Entrepreneurs can learn a lot from the demise of Lookery and Tipjoy.
Scott Rafer, CEO of Lookery which is closing its doors, wrote a very honest post about the reasons that lead to the lookery being shut down. If you are an entrepreneur I think it is worth your time to read the entire article.
Moving on to our specific coulda-shoulda product and market choices, there are three key moments at which a different and defensible decision might have made all the difference. In chronological order, the sins Lookery committed under my leadership were continuing our dependency on a large partner (March 2008), not knowing when to cut bait on a failing asset (September 2008), and building ahead of the market (December 2008). I and we made any number of other mistakes, but all the rest were correctable. Avoiding even one of the three big errors might have been enough to get us over the hump.
I believe David and I started Lookery in July 2007 in the right way and for the right reasons. Based partially on my F8-launch work for LendingClub (a company I’m thrilled to know) David and I decided to quickly offer a no-frills banner network for Facebook app publishers. We went from commitment to live service in well under two weeks using AWS and OpenAds, pulled in Rex Dixon almost immediately to manage the publishers and Todd Sawicki soon thereafter as we needed a real ad pro. Both David and I had been keen observers of, and vendors to, the online ad business from the outside, and Todd was the online advertising insider that completed the early team. By March 1, 2008, we were getting pretty close to a billion impressions a week, had moved the ad ops to Atlas, started spec’ing Lookery’s targeting technology, and closed out a $1M convertible note financing that had been rolling in since October.
So far so good on using an ephemeral opportunity to create a company, but this is where I place Coulda-Shoulda #1. We exposed ourselves to a huge single point of failure called Facebook. I’ve ranted for years about how bad an idea it is for startups to be mobile-carrier dependent. In retrospect, there is no difference between Verizon Wireless and Facebook in this context. To succeed in that kind of environment requires any number of resources. One of them is clearly significant outside financing, which we’d explicitly chosen to do without. We could have and should have used the proceeds of the convertible note to get out from under Facebook’s thumb rather to invest further in the Facebook Platform.
Coulda-Shoulda #2. Predictably and reasonably, Facebook acted in their own interest rather than ours. Their Summer 2008 redesign supported Facebook’s goals elegantly but hurt our publishers and us in ways that became clear just weeks after we’d raised another ~$2M. At this point, we made a mistake endemic to startup people. We followed our natural inclination as problem solvers rather than getting out while the getting was good. If we’d sold the ad network the minute we understood that we could no longer make it successful, we would have saved a couple hundred thousand dollars in working capital. Plus, the ad network would have fetched three to five times its low-six figure sale price less than 60 days later. That’s a million dollar mistake I made in a very short period of time. I should understand sunk costs better than this.
To give credit where it’s due, Todd closed the sale of the Lookery ad network to AdKnowledge in less than two weeks from the moment we decided it had to go. I was off promoting Lookery’s targeting system to European demographic data sources and social networks and was not even in the country during those two weeks.
Coulda-Shoulda #3. Once we sold the ad network, I fell into a bad old habit — persuading my team to build something before the market was ready for it. Oren usually saves me from myself in this regard, but I didn’t pull him away from Mashery for the day or two necessary to diagnose the problem. Mashery is doing so well that I clearly could have. Lookery’s Profile SaaS/universal cookie mechanism is far more economic and effective than cookie exchange systems in a world where ad media and targeting data are separate commodities. That world is a year or more in the future.
I think they had two things going against them. 1) Betting your entire long term future on a non proven/evolving platform (I wrote about this many times before) 2) Being an adnetwork when the advertising is tanking. The first mistake was correctible and should have been while the second was bad luck. Luck plays a major role in the success or failure of any startup.
This is a bad week for social app companies. Tipjoy, a startup that I really like, closed its doors few days ago. Shut down of these once promising companies should ring a major warning bell to all the startups that are betting their farm on facebook, twitter and iphone. Here is what Tipjoy founders had to say:
When we evaluate why there’s been so much hype about payments on Twitter, and yet so little traction for us (and even far less for our competitors) it is clear to us that the reason is that a 3rd party payment service doesn’t add enough value. We strongly believe that social payments will work on a social network, provided that they’re done within the platform and not as a 3rd party. “Simple, social payments” is *the* philosophy needed to do digital payments right, but once a service groks that, they need only to implement it on their own. We’ve been the thought leaders in this space, we see the hype and excitement, and yet we know very intimately the difficulties in gaining actual traction. The only way to get around this is for the platforms themselves to control payments - then all people wanting to operate on that platform would have to play along. We believe that a payments system directly and officially integrated into social networks such as Twitter and Facebook will be a huge success.
It looks like Tipjoy wanted to get acquired by facebook, but facebook wants to build a payment system of their own. This means death knell for Tipjoy. Similar development forced a fire sale of iLike to myspace.
It should be clear by now that facebook, twitter and iphone (to some extent) want to use their platform to indentify killer categories that they want to get into on their own. Don’t be a guinea pig. Get out of depending on these platforms before it is too late.