I returned home from Silicon Valley and built a failed startup
Lets see, where do I start.
I’ve been doubting for quite some time on whether to write this or not. It’s definitely something that one should not be proud of, but there is an urge inside of me wanting to share the story for others to see that the startup world is not just stories full of series A, B, C, D, E fundraising's, IPO’s, unicorn’s, ping- pong table, and free lunch. I want people to get a reality check on the truth, that 90% of startups fail and share a bit of my experience.
Okay so here’s the story.
I started building Shopious 2 years and 6 months ago along with my co-founder. Shopious was envisioned to be a fashion social commerce marketplace. My background was in computer science, a true software engineer geek who loves to code. Why did I choose fashion social commerce to begin with ? It’s for a simple reason, e-commerce was booming in Indonesia and the top most sought items was fashion. Most online shoppers are women.
Initially Shopious was a women’s fashion marketplace. One year after, we decided to pivot to an online shop aggregator. Why did we pivot? People don’t have time to upload pictures one by one to a new platform that aren’t well known yet (unless they’re given something). The marketplace model was something new to the market. Often times we get asked a lot about the product details sold on the site, which we really don’t know how to answer, only buyer knows the answer to it as they have access to the products sold. When we ask potential buyers to contact sellers, they usually just bypass our platform and decide to make the purchase directly via BBM or LINE or WA just because it is easier and faster.
At that time, people selling items on Instagram was hot. So why do they have to do it twice, lets just aggregate online shops on Instagram and have people directly contact sellers to buy. We will parse all the item details information and prices. We will make it as a paid platform charging them monthly subscriptions to limit people from scamming buyers. We will showcase customers testimonial pictures that is already shown on their Instagram account in our site. This kinda solved all the problems mentioned above and seemed like a good plan.
Okay, so what the hell is the problem!
E-commerce website conversion on the Indonesian market, is still very low. The funnel we had on our site, from people browsing products to them actually buying products is super long and unpredictable. Its unpredictable because people would have to contact the seller directly to make the purchase. If seller had responded slow, buyers would lose the impulse buying mode and hence the transactions weren’t made. We had no control to any of these issues and it’s pretty hard to track.
Meanwhile on the other side we also are charging sellers since day one. This means that in order for them to renew, they would have to make money greater than the fee paid. We had hundreds of stores already wanting to pay, we used all the money we got from our subscriptions to bring in traffic/potential buyers to our site via various channels, SEO, SEM , FB ads (retargeting), SMS blast, whatever you name it.
Also keep in mind that the cost of bringing traffic through paid acquisitions channel keeps increasing. New e-commerce startups gets funded here and there. Eventually that will eventually push ad-prices to go up like crazy.
Instagram shops is full of resellers
There are a shit ton of online shops in Instagram for sure, but most of them are resellers/dropshippers. This means that they are selling items for an incredibly higher price than the original source and they don’t have the items on stock themselves. They might be the 2nd or 3rd hand reseller from the original product owner. The product variety and photos between shops are mostly the same (even the same stock pictures), the only difference is the price.
Another challenge presented with these resellers is when a potential buyer asks something about the product, sellers have to ask their supplier first. Supplier responds to the question and then sellers get back to the buyer. This process is taking a shit ton of time and by the time the seller responds, the buyer would have lose interest and gone somewhere else. Indonesian buyer’s ask questions a lot, a lot are stupid questions, trustworthiness questions, and clarifying questions on products in which answers you can easily find by spending 30 seconds of your time reading.
So imagine if I am a 3rd hand reseller, my product price is for sure incredibly high, my time to response to a product question is long. Pretty much, I am at the end of the fucked up chain. The hell with that, I am just a college student in my second semester trying to make extra money so I can hangout with my friends on the mall during the weekend.
My responsibility as a platform to these paying merchants is to get their items sold, but it is just utterly hard given the conditions above. An option we could do is to limit the merchants to first hand merchants/distributor only with superb products, but that would mean we had to cut down our market size by a LOT (more than 50% of our market is my prediction).
We want to profit
Since the beginning of Shopious, I made it very clear that a startup is a business. Like any other business you can only be sustainable (long term) if the money you have in your bank grows.
This might be contradictory to the view most of VC’s and startup founders have, where usually they don’t care about profitability. The main thing they need to sustain their business is growth and metrics. They would then use this metric in their presentation slides to investors and get another round of funding. The process will continue to go on and on, till god knows when. Most startups are like this, including Uber, Snapchat, AirBnB, etc, etc.
Investors and founders would make money if the startup got acquired, investors sell their shares during a series B, C, or D, or it goes to the public market (aka IPO’s).
This just sounds so wrong to me. If you have a good product and it brings value, then others should be able to value it back by paying you for your product or services. Period.
Building a startup just to get acquired or keep raising funding until it goes public is not how a real businesses should be run, at least for me.
In the end, we decided to shut down Shopious. Of course me and my partner might have made mistakes along the way, with bad product decisions, executions, managements, etc. We’re first time founders, we made lots of mistakes. One thing we knew for sure, if we decide to continue Shopious, we would have to increase costs a LOT in bringing in more traffic to our platform and also wait for a very very long time for profitability. Honestly we still had money in the bank (quite a lot of money) given from our angel investor. We decided to return the money back, since we don’t want to waste it. Our goal with them is in alignment since the beginning, that we wanted to make a profitable and sustainable business.
We had no problems getting people to pay us money to try our platform, but we were competing against others who seemed to not even care a single bit about profitability. Others who subsidized potential users to make them use their products by giving out discounts, free shippings, not charging for things they should charge (aka free for life), marking down prices, free trips to Japan, etc. These kind of behavior is not going to end soon, in fact it might get worse as new players come in with big piles of $$$.
I really hate to say this, but I am quite disappointed with the startup scene in Indonesia. In Silicon Valley, you compete fairly with each other through creating better products and services. People highly respect good products and services. In Indonesia, you compete with each other through $$$. The one who has the most cash in their bank will most possibly win the competition.
Some say that feeding the market with $$$ is needed since we are still at the beginning of this tech industry boom and the market is not ready yet. Some say it is educating the market. But I say it is horse shit and is bringing all of us to chaos and potentially a tech bubble. Some time in the future, the numbers will not make sense and we might start to see devaluations of startups in Indonesia (which is happening now in the US).
Now I am not telling you to NOT start a startup. It’s your life choice and you can do what ever you want in life that you feel like doing. However, my final note to everyone who is going to start a startup, anywhere around the world. I started a startup and I failed, I chose to shut it down, because it wasn’t in alignment with my goal, which is to create a profitable long sustaining business.
Before you do a startup, please think carefully on what you want to do with your startup. Do you have a life mission that you want to carry along with the startup? Do you want to start a startup just to sell it to some other company and become rich? Do you want to build/run a profitable long sustainable business?
If you want to make a startup to increase its valuation, sell it, and you feel it aligns with your life philosophy, go ahead and do it. The rocket internet guys have been pretty successful at doing so and they feel fine about it.
If your main reason of wanting to build a startup is to help others do X and and you’re fine with continuously raising funds, go ahead and do it.
Well that’s my rant. I am not embarrassed of my self that I failed, at least I got that one badge of honor in my life that I will always carry with. I am more than happy to talk with any fellow entrepreneur out there to share more of my experience because once again the startup world needs to see more failing stories and not just the unicorns raising billions, ping-pong tables, free lunch, and fundraising stories. Cheerios