What I have learned from failed startup

This article is my record about how Favorr, our startup, failed. Favorr was an app developers community to review each others apps on Appstore.

One of my friend and I was talking on Skype about startup ideas, this was August 2015. At that time I was composing new startup idea around advertising and marketing for apps.

He got an idea. The idea was about solving user acquisition problem with reviews. He said my last app didn’t work out because I couldn’t get enough reviews. and look! 99% of apps fails. How about exchanging reviews? Let’s say I have an app and you also have an app. I can write a review for you and you can write a review for me. App developers can help each others…

I think the idea was interesting because I have developed quite a few apps and I know how hard it was to get traction.

I even remembered the last time I spent money on advertising. Around 1 year before our chat, I spent $10,000 for advertisement for one of my apps. The campaign failed miserably.

I asked the person in charge why and she said to me you should have prepared good reviews before starting campaign. I could have better result if I had good reviews.

This is how Favorr born.

Quick prototyping

I developed a prototype almost in a week or so and hired the best designer I knew without any idea validation. This is kind of my week point. I get easily excited and once I get excited I can not help but doing it…

Anyway 1 month later, we got beautiful design integrated and we thought we were ready to test. But since we just started our project without preparing concrete action plan, we had no idea how to reach app developers.

Growth hacking

We list up a few tactics.

  1. Sending email
  2. Advertisement
  3. PR

Marketing was not easy because there was no single trustable media targeting app developers. I tried Facebook and Adwords just to see the effectiveness and they were not good at all. We discussed PR but I’m not a big fan of PR in general and I believed that spending money for PR before product-market fit was wrong.

So we chose sending marketing emails.
We prepared system which scraped landing pages of apps and found email ids and sent emails. Some may dislike the idea of sending unsolicited emails. But our service was completely free and intention was good and we didn’t have other option anyway.

Initial Traction

After we started sending emails, a few app developers started using Favorr. We wrote at least 1 review to almost all apps to make them happy.

One day when we checked our statistics, our review count went up dramatically. Almost 10X.

The reason was one company started using Favorr seriously and because of their contribution, other app developers also started using Favorr.
This was when we thought we were on something.

Growth

I thought this was the time to setup an entity and we setup a corporation in Delaware like other startups.

Come to think of it, this was the most exciting time of the project

We have 3 co founders. 
We increased the volume of emails and the active user count went up accordingly.
We had more than 3,000+ apps listed and we had generated 10,000+ reviews on Appstore.

We tried to reach potential advisors/investors to make it real business.The responses were pretty positive because of traction.

One of investors suggested us to join startup competition called G-Startup and we pitched at G-Starup competition Tokyo 2016 on July 15th in Japan. Even though we could not win the first prize, this was a great experience and fun.

We even got first paid customer. This was a quite achievement.
We finally developed a revenue model.

Not Product-market fit yet?

Since we had traction and even revenue model, all we had to do next was/should have been scaling.

If we can call the situation that the active user count is increasing traction, we had traction. But we realized our retention rate was not so great. Most app developers used Favorr in a short period of time to get a few reviews and disappeared.

The reality was kind of Slash-and-burn agriculture.

So our plan was…

  1. Increase user engagement (retention)
  2. Send marketing emails as much as possible.

The problem was we had never solved retention problem.

We started sending notifications not only when user received reviews but also when apps were updated or apps received bad reviews. 
We developed new app serving algorithm to increase engagement.

But retention rate didn’t change.

We should not have skipped the low retention problem but because we ran out of ideas for retention, we increase the volume of emails.

We finally ran out of apps.

Just in 2 days after increasing the volume, we ran out of apps, which mean we had already tried to get email id from all existing apps….

Losing direction

We improved our scraping scripts and related programs to buy time.
But it was clear that we needed either new sources instead of emails or out-of-box solution for low retention problem to justify cost for advertisement. Or both.

To be honest, it was possible to develop new ways to reach app developers because only about 25% of apps reveals their email ids on their websites. And since our email open rate was up to 30%, the fact was we had reached just fraction of entire apps.

But we could not figure it out.

And for me it was stupid to spend money for marketing before solving low retention rate problem.

Since I had no idea what to do next, I consulted the theory of disruptive innovation, advocated by Prof. Clayton Christensen, which was my favorite.
It sounds odd but this was what I did.
We interviewed to around 15 users to understand what our users use Favor to get done and to see the possibility of pivot.

No one hated us!

It was interesting that no one hated Favorr. Most of users even liked us.
But they stopped using us.

There may be many reasons…

  1. Wanting reviews don’t happen frequently enough
  2. Review can not make a difference
  3. Writing review is too much work
  4. Or maybe…

Most app developers want reviews only right after updating their apps because once you update your app, old reviews are archived. But since typical developer don’t update their apps every month, it’s difficult to be habit.

10 reviews can not make any difference. This is true.

Writing a review takes time and energy. This is also true.

Shutdown

Because we could not really solve low retention rate problem and we could not find any cheap and scalable way to acquire app developers instead of email, we almost gave up to develop profitable company.

But we decided to keep Favor just as a community service partly because we had still hope and mainly because quite a few (around 100) users were still using Favorr. Fortunately since this was only me who put money on the project and we didn’t take outsider’s money, we didn’t have any responsibility for profit.

But after starting losing traction, we had kept losing active users and finally the active user count got too small for even community service to make sense.

And even worse, Apple changed their algorithm and our reviews started to be removed from Appstore. Since Favorr didn’t have huge traffic, this change must have been nothing to do with us.

But this was significant enough for us to decide Favorr’s shutdown.

We shutdown the website on July 2017.
More than 7,000 apps were once listed and more than 40,000 reviews were generated on Appstore in total.

Afterthought

  1. I thought we had product-market fit. because our active user count was growing. But it wasn’t. Retention is as important as initial traction.
  2. If user stop using a service while he/she says he/she likes the service, something is terribly wrong. The problem may be less important…
  3. It may be obvious but freemium model may not work when potential audience is not consumers (end users).
  4. It may also be obvious but all co founders should be in the same place. We lived in different locations.
  5. So many app developers are pissed off by Apple and Google. This is still true. App developers can help each other to be successful together even though making profit out of it may be tough.
  6. I can not write every details and there were so many more... And I’m proud of being part of this project. the model was quite unique and Favorr was actually helping quite a few app developers.

Thanks for reading.

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