Life in the deadpool

Not too long ago, Brad Feld challenged everyone to write more about their failures. I was reflecting a bit this weekend on my recent success with my earFeeder project and realized that I never took him up on that with my previous business, iContact.

About three years ago, I got together with two of my buddies and a rock star Java developer and set out to build a mobile social network called iContact. This was about a year and a half before the MySpace acquisition by News Corp. Social networks were well known, but nothing had really blown up yet. It seemed to us at the time that nobody had yet built a social network that was built from the ground up to work on GPS enabled mobile phones, and we felt that would not only be fun but also very compelling.

We wrote a quick prospectus outlining the market, the business model, and the associated risks. We didn’t have much trouble raising about $600k, about half of which came from the founders. Most of the rest of the money came from customers and partners from my previous public safety business, Pinpoint Technologies (now ZOLL Data Systems).

We proceeded to build some really slick technology that operated on phones enabled with Java, BREW, or WAP, which cover the majority of the mobile market. We also built a web-based social network that had all the usual features. The difference was that everything was very phone-centric. We liked to tell people to quit surfing by themselves from their homes and get out into the real world where social networks have much more interesting implications. We even tacked on a pretty nifty unified instant messenger that also streamed your buddies’ favorite music and information on the events they were attending soon, giving iContact another channel that lived on our users’ desktops. Within a year, we had a pretty cool product, about 2,000 beta users, and ZERO distribution by the cellular operators.

Our mission was to bring social networking concepts to the phone in a very natural way, but we quickly realized that without distribution agreements with the cellular operators we were going to be dead in the water. The mobile industry is full of pitfalls. If you don’t have connections to cellular operators, you’ll literally need to buy them just to get a shot. It’s an old boys club and the whole industry is just trying to keep control of the closed system they’ve put together. Open APIs are really only open to partners, revenue shares feel like hostage situations, and network aware or location based applications sit in queues waiting for “approval” which is a euphemism for “hell to freeze over.” (No, I’m not sour on mobile!)

We decided about a year ago to shut down iContact and attempt to sell off the assets of the company in order to make our investors whole. We met with a few companies you’ve probably heard of by now who are doing all this stuff and getting deals done with the carriers. Most of them were blown away by what we had created, but there was not a technology and/or strategic match for them. So we never sold it, and it sits on the shelf. We did make a nice return on the domain name itself, but that hardly lessened the blow to our egos. A couple of companies still have an ongoing interest in acquiring the technology so we haven’t listed it on eBay just yet.

In the end, we returned 78% of our investors’ money. I think we failed well by deciding to to cut our losses before we spent all the money trying to make something happen. The writing was on the wall, so we read it. If you ask me, that’s solid management under difficult circumstances, and I’m glad we pulled the rip cord when we did. At least half of these investors volunteered to invest in my next venture, whatever that might be.

I learned way too much from this experience to explain here. The biggest lesson was clearly to make sure you have control of the distribution of your product. For most software and web services, this is not a problem. I would say that the next biggest lesson is to start small and prove something before you convince yourself that the market really wants what you’re building. Finally, I think we could have reacted even more quickly and returned 85% to 90% of our investors’ money (or not have raised the round at all) with better market research and more connected industry advisors in the early stage.

Now back to writing about startups that might matter.

file under: Blog, Startups