Guest Post: The Post Mortem of a Venture-backed Start-up

Entrepreneurship is more about failure than success, both statistically and emotionally.  Most start-ups fail.  You can only succeed if you are prepared to fail along the way and the world’s best entrepreneurs have failed over and over en route to changing the world.

And yet, despite the thousands of intense start-up experiences that never came to fruition,  there is dearth of stories about what didn’t work.  Millions of hours of learning from which the rest of the world will never benefit.

What follows is my good friend Jordan Cooper‘s post-mortem of his latest entrepreneurial venture, Untitled Partners.   Jordan is one of the smartest, most thoughtful people I know; his words below illustrate that better than anything I can say.  I sincerely hope that Jordan’s bravery inspires the rest of us.  Thanks for sharing buddy.

For readers who are not familiar with Untitled Partners, the Company was created to enable fractional ownership of fine art. Our hope was to aggregate demand around works of art being sold through the existing channels in the $70B art market, and then to enable our customers to cooperatively purchase and own the art they loved. On March 9th, we made the difficult decision to shutdown the Company and return almost 50% of the capital we raised to our investors. Over the course of this post mortem, I will try to identify and expose the causes and decisions that led to the demise of Untitled Partners.

1) The writing on the wall

I can’t say that we didn’t see an economic downturn coming. When the cover the of the Economist in July of 2007 depicted a well dressed banker standing atop a mountain, with one foot hanging over a steep ledge, the notion that the Dow was going to hit 15,000 seemed a stretch. Fast forward to March, 2008. For a few months, my co-founder and I had been discussing the merits of fractional art ownership as one of a few ideas we were considering. We analyzed the likelihood of success in a slowing economy, and developed a product that we believed could thrive in boom times with an aspirational customer, and in slow times with a conservative consumer. After all, Marquis Jet (a fractional aviation company), had grown from $0 to $1 Billion in revenue on the back of September 11 and the early 2000’s recession. Our analysis was supported by articles in the Wall Street Journal and the NYT, as well as the Mei Moses art index, which suggested the art market was countercyclical and had a low correlation to the S&P. What we didn’t account for was the magnitude of the current correction and the effect that it would have on discretionary luxury spending even within a population that financially could still afford our product. We were obviously wrong about Untitled Partners’ ability to grow through the subsequent downturn.

What we could have done differently: We met with a lot of industry experts during the vetting of our idea (people with luxury, art, fractional, and consumer expertise). More questions focused on how our consumers have behaved in previous down cycles would have been helpful. There is a tendency when speaking with sources of information to focus on the largest unknowns and to fill in the knowledge gaps that are preventing forward momentum as efficiently as possible. We could have benefitted from the experiences these guys had in the early 1980’s, early 1990’s, and early 2000’s, those questions just weren’t top of mind at the onset of our venture.

2) The timing

The day we closed the Seed Round with our investors, the Dow closed at 12,063. Five months later, on the day we launched our Company, the Dow closed at 7,552 (having dropped about 4000 points in the 3 weeks leading up to launch). On our launch day, the Wall Street Journal ran a 1400 word article entitled “How to Survive the Art Market Crash”. Three and a half months later, the day we decided to wind down our Company, the Dow closed at 6,500. So what were our choices? We had already delayed our launch once, hoping that the New York Times would stop running “End of the World” headlines, but things were worsening, not stabilizing. The realty was we had built all of the necessary infrastructure to support our offering, we had completed 4 of the 5 milestones we promised our seed investors in our investment deck, and all there was left to do was sell. In a different fundraising environment, I think we might have been able to capitalize the Company on hype vs. revenue, but there was no question that in order to close a new round of funding, we were going to need revenue. So on November 20, we tried to sell. Our offering was met with a barrage of responses to the effect of “I’m not spending money on anything right now, let alone art.” The result: we spent a lot more time than I would have expected on “messaging.” How do you say “you just lost half your net worth, want to buy some expensive fine art?” in a way that is appropriate, appealing, and in good faith? Ultimately, we did not find an answer to this question. In that search, however, we stumbled upon one of the decisions I wish we could have taken back (see “Hiring”).

What we could have done differently: We could have made a hard push on fundraising ahead of launch, and tried to lock in an additional 12-18 months of runway ahead of performance. I think we would have come up short, as the fundraising environment had already started to deflate by the time we were thinking about this move, but had we capitalized the Company in October, we would have been able to wait things out for a while and see if the picture got any better. Our angels actually had varying advice on this question. Ultimately, I think it was a better outcome for our shareholders to have failed fast with half of the capital we raised, vs. what the next 12 months would have looked like even with a full tank of gas, but again, I am not an economist.

3) Hiring

In the face of our inability to find the proper messaging for our offering, we hypothesized that it was due to a lack of marketing DNA within our core team of Andy and I. What we needed was someone to fill this gap, and figure out what we should be communicating to our customer base and how. After interviewing 20 people, we hired a Director of Marketing. Despite caution from two of our angels, who didn’t think it was the right move, we brought on a 3rd core team member three weeks after our launch. She was not capable of solving our problem, due to a combination of a lack of aptitude and a potentially insurmountable task. We laid her off 60 days after she joined our team. This mistake cost us $15k in compensation, another $7K in wasted marketing spend, and an unquantifiable amount of management bandwidth both bringing her up to speed and compensating for her performance.

What we could have done differently: Hiring is hard, and without proper experience, we should have leaned more heavily on our investors to help us with this decision. Hiring was a challenge we found difficult throughout the life of our Company. We made as many bad decisions as we did good ones with regard to hiring full time, part time, and independent contractors/consultants. Biggest takeaway: As soon as the data starts to suggest someone might be the wrong hire, don’t wait, immediately start recruiting a replacement, and upgrade as soon as possible.

4) Frugality is a double edged sword

I think we did a great job of being cheap and maximizing the dollars that we spent. In 9 months we spent about half of the $560K we raised. Especially when trying to build a luxury brand, it would have been easy to burn twice as much capital as we did in this timeframe. 90% of the time, we were probably right to be this cheap, and 10% of the time, we may have missed opportunities, or not gotten the minimum quality that we needed because we were so focused on capital preservation. While the VC community (Ron Conway, Sequoia RIP, etc…) was quite adamant about the need to cut burn and preserve capital in these times, I think that advice was probably more relevant to companies (at least in the consumer space) that had established a real footprint in their market. As a very young Company, it is pretty hard to wait out a downturn when you don’t have a real market presence to preserve.

What we could have done differently: We developed a pretty solid barometer for spending, but it took a good 3-4 months before spending decisions became second nature. If I look at where the dollars went, an outsized sum was spent on professional services (legal, branding, design, etc…). We could have been more selective about who we engaged in these capacities had we not been running so hard to fill every gap that was holding up our launch. Next time around, greater rigor around reference checks and cost/value analysis will be helpful in managing the costs.

5) Failure to adapt to changing landscape

There are decisions we could have made, directions we could have gone, to generate short term revenue and extend the runway of our Company, but the reality is those decisions would have moved the Company from an interesting venture/breakout story onto a trajectory of small dollar linear growth. I mashed the data around in my head for months, thinking about lowering our price point, moving toward a lead gen for advisory services, building a liquidation platform, and the truth is nothing made more sense than what we were running at (given team, capital on hand, etc.). Would a different CEO with 20 years of experience in our market have seen an angle that I missed and been able to reposition the Company in time? Maybe. I guess I will never know the answer to that question.

What we could have done differently: We could have been more patient and tried to stick around in the art market in any form it would have us. But that is the difference between taking VC money and shooting for the stars, verse maxing out your credit cards and building a lifestyle business. Not much room for singles and doubles in the venture world. We signed up to disrupt a market and create a category. Every direction I considered going was tempered by an awareness of the opportunity cost of our time and our investors’ money. I don’t think there are 50 venture ideas in the art market, and especially not in this art market.

6) The Nature of our Mission

While the feedback we got from the business and academic community on the elegance of our model was inspiring, I underestimated the importance of a relationship between our corporate and personal identities. I had heard many times people opine on the importance of a founder being from within the demo he is serving, but didn’t really understand why until now. In some ways, we checked that box, but the solution we created was somewhat disconnected from our daily lives or any broader value or mission. Had we been “democratizing the art market,” that would have been one thing, but we weren’t. We were not able to live and breathe our product in the way I would have liked to, and ultimately that had a negative impact on our ability to evangelize the Company. We overcame this hurdle, and supplemented our team with DNA that was closer to that of our customers, but we could have done more here with a mission more closely tied to our interests and experiences. I think people like Rob Kalin at Etsy and Vikram Akula at SKS Microfinance have done a great job of building a personal mission into their businesses.

What we could have done differently: Next time around, I’d like to pay more attention to aligning personal and professional missions. As a founder, there is little to no separation between your work and your person, so to the extent your company’s mission can fulfill both of those realms, there are synergies to be had. In short, there are lots of ways to make a buck, but few opportunities to achieve something that is truly burning in your mind.

7) So would people have bought art in shares had we launched this business two years ago?

I think so. Doesn’t mean we could have scaled it. There were plenty or roadblocks, hurdles, and unexpected irrationalities in the art market that have changed my perspective on the opportunity. I don’t think you’ll see me rekindle this mission in the next bull market, but I can pretty much guarantee someone will.

8) The people around us

I am extremely fortunate to have gone through this experience with my cofounder, Andy Lawrence. By far the best and most important decision I made through this venture was to recruit him as my partner. His unwavering integrity, amazing discipline, and supernatural persistence were the backbone of our culture. Particularly when you are trying to disrupt a market, you have to run through a lot of walls. Andy was a bull.

We were both fortunate to have a group of extremely supportive and thoughtful investors behind us. I cannot say enough about the importance of having advisors who are willing to pick up the phone and help an entrepreneur think through the challenges and questions that come up everyday. It has been extremely difficult to get over the fact that I lost money for the people who gave us the opportunity to chase down our vision. We are indebted to everyone who took the risk on us.

—-

Related Content:

Monitor110 Post-mortem

The diary of a failed startup

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23 responses to “Guest Post: The Post Mortem of a Venture-backed Start-up

  1. Did anyone actually want “fractional ownership” of art? Reading @sjblank s book seems like it might have saved him a lot of time and effort?… Thanks for sharing though – proved out the “the ideas that should be thinned in a downturn… are.”

    • hi Andrew-

      People already physically share their art with other people and institutions over the course of the year, think of all art in museums that is “on loan” from private collections.

      I completely agree that steveblank.com has great ideas for identifying demand as early as possible. Although I’m not sure if Jordan and Andy have read the four steps to epiphany, I would argue that they did a lot of customer development as efficiently as possible. Market testing ultra-luxury goods is just a lot more expensive than getting feedback for consumer web products.

  2. Thank you very much for putting this up, and I was pleased to see that you referenced Diary of a Failed Startup in your related content section.

    In my own work, I’ve decided to stop even thinking about outside funding and just concentrate on building a lifestyle business that I can be happy with. The crazy ups (and mostly downs) of a VC business just don’t appeal to me anymore, now that I’ve had a little experience actually running a company.

    Good luck in your next venture, and thank you again for taking the time to share your experiences with us.

  3. jcoop + bmart, thanks for posting this. i think this kind of thing has real value to people interested in starting up something of their own. too many success stories might make you think this kind of thing is easy ;) might this be an “on the regs” kind of feature for TTGS? i vote for yes.

    • Thanks Bryceratops. I couldn’t agree more. If you or anyone else knows of anyone that would like to share their story, I’d love to give them a voice.

      To anyone else that wants to tell their story: even if you don’t feel like writing the whole thing out, i’d be more than happy to interview you and post the transcript.

  4. this is a great post. my friend roger ehrenberg did something like this when his startup monitor 110 failed. there needs to be more stories like this out there.

    i do wonder if there is really a market for fractional ownership of art. has it ever existed? and what does the internet bring to the equation that couldn’t have been done without the internet?

    • hi fred. thanks for the tweet. you just gave me something to write about for tomorrow.

      what ever happened with failcon and failcamp? i just pinged everyone i that could find that was associated.

      speaking of the internet’s role in this business, a lot of the comments coming from hacker news (it’s a shame that i can’t have them here too) mistakenly assumed this was a purely internet based business. this is definitely not the case- anyone considering buying a million dollar painting wants to spend some time in the room with it.

  5. Glad Fred Wilson posted this on Twtr. As someone who has started several ventures and advised/invested in more, just want to say 1)thanks so much for sharing, failure is truly the best teacher 2)what an incredibly impressive person you seem to be-your healthy perspective and your respect for your partner are all to be commended. Its hard enough to put it all out there for something, to take that leap. Harder still to know when its right to step away, to not let your ego make things worse and finally, to do so with what is clear integrity and grace is just really impressive. so, from one entrepreneur to another, serious kudos. No doubt you will find raising money easier than you think the next time around.

  6. Thanks for sharing your story. I know that isn’t easy.

    I think it’ s great that you are thinking about lessons learned and I’d like to add a few that I think you may have missed.

    1) Defining the sale. I’m not sure that you had a clear picture of the benefit of your service and why it was such an awesome opportunity for people. If it was an awesome opportunity, you should have been able to sell it in good times and bad.

    If anything, a slowing economy could have been used as a benefit for your offering. Maybe the sales message was that rather than purchasing an entire piece of art yourself, you can cut your costs and purchase a fraction.

    Or maybe the benefit was that art collectibles are a safer place for your money than cash in this uncertain economyand this was an opportunity for those with some cash to put it in a safer place.

    Defining your sales message should come first not second.

    2) Your sales cycle for a unique offering like this is much longer than 60 days. I think your expectations for your Sales/Marketing person may have been unrealistic.

    3) It’s important to understand the difference between Marketing and Sales. Rather than bringing on a Marketing Director, you might have had better luck bringing on a Sales Director. A Sales Director goes into the battle field and comes back with revenue. A Marketing Director puts programs in place to make it easier for the Sales Director to bring in cash.

    In my experience, sales expertise is the most important thing for any start-up. The rest can be worked out along the way.

    Best of luck to you in the future.

  7. Fractional ownership is counter to the whole point of owning a prestige item like art.

    It could also have been a danger sign that you got so much encouragement.

    Thanks for the excellent post mortem, very enlightening.

  8. I think it failed because it was a Bad Idea. Throwing money at a Bad Idea doesn’t make it a Good Idea. It just keeps a bunch of people employed and obliges them to pretend that it’s a Good Idea until the money runs out and everyone can shrug and admit that yes, it really was a Bad Idea all along.

  9. Thanks for sharing your insights, and thanks @fredwilson for sharing the link.

    Mark Goldenson recently wrote a similarly enlightening post on Venture Beat:
    http://venturebeat.com/2009/04/29/10-lessons-from-a-failed-startup/

  10. It is excellent to see true commentary about an entrepreneur’s experience starting a company. I hope you don’t mind, but I added this story to my site dedicated to the topic of learning from failed startups….www.startuprevival.com

    Good luck on your next endeavor.

  11. Fractional ownership works fine for prestige items like racehorses. I think this was an intriguing idea, and I learned a lot from the post and comments. I’m also happy to see a writeup on a biz failure, as you point out, there are so many more of them than successes. Great that you and your biz partner still like and admire each other after the crash.

  12. This is an amazing read, thanks Jordan for sharing your experience. Anyone in the process of setting-up their own ventures will benefit from it and there should be more around!
    Whether the idea was good or bad is as usual debatable and personal. Frankly I think it was a very good idea in a bad time, though perhaps the marketing message could have been tweaked to ride the crisis and make it into an opportunity. In better economic conditions, I am sure it would have worked, as I am sure somebody else will pick it up in the future. It works in other industries and in my humble opinion would work in art too.

    Good luck with your future ventures and thanks again!

  13. Wow if i was a seedinvestor in your company and you wanted to give me back 50% of my seed money after only 9 months i would have told you to get back to work and keep going.

    You already coverd 80% of the effort required to startup.

    What happened to the IP?

    If the founders were allowed to keep it i would have said you guys robbed your seed investors blind.

    If it is lying fallow then i’d like to buy it today allong with all of the documentation and a consultancy package for the founders.

    Please contact if nothing was done with it.

    Cheers,
    Dean Collins

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  15. So I am not sure you could have done anything any differently, short of predicting the depth of the crash. If you were able to do that, you wouldn’t need to fund your startup. :-)

    I think the one question is, why would anyone want to buy fractional art? Do you get it for a party and then it goes to the next person in line? And the insurance on that must have been hairy.

    Anyway, I really don’t see what you could have done different other than do a different idea.

    Wake up and Smell the Coffee…

  16. Hello,

    Thanks for sharing, interesting on many aspects.

    I have not sure about your marketing strategy / value proposition: How to convince art lovers to invest in a unique piece of art, develop emotions and ownership satisfaction while sharing its time and property among several owners. Your offering would be without pain for persons who would simply like to INVEST in art, without particular interest in it … but then diffrent market and needs

    A different positioning could have been to address exclusively art collections sold as a whole. Their price, storage and sharing make them difficult to purchase by a single buyer, and the management (includes also insurance, rent for exhibitions …) of it is itself of real value added. See for example (http://en.aristophil.com/). But then, different business model …

  17. As someone who works in a start-up that is currently weathering the storm, the most important point made by Jordan was

    —-
    “While the feedback we got from the business and academic community on the elegance of our model was inspiring, I underestimated the importance of a relationship between our corporate and personal identities. I had heard many times people opine on the importance of a founder being from within the demo he is serving, but didn’t really understand why until now. In some ways, we checked that box, but the solution we created was somewhat disconnected from our daily lives or any broader value or mission. Had we been “democratizing the art market,” that would have been one thing, but we weren’t. We were not able to live and breathe our product in the way I would have liked to, and ultimately that had a negative impact on our ability to evangelize the Company.”
    —-

    This is sometimes overlooked or viewed as an “x-factor” – that is just lazy analysis. Living and breathing your product or service is what makes you (or your employees) go that sometimes imperceptible extra mile in every interaction. Especially outside of the workplace. True passion shines through when meeting in person, but even in email-conversation.

  18. What type of market research did you do before launching to see if it was a viable product? Sounds like if you had done the proper research upfront you would have not relied solely on your inexperienced product development skills and uncovered consumer insights that predicted failure- maybe not in new category creation but in the online manner that you were selling it.

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