Learnings from a venture shutting
One of our companies will shut operations. It's a bunch of always-positive founders working to solve a real-world problem. They realize additional capital will not solve the fundamental issues in the model today.
It was a complementary set of founders who did their part well. They had a lean team (of 4 + founders), did not spend on unnecessary things, believed in buy vs build, had a very lean budget and used it to optimize for better user experience, automation, low-touch onboarding, and a high human touch throughout the customer journey.
But what went wrong?
Growth
Young companies low on cash can not rely on paid acquisition to grow. It is not only expensive, but can also lead to false positives, and is not sustainable. Building distribution before starting to sell is key. We needed to crack our go-to-market before opening the tap on acquisition.
Unit economics
There are some problems money can't solve. Even if we spent infinite capital on paid acquisition to grow, it wouldn't be contribution positive post customer acquisition. The cost to acquire and service a customer was higher than what the customer paid over a period of time.
Retention
We had between 4-8% monthly churn which means almost 50-100% of customers left every year. We can work hard to acquire customers and service them, but if they don't stay even until we recovered the costs, we were never going to see the light of day. And we didn’t.
Market
Entering an extremely competitive market with multiple similarly priced & discounted options for customers to choose from made it difficult for us to build a sustainable model.
Insights
Any business works because it has a unique customer insight which sets it apart from others. While we thought we had it, the reality was different. Without a unique insight to build toward & solve for - it was always going to be an uphill battle or a product with high competition.
Our two key takeaways
Distribution Advantage
The key learning we derive is to back founders who have built/ are building a distribution edge. We are defining distribution as a motion to reach your target market profitably, and build a direct connection with limited friction. For this company, it could've been in the form of:
Free/open Youtube channels
Offline partnerships in tier 2/3 locations
Creating support/awareness groups on Facebook/other social media
Founder-market fit
While the co-founders had good track records, none of them had a background in the education sector. We will emphasize more on understanding the founder-market fit deeply going forward.
What softens the blow
Very lean team = minimize the impact of layoffs, place talent internally
Fulfiling all customer obligations before shutting down = impact + goodwill
The realization that more money will not solve the problem = no accumulated losses, quick decisions
The coming few months will lead to a lot of ventures shutting and M&A activity increasing. This means nothing but a rejig of great talent from places where there was low fit to places of high fit.
We were, are, and will be optimists and long on early-stage ventures in India