3 Lessons From a Failed Startup
In the summer of 2014 I began working as the lead product designer for a small Facebook advertising startup called SpruceMail. The company was relatively small at the time with the CEO and a few talented developers. They were privately funded and growing quickly.
SpruceMail was a SaaS product that helped companies publish profitable Facebook ads. The value prop of the product was simple: Facebook ads are complicated. There are tons of levers to pull and you can quickly burn through thousands of ad dollars with minimal return. SpruceMail removed the complexity and provided you with a profitable ad strategy right out of the gate.
Companies using SpruceMail regularly were on average seeing incredible returns, some as much as 3,000% ROAS (return on ad spend). Businesses were being transformed with our platform — our best performers had done several million in revenue in just a few months. Others said they were using SpruceMail simply because they loved the interface, especially when compared to the overly complex Ads Manager and Power Editor.
But in June 2015, SpruceMail’s investors decided to pull funding and shut down the company. With a myriad of client success stories and happy customers, why did the product ultimately fail? It’s impossible to pinpoint the exact reasons for failure, here are some of the lessons I learned during my stay.
Lesson #1 — Onboarding Shouldn’t Feel Like Work
One of SpruceMail’s main competitors was AdRoll, another social media ad platform that was recently valued at $1.55 Billion. AdRoll also offered Facebook ad retargeting with a simplified interface.
The primary difference between the two is SpruceMail charged a monthly license fee for their software and no markup on ad spend. Customers would enter their credit card to pay the SpruceMail license fee, but would also be required to connect their Facebook ad account. AdRoll on the other hand, billed for ad dollars spent directly to customers, but with a hidden markup on ad spend that ranged from 30–50%.
We believed customers would appreciate our pricing transparency over AdRoll’s. Customers were being overcharged through AdRoll and could potentially save millions on ad spend by switching to SpruceMail.
But our strategy had a problem — it required a much greater number of steps to onboard customers. AdRoll required a single step to get in and use their platform, SpruceMail required as many as ten steps.
I suggested we reduce the number of steps to the bare minimum — 2 or 3 screens at most to get people into and using the platform as fast as possible. Additional info such as payment method or Facebook connections could be made after users were in the system. Ultimately, the company decided to push forward with the multi-step approach instead.
The reality is customers were frustrated by the process and most didn’t make it through the signup process without an account manager helping them over the phone. This increased complexity hindered organic signups and greatly increased the labor required to onboard a customer.
It truly doesn’t matter how much value your product provides if customers never begin using it in the first place.
Lesson #2 —Avoid Scaling Prematurely
SpruceMail was privately funded by a small group of investors who had made their fortunes in prior tech startups. They were business savvy and not only funded the company, but offered strategic insights on how to market and scale the business.
The original plan for SpruceMail was to grow through organic signups. We had a few organic signups here and there, but not nearly enough to sustain growth and build the business. This presented a problem to investors, since they wanted to see returns yesterday. Instead of spending the time to figure out why we weren’t gaining organic traction, the investors pushed towards an inside sales strategy. We went on a hiring spree, hiring 2 VP of sales and a team of sales people. Since onboarding was so tedious, we then hired numerous account managers to walk people through the signup process and train them on using the platform. All of these new hires added overhead and forced us to push and market a product that in my opinion was not ready.
I’m not against seeking outside investment and believe in many cases it’s required to properly scale a SaaS business. Companies like Uber or Airbnb simply couldn’t serve the global marketplace without it. Though in hindsight, I believe if we would’ve spent more time discovering the barriers to organic signups and our true value in the marketplace, the business could’ve scaled sustainably with a smaller team and much less overhead. Having investment put artificial pressure on us to seek short term profits in exchange for long term losses.
Figure out your product’s value add and it’s place in the market before scaling. If possible, do it without seeking investment.
Lesson #3 — Choose Your Name Wisely
One of the main features of SpruceMail was that companies would subscribe a special email address to their marketing list, and their existing marketing emails could be used to launch a Facebook ad in seconds.
But when people heard the name, instead of understanding the brilliance behind creating ads from your marketing emails, the majority thought SpruceMail was an email service provider. When these potential customers thought they knew what the product was, they tuned out and ignored us.
Inside sales is a tedious job and cold calling people to give your sales pitch is exhausting. Having a name that confused everyone added difficulty to an already painful job.
Think through how your name could be interpreted by the unlearned and choose your name wisely. It has the power to make or break your business.
Overall I think the idea and model behind SpruceMail was sound, but several key decisions along the way led to the company going under. Hope you can learn from some of these mistakes.
Philip is the founder and creative director of Dreamten, a design studio that helps ambitious brands craft amazing digital products.
