

Nearing Bankruptcy, Fruugo Burned Through €40 Million to Generate €100K - vilpponen
http://www.arcticstartup.com/2012/04/16/fruugo-financials-bankruptcy

======
zeemonkee
Unfortunately this is all too typical of the tech scene in Finland. While
there have been a few breakout successes (Rovio, F-Secure for example) and the
tech talent in Finland is generally top-notch, much of the scene is dominated
by a tight-knit old-boys network in the boardroom, unions and government.

See here for example:

[http://www.arcticstartup.com/2011/03/03/making-growth-
entrep...](http://www.arcticstartup.com/2011/03/03/making-growth-
entrepreneurship-political)

[http://www.arcticstartup.com/2012/04/03/the-best-april-
fools...](http://www.arcticstartup.com/2012/04/03/the-best-april-fools-joke-
is-from-finland-a-couple-of-days-late)

Who do we have ? Jorma Ollila (again) - the arrogant twit who drove Nokia into
the ground long before Elop took over. Siilasmaa, another face from Nokia. The
same people involved in the Fruugo fiasco. Taxpayer money funneled through
Tekes to support no-hope startups run by people who know the right people.
Silly little committees - again taxpayer funded - to discuss the "future of IT
in Finland" with nary a nod toward the genuinely successful startups.

The tech scene here is anemic, incestuous and poorly managed, propped up by
taxpayer money through layers of government bureaucracy. Which is a shame
because the tech talent is excellent. What's really needed is a more startup-
friendly environment - a reduction in bureacracy, taxation reform, and a more
small-business-friendly culture - but these are "hard" problems. Let's just
have yet another worthless "steering group" and appoint the same guys we drink
beer with in the sauna.

~~~
bergie
Much of this comes from two unfortunate facts: Finland is far from any real
markets (becoming less important thanks to the net), and there isn't much
capital in the country outside of the public sector.

The latter means that the government has to be involved. Bringing in their
heavy processes, risk (and therefore, succeess) aversion, and the old boys'
network.

~~~
zeemonkee
What do you think is the best solution to the lack of capital? More Europe-
wide VC funding (and networking) perhaps, so we're not so reliant on local
funding?

~~~
bergie
I would stay stop dancing with Tekes (state R&D funding org), and take a
flight to Stockholm, Frankfurt, Paris, or London. Capitalize on successes like
Rovio and emphasize that in Finland there is lots of mobile dev talent
available thanks to MeeGo and Symbian getting ramped down.

~~~
Roritharr
I live in Frankfurt, it's hard to get venture capital here, fly to Berlin
instead.

------
mikk0j
I went there for a job interview in 2008. They had a vague idea of what they
should do, which was more or less "revolutionize global e-commerce by
facilitating cross-border trade", I guess fueled by the realization that gee,
stuff is cheaper in some countries than others. They had ideas of solutions
for things like shipping, price consolidation, translation and customer
relations. They were also planning to take what I thought to be an insane
commission per trade. I'd worked with European SMEs a lot in the past with the
world's biggest search ads product, so I thought I knew what they were ready
for and what they needed, and the three chats I had at Fruugo didn't really
reflect this at all.

Most alarmingly, while they were in really early startup mode, they had a very
front-heavy team of 'top talent' and loads of telco-pedigreed 'old boys' in
the helm. I dropped off the interview process when I was told that to
continue, they'll do a psychological profiling by an external consultant and
that they do that for all candidates. Really. First, wow, that's expensive.
Second, in a startup, the recruiting process should be all about the team and
the product, not a standardized test. I told them this.

Now, I almost regret not going in for a bit more, maybe even to work with them
for a while, to have a better idea of what all went wrong and if there
would've been a way to save the company. Will make for a great case study, no
doubt.

~~~
chris_wot
I'd suggest that you were very, very lucky that you didn't continue with the
company. There is _nothing_ more soul destroying than to try to fight your
case in an organization of people who believe they know better than you do,
even when it's clear they are running the organization into the ground.

There is nothing you could have done to save this company. It seems to have
shaky foundations to start with, so the best you probably could have done was
to put off the inevitable for a short amount of time.

------
chris_wot
I couldn't help but look at the Fruugo website - and I can't say I'm very
impressed by the web design!

I have a list of issues:

1\. When I went to the Australian website, even though I'd started in the U.S.
website (which uses pretty much the same layout), it was a slow load time.

2\. Massive image in the centre, but my first immediate thought was "that's a
large ad in the middle of this site!". then I realised it was meant to be
there...

3\. The fonts are strange choices. There are three different fonts I can see
here (Times New Roman?!?) I can see over 5 font colours here, one of which is
lime green on a white background.

4\. Massive amounts of non-minified _inline_ javascript... what were they
thinking?

5\. They seem to have done a lot of work on a global marketplace, but their
tag line is "Europe's marketplace".

6\. They use Java sessions, even when I go to the main page for the very first
time!

7\. Half the international links don't work! For instance, I try to go to
Fruugo Luxemberg, and I got the following URL:

[http://www.fruugo.lu;jsessionid=jghldhzrqq2mbw0vvnwo.webshop...](http://www.fruugo.lu;jsessionid=jghldhzrqq2mbw0vvnwo.webshop-
eu1-2/)

For €40 Million, could they not have done some basic link checking?

I have to say, this is not very good :(

~~~
philjackson
You say all of that, but imagine how much money they saved by not hiring
expensive top-talent.

~~~
miahi
They hired extremely expensive top management instead.

------
garethsprice
A perfect anti-example of why niche focus/positioning is so important.

"Who's it for? Everyone! Where? In every country! What do you sell? Anything!
If we can just get 1% of that market, we'll be billionaires!"

~~~
sireat
Indeed, it is supposed to be done in reverse: local niche -> global
generalization A nice canonical counterexample is Amazon, starting with just
books in US and now basically doing everything. Same deal with Facebook and
Craigslist.

------
fookyong
In defense of the business model, see Rakuten (Japanese company).

Multi-tenant e-commerce platform. 120,000 shops. 92,000,000 products. US$13
billion market cap.

~~~
mdda
Known in the US (at least by me) as Buy.com

------
isani
From a consumer point of view, I can see two problems. The selection is
muddled, and the prices aren't all that good.

They say they have 194,614 products, but that includes things like 5000 rubber
mats and 2000 hex keys. Meanwhile, there's a single television and a single
MP3 player.

For the few products that I checked, the price with international shipping was
always higher than what you could get from a local store.

------
garethsprice
As an exercise; let's say you're called into Fruugo this morning and put in
charge (they make an offer you can't refuse).

You can raise money thanks to the connections of the board, if you need it.

You're given the brief that you can do whatever you need to save the company.

What would you do? (Shutting it down and selling off the parts for scrap not
being an option).

~~~
swombat
My quick answer? Reduce the team to the minimum needed to explore new business
models, raise enough runway to keep that team going for 18 months, restructure
the cap table to incentivise this core team, and treat it like any other
startup. Perhaps change the name too to avoid continuity and too much press
attention early on.

Of course, no one is ever given this much latitude. Existing shareholders
would argue that diluting them down to almost nothing (90+% dilution) does not
mean "saving the company" (they're wrong, IMHO. Shareholders and "the company"
are two distinct entities). The amount of politics involved in pulling this
off would be such a distraction that even if it succeeded, it would probably
destroy the company's chances - and this is even before you consider the
hangover from millions of euros of debts!).

So, in short, the only sensible way for people in that company is to shut it
down and start another with a clean bill of health, and chalk this one up to
experience.

~~~
exDM69
> My quick answer? Reduce the team to the minimum needed to explore new
> business models, raise enough runway to keep that team going for 18 months,
> restructure the cap table to incentivise this core team, and treat it like
> any other startup.

I think they already did this. Three times.

~~~
swombat
Doubt it. You couldn't burn €40m doing that for 20 years.

~~~
loverobots
They have stores, albeit online ones, for some 20 countries. Just checking the
laws in each country must have cost them a pretty penny

~~~
swombat
Yeah, having "stores for every country" is almost exactly the opposite of what
I'd call "exploring business models with a minimal team". So, in short, that
is _not_ what they've been doing.

------
kogir
Is there some useful lesson here? I don't think iterate quickly counts. I'm
sorry that thing didn't work out for them, and without some insightful
analysis this article isn't interesting or newsworthy.

~~~
raganwald
I’m with you. Every non-trivial failure looks like a Rorschach Blot. You see
in it confirmation of whatever biased theories you already have about why
companies fail.

~~~
mikk0j
I think this is a special case of a big fish in a really small pond (Finland)
trying to make it out into the ocean. Having said that, it underlines how
adding more dumb money doesn't make you any smarter and that just makes for an
ever bigger non-trivial failure in Fruugo's environment (obviously that's my
biased theory confirmed).

------
jvandenbroeck
Their website is a disaster; I wrote a post describing how bad it is imo
[http://www.jvandenbroeck.com/2012/04/fruugo-how-to-make-
an-e...](http://www.jvandenbroeck.com/2012/04/fruugo-how-to-make-an-ecommerce-
site-that-burns-e40m-and-earns-e100k/)

It's fascinating how they can do such a bad job with €40M

------
brudgers
The idea of competing with Amazon which seems to underlay Fruugo, justifies
the scale of investment. To me the execution failed because it did not draw
the correct lessons for Amazon's success.

Bezos's grounding in finance played a key role in Amazon's success over the
long term. But more critical was that he was taking responsibility for hauling
packages to UPS himself - is there any better example of a founder so focused
on shipping?

<http://www.achievement.org/autodoc/page/bez0int-4>

It's hard to see a former chairman of Nokia doing that.

~~~
microtherion
It's also worth remembering that Amazon had accumulated something like $1
BILLION in losses by the time it started turning profits. €40M sounds like a
huge number, but in that space, it's not all that much.

------
andynosebone
I already told this to vilpponen directly, but it's wonderful to see that this
particular company is being discussed out in the public finally. Finland has
(had) this weird culture where you can't publicly criticize a person who's
achieved a certain "position" in the minds of masses - Mr. Ollila being one of
them. I think not only is this a great lesson about funding "air" but also how
the Finnish society is changing.

Happy to be a part of the change through Startup Sauna. Hopefully we can "fix"
this sinking boat during the coming years.

------
Draft_it_right
Forty million euros? That's complete insanity.

The idea is like going backwards from Amazon's model. While Amazon goes right
to the supplier, Fruugo accesses various shops that sell a certain product
from the supplier. And the design looks like someone created it with a free
site generator, the whole thing just feels cheap all around.

------
hef19898
Maybe having a board full of large company execs having their hands full off
saving Nokia was not the best idea...

------
JVIDEL
Just how were they applying this idea? how did they get around the regional
strategies of the retailers?

How did they manage to ship to countries like the BRIC and others in the
developing world which have overzealous custom policies regarding imports?

------
dasil003
Slow motion train wreck. Who are the patsies footing the bill?

~~~
bergie
I would imagine much of it is Finnish pension funds, but not sure

------
golakers
Wow. This site looks like Quibids.

They actually misspell "jewelry" as "jewellery" right on the front page. Ouch.

~~~
sesqu
"jewellery" is a chiefly, but not strictly, british spelling.

~~~
chris_wot
In fact, it's the spelling used in many countries, including Australia.

------
rjzzleep
40 million, wth. why would launch in so many countries at the same time

~~~
wpietri
Oh, that's an easy one to answer.

Because they were so obviously going to succeed that there was no need to test
things with users or do a gradual rollout. And they had a great plan with a
big pretty chart showing the multi-country rollout, and of course you're going
to follow the plan, right? I mean, it's _the plan_.

