done. Write it out in plain English, hit the major points- you’re all vesting into x% equity with a one year cliff, four years vesting, and all work done related to so and so belongs to a to-be-formed company. Boom, easy!
3) Not recognizing the signs of success.
After deciding to get revenue flowing before going back to work on Spreadsong, we set out to throw stuff against the wall left and right. iPhone apps, web apps, Adsense plays, even a Facebook app. Over the course of two months we just churned out concepts left and right working to get a hit.
The problem emerged when got a hit- Free Books’ sales started increasing. At first it was $10/day (cool, that’s half of rent!), then $20/day (rent’s paid, awesome!), $50/day (that pays for all expenses in Budapest, we’re ramen profitable!), and $300/day (shit, I guess we need to turn this into a business now!).
It’s that last step, “shit, we have to turn this into a business now”, that we didn’t execute on as well as possible. While we had support emails ready to go from day one, while we had a plan forward from day one, we basically shipped Free Books and then got to work on other things- back to churning things out.
But, as we hit the $100/day point, we didn’t immediately cut the other things- we kept on throwing against the wall until we were already at the $250/day. Problems became clear. We hadn’t tested the app thoroughly enough, first of all, and as a ‘throw it against the wall’ release some key functionality was missing. In general it was a first draft to prove an idea but, by waiting the extra two weeks, we screwed up the transition. In so waiting we allowed negative reviews to proliferate and wound up postponing an update much too long for comfort.
At this point, we are 100% focused on Free Books and other Free Books related work- we’re about to ship an update that does a deep, deep fix of all the various bugs that have appeared in previous versions, along with adding some really great features. Thoroughly tested, professional in affect, and just an all around high quality application, our next version is a properly realized version of our first draft.
However, in waiting too long to switch gears, and in failing to focus solely on Free Books after we shipped the update, we wasted too much time. Survivable, and revenue is doing just fine today, but I feel bad that we left folks hanging in our rush to get a hit. Our processes have improved, our focus has been tuned, and our path forward is clearer than ever. We’ve made it work. But that doesn’t mean we executed perfectly. We failed forward, we made mistakes, we screwed up, but we’re still standing- because, even while failing, we failed forward.
