How My Start-Up Failed | Hacker News Reader

How My Start-Up Failed

stanfordalumni.org

128 pointsparenthesis61 comments

Though I had a Stanford MBA and regularly consulted on multimillion-dollar projects, I didn't know the first thing about starting a business.

Truer words have never been spoken.

I'm saddened that the two highest-rated comments are snarky comments about the man's degree. He's telling an embarrassing story in good faith, and the best we can do is insult his education? Classy.

Insult him? It was the author's own words; I was agreeing with his realization.

Before doing a startup, I (fallentimes) used to be the consultant on "multimillion dollar projects". I agree with regards to the second comment though.

The author clearly wrote that sentence to express the irony of the situation; your comment contributed no additional information, except to lay on the sarcasm.

Point being, when there are a thousand different insightful things that one could say about the content of the story, a seven-word zinger about the value of his MBA degree doesn't strike me as a particularly constructive comment.

In my opinion, the quote perfectly summarized not only the entire article, but the situations each of us often find ourselves in.

"Shit, I watched my Dad do this a million times why can't I do it now?"

"Wasn't I supposed to learn how to do this in college - where the heck was I that day?"

"I thought after learning how to do X, I'd know how to apply it to Y"

"I thought after listening to him, I'd be able to do this"

But, fair enough, I see your point (I should have added the above comment to my original posting); I'll try to elaborate more in the future.

If you think genuinely agreeing with something the author said is sarcasm, you should look the term up in the dictionary. I don't know whether the comment added value or not, but it certainly wasn't sarcastic and almost certainly wasn't insulting.

If your dictionary has rules for sarcasm, I think I would like to see it.

http://en.wikipedia.org/wiki/Sarcasm

"Sarcasm is stating the opposite of an intended meaning especially in order to sneeringly, slyly, jest or mock a person, situation or thing."

I don't think agreeing fits.

Well, if wikipedia says it, it must be true.

(See that? Agreement.)

I see the humor police are out in force. For those of you who are unable to resist clicking the little down arrow on comments that seem vaguely negative, let's be clear: the whole point was to demonstrate that it's possible to be sarcastic while still agreeing with someone. Yeesh.

In particular, when you "agree" with something that you have quoted out of context, it's quite easy to paint it with the opposite of its intended meaning. That's what the OP did -- he took a remark that wasn't intended to disparage the MBA degree, and turned it into something that did.

That's called sarcasm, whether wikipedia is your authoritative reference on the subject, or not.

Note that I said genuinely agreeing, as his first comment seemed to be and his second specifically stated he was. You can't be sarcastic while genuinely agreeing.

Not like it matters at this point, but I was generally agreeing with the author because I used to be him. However, as noted in my comment above I should have elaborated.

It's always interesting when people declare what someone else is saying or thinking or trying to convey instead of just asking them to clarify :).

Well, regardless of the original intent, it's probably a pretty safe bet that people were voting for it because they perceived it to be a bash on MBA degrees.

My main gripe is with anti-intellectualism and other forms of low-brow snottery in general, not so much with your specific comment.

>>perceived it to be a bash on MBA degrees How do you know????

Reminds me of my second favorite line from Rodney Dangerfield's "Back to School". Thorton Melon's opinion of his business professor, "He tells it like it ain't."

(My favorite line? "Bring us a pitcher of beer every seven minutes until someone passes out. Then bring one every ten minutes.")

Wow. How could a "Stanford MBA" not even know the basics of marketing? If this fellow had clearly identified his market before specing out and ordering his product he would have completely avoided his first-iteration fiasco.

I also suspect a bit more research would have shown that empty cases (which the customer would fill with their own product) would sell just as well. Instead, he plowed on through to obtain more inventory (wasn't discarding expired inventory the inspiration for the product in the first place?) and meet regulations (instructions, etc.) that he probably didn't even need.

Do your marketing up-front, folks. A well-designed product that doesn't address a market isn't much better than this guy's box of greasy, plastic-covered condoms.

It sounded like he did identify a market:

"just in time for the San Francisco International Gift Show...I soon began sales calls on buyers ranging from novelty shops and porno stores to gay rights groups and Planned Parenthood clinics...People began buying my key chains. Small gift shops in small towns bought dozens and dozens and regularly reordered"

His failure seems mostly economic: his financial projections didn't include all the overhead involved in importing the keychains, getting them ready for sale, and shipping them out to retailers. And much of that was because he didn't know all those things were required.

He would've been saved by researching the supply chain better, not the market.

Actually I think the article sums everything up that was wrong at the end:

"I learned that a markup of 150 percent doesn't mean much when you're only making 75 cents per item."

And of course the final nail in the coffin:

"These are hilarious. You gonna give these to us? I bet you could sell thousands of them."

You're right the end made the article. Some articles posted on HN I have trouble getting through the entire thing - glad I did on this one.

Not quite. The product which met with some success was his second iteration: "Retailers told me that what the customer really wanted was a key chain with a usable condom."

Although research of his supply chain was extremely bad, it doesn't seem as though correcting it would have saved his first misdirected attempt at a product.

You are both right. That's why this is such a great story. It's a learning experience at every level!

My own take is that the poor guy's fundamental error was that he jumped the gun on outsourcing. He should have built the first hundred prototypes by hand on his kitchen table, with parts scrounged from one hobby store or another, then sold them himself. It sounds like he basically ended up doing that anyway, but if he'd done so in the first place he'd have invested less up front, gotten feedback faster, and gotten an intuitive sense of his market and the sort of product they'd prefer. Premature optimization!

The other, even more fundamental error was going into the novelty business in the first place.

It would've shown that his business idea was not economically viable, regardless of whether people wanted the keychains, before he had invested $10K in it. If there's no way a business will work, it's better to find that out quickly and cheaply than to invest more money in it.

This is harder than you would think. I took a year off from programming to help a friend market and sell actual physical stuff.

Often times a product that gets well received when you have a few samples made doesn't sell at all. Something you think kinda sucks and is just a 'filler' product in your line up turns out to be the most popular, and you run out of stock. Something sells well, you can get more made, so you order 500 more units, and then all of the sudden the product is not cool and nobody wants it anymore.

Oh, I know. My erstwhile startup seemed like a hot area when we began it a year and a half ago, and people in our target market said "Thank God" when I said what I was building. Now, nobody seems to care, and none of our competitors took off either.

I'm saying that even under his best assumptions about the market, his product was not profitable. He ended up getting customers after all, but even under generous volume and gross margins, it couldn't cover overhead.

Perhaps he should have tried sell the key chains for 5$.

And you would have made the same mistake he made! Exactly the same mistake! You seemed to think that he just chose the wrong product or the wrong technique or something. Every business should EXPECT to have to deal with similar stuff he dealt with at the start.

His problem was that his financial calculation was wrong. Marketing is ALWAYS wrong till it works, research is only right after it is proven true. The only thing you can estimate with any degree of accuracy is the financial projection to see if the business is financially viable. And in his case he didn't factor in the uncertainty and the mistakes that one always makes.

The _basics_ of marketing?

No, with proper marketing one would not make the same mistake. Instead, one would conclude that the product was a no-go and adjust their strategy to fit (in this case, putting the idea on the shelf).

Consider marketing the social component of design. In the whole "Make Something People Want" bit, marketing identifies the "something people want" part. "Make" is important, but it doesn't mean jack if you're making the wrong thing.

It sounds as though this guy might have had a good market for condom cases ( http://www.google.com/search?hl=en&q=condom+cases ), particularly in the 80s when the things were just coming out from behind the pharmacist's counter, but he didn't pursue that initially and his second attempt appears to have been an approximation of what people actually wanted to buy.

If he instead identified what people wanted (reliable condom cases) and delivered that instead of a novelty which sold well to Bangkok tourists, he may have had a business.

You're over simplifying things. It's often not easy to determine what people want, because often people cannot say. For example, an iPod.

For example now, you have gotten stuck on this idea of condom cases. I personally don't want anything near to that. BUT, if the design were really interesting, I may want it. So you can't research if I want that, because even if you asked me, the answer I would give would be ambiguous.

Business School people come out with this idea that you can find out what people want before you have a product on that market. You can't! What you can do is identify a PAIN and fix it. You can identify something to be OPTIMIZED and fix that. If your product does not clearly fit any of those two categories, then all you can do is GUESS that people want it, then throw it at the market and move with the market to take the product in the correct direction.

It's easy for you to say condom cases are wanted after reading the article, but a condom keychain or case does not solve any specific pain. It's somewhat convenient thing, but I can easily live without it. It can work in the market, but it may not work.

The correct approach to this type business is to guess the best possible product that could sell in the market. Then put it in the market, and the market will tell you what it really wants. Then you modify to fit the market. But you have to factor this process into your finances, and you have to factor the risk factor in. The more unclear your market is, the greater your risk factor, and your finances have to be large enough to accomodate this risk. This was not true for the guys case above.

You are running with the wrong attitude if you think you can get things right all the time on one shot if you do proper research. It can happen, but most businesses will refocus after being on the market, and there are many many business who did the research, but didn't get it right. They failed and you never hear about them.

It's not over-simplified -- marketing is hard. That's why superb marketing staff are worth their weight in gold.

Those people who can determine what people want don't just snap their fingers and pop out an idea. An iterative process is followed to produce that initial product. With your iPod example, a music player which is small, elegant and easy to use [so drop all the extra features the competitors have which nobody uses -- and which features are those?] took a great deal of research to spec out.

I see what you're saying and agree that product development is an iterative process, but without marketing you're depending upon luck getting you to that final result; and you'll run out of cash long before you reach that point.

I couldn't be bothered to buy a condom case either. I also couldn't be arsed to use Twitter but I'm not the target market for either of those products, so both companies would only waste resources if they attempted to match my needs.

One has to apply the theory into the reality of the situation. You're right on how it should be, but consider the situation of the guy: it was a single guy with a single product and about $15.000 in cash. He is constrained by many factors and it is my belief that the route he went was in general reasonable. He just executed poorly.

To give a famous example: Before the walkman, some market research was being done. The idea was that those guys carrying around stereos on their shoulders might want a lighter alternative that clips onto a belt.

They said 'no'

How could a "Stanford MBA" not even know the basics of marketing?

Keep this story in mind the next time you assume that the computer science graduate in front of you knows how to install Linux. Or that the electrical engineering Ph.D. knows how to solder.

A friend of mine has one of those with a condom and a cigar on his wall. It's been there for years, he isn't that good with girls and doesn't smoke.

It's called a Master of Business Administration, not Master of Business startups for a reason.

I am finishing a course called "Business Admin. - Entrepreneurial & Small Business Management" and I still feel that the majority of the classes are corporate focused, especially marketing. Almost everything they teach is in the context of a mature and competitive market. We never hear about entering new markets.

If they had that kind of knowledge they'd be out there doing it themselves. I don't think anyone knows about entering new markets cos they vary so much. It's down to instinct and dumb luck I believe.

Luck and instinct are important, but there's definitely skill, knowledge, and experience as well. Fail three times and you'll have a much better understanding of what it takes to make a startup work.

I don't know why he didn't raise the price. It's the obvious thing to do if overheads are eating you up, and he could have sold the things for 3 or 4 dollars. Or more, over the internet, if he'd mischievously tagged 'shipping and handling' to the price.

Same here. I think people would have payed ten dollars for his product.

Could have potentially shipped it directly from Thailand too.

I thought his biggest mistake was thinking that he can sell millions of these keychains with ease. Since the only people capable of buying those volumes are the big retail chains and not those small mom-n-pop stores, he should have gauged the potential response from these retail chains prior to importing the key chains.

I would think that it would be obvious to the laymen that such a product would appeal only to the small novelty shops, so there is a ceiling to how much you can scale this business.

Wow, was he ever over-paying.

But the story reminds me of my first searches on Alibaba: "What? you mean I can buy cigarette lighters for THREE CENTS EACH???"

(Of course, the MOQ was a million. What would I do with a $30k sea container of lighters? Go door-to-door at gas stations?)

I liked:

"I would wake up wishing that I had followed my classmates into something simple and easy, like investment banking.".

Don't speak too soon...

loved this line "You're not in business until somebody sues you."... surprised no one commented on this yet.

This bring up an interesting question.

Why commit to a specific product? Why not just by up a few boxes of different funnies & see which sells? Condom keychains are funny but hardly revolutionary. It's not going to be a product that sells it self, hires its own consultants & negotiates with Wal Mart while you sip Tequilas. What he did was establish a wholesaling business with only one product, where he had to pay cash & sell on credit.

Not knocking the effort, but designing/sourcing/manufacturing apples is not the same as selling apples. No reason to do both. Aren't you better off selling apples & pears & not bothering with growing at all?

So, I've been in the valley for about 10 years, and at least half the startups I've worked for, (and almost _all_ of the startups that my friends/colleagues have started) - have had far worse obstacles, challenges, and difficulties to overcome than this individual seems to have run into. He has described the first two chapters in a 50 chapter novel of building a business.

I don't understand why he quit just when he started to get a bit of traction. He got past his first lawsuit (it appears, and most employees of a company aren't aware of how much legal and sometimes government friction their is involved in running a going concern), he started to discover how important a D&B number (or a proxy thereof) is for customers who buy from him on credit, he overcame some serious product quality issues, and began to understand that running a business is hard, hard, hard work. The story had just _started_.

And then, he quits.

Now is the time that he needed to start networking with other manufacturers (or wholesalers, or retailers, or product designers - or whatever he wanted to be) and understand how to improve his product design, his sales channels, etc...

It sounds like he limited his distribution to less than a hundred organizations. Certainly less than a thousand. The type of product he had _required_ knocking on tens of thousands of doors, calling, emailing, mailing, and reaching out to people who could distribute it.

I don't see where he hired his first employee, that would start to take over some of that manual labor, marketing, calling, packaging, delivery, etc...

I didn't get a chance to read about the technical improvements that he made in shipping, or even any of the passion that he had for selling. I realize this was a "All startups fail for different reasons" + "An MBA doesn't mean you will be successful in a startup" type article, but reading between the lines, I wonder if there was an even better, "I didn't really fit the Startup Character" article - despite some initial victories.

Compare that to an entrepreneur who is passionate like Joel Spolsky - even on a completely trivial side project that I suspect is mostly part of his recruiting efforts for FogCreek he keeps blocking and tackling and overcoming obstacles (check out http://www.joelonsoftware.com/oldnews/pages/December2005.htm... for the summary of one)

Anyways, I do enjoy reading "How my startup failed" stories as much as "How my startup succeeded" - but I don't sense that his startup failed. He just quit.

I would have marked it up way more than 150 percent; I would have charged USD 10.00. If this guy could make USD 9.50 off each condom, instead of USD .75, he might have done much better.

Of course, I don't think this guy's a bad businessman. I'm just saying I would have done that one thing differently. I'd say that, latex notwithstanding, the demand for condoms in the right place and the right time is very inelastic. Shit, you could charge $300 for a condom if you were in the right place in the right time. Which place and which time those are I will leave to your imagination.

You could even charge way, way more than that if you could somehow sell them retroactively.

There are a couple of comments on here to the tune of "Why didn't he charge more?" or "Why didn't he sell them on the internet?"

The article was written on an alumni web site, and the author lists his MBA as attained in 1984. It's likely that he attempted this business shortly thereafter. Probably would've been harder to sell on the internet 15 years before Viaweb. May have been harder to sell key chains for more than $1.50 too, though who knows.

I'm still not sure why it failed.

it sounded like he just got tired of working on it. I mean, for a job like that with lots of physical schlep work I'd budget for a few people to handle the physical labor.

Maybe $10,000 was a hard budget limit? I dono. it sounded to me like he should have stuck it out for a while longer, maybe after finding an underpaid lacky or partner.

It sounds like he could have made it a success if he streamlined the production process and kept the cost per keychain down.

I think it could have been a success, but I do wonder how much a one-off product like this can really make. There is money in novelty items, but I think the only ones making real money there are people who already have distribution and willing markets.

Yeah, kind of like the "find the right denominator" (oversimplified) discussion in Good to Great. If he could have optimized on profit per keychain, he'd be in great shape.

Of course, that's much easier said than done.

I find this extraordinarily interesting, because I've come to the conclusion over the last year+ that I would do a non-software startup if I ever do another. I have all sorts of invention ideas (one somewhat similar to this actually) and figured I'd either run one of those or a restaurant idea I have.

So he knowingly sold and gave away condoms even after learning they were defective and had been exposed to air? What a douchebag. Why is this guy not in jail?

I think they were a novelty item and not intended to actually be used.

"Then came the fine-print details. According to the Food and Drug Administration, I needed to include a "how to use" guide with each key chain. I realized I needed insurance in case some fool inadvertently Bobbittized himself with my product during a drunken tryst."

"When my inventory dropped below 500, I took the remainder to a local advocacy group for prostitutes."

Following the article, the condoms he sold in this way were actually bought from stores and placed in a keychain condom holder. Most likely the condoms stayed in their individual packaging.

My bad, I apparently missed that sentence.

You're talking about the second order. He got one order, found out when he tried to sell them that people wanted actual, usable condoms, and ordered another set.

The first run that were just novelty items were not meant to be used. The second run where he went to the drugstore and bought new ones to put in the cases were the ones that were to be used. This was after retailers told him what was really desired was a condom key-chain case.

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