
Why my startup failed - jmaskell
http://jamesmaskell.co.uk/2013/why-vinetrade-failed/
======
caseorganic
This is a truly wonderful writeup. I especially appreciated the insight that
"Marketplaces need a big disconnect between buyers and sellers".

I try to tell this to startups that try to add indoor location-based
technology to businesses like Men's Warehouse. What they fail to understand is
that those places run better because they are staffed by people who understand
their customers. When someone drives into the parking lot of a Men's
Warehouse, they are already there to buy a suit. They don't need discounts or
information about the products from an app on their smartphone, they need real
customer service.

A skilled salesperson can upgrade anyone on warranties and other items. Having
a piece of software do it, especially one built by a group of programmers and
marketers that know nothing about suits, is ridiculous, and so is the idea of
training skilled salespeople to also be system administrators for software
that's not needed.

~~~
msrpotus
One thing that a lot of tech people forget (including, frequently, myself) is
that there are reasons systems are the way they are. It might be inefficient,
it might be stupid, it might waste everyone's time, but if they wanted to
change things, they'd already be looking for a solutions. That they aren't is
evidence that they don't see it as a problem.

~~~
001sky
This is a good point. There are two types of people in the world: thos that
say "this is stupid" and those that say "oh, I get it".

~~~
nitrogen
Of course, only the first type ever changes the world.

------
aeden
Reading this post I can't help but think that if they had built services that
the middlemen needed that they would have succeeded. For example, take the
following two quotes:

"We wanted to revolutionise the fine wine industry, a market with many layers
of middle men, and one that has traditionally eschewed technology, failing to
patch it's many inefficiencies."

"Unfortunately, the service offered by all of these warehouses is poor. Again,
we see little technology (basic online systems, preset passwords, refusal to
spend money on an SSL certificate), and lots of human errors (such as very
expensive wine being moved to the wrong accounts)."

If these statements are true then there are very real pain points here.
Selling services to these vendors, solving their pains, is likely where there
is money to be made.

~~~
jmaskell
We tried this. The middle men simply weren't willing to pay for software (or
at least enough to build a viable business).

It's a very antiquated market - with a lot of independent traders. Their view
on software (particularly web based) is often that it's something you can get
a teenager to build on the cheap and isn't worth spending real, hard cash on.

~~~
moron4hire
well then, it should be a simple matter to WalMart them out of business.

~~~
duiker101
You are missing the point. Being Italian I know exactly what problems OP is
facing because are problems that almost any Italian sector has. People do not
want to move on.

Coming to the specific problem OP has. The wanted to work on fine wines, not
WalMart wines. If the best wine in the world, would be sold at WalMart(or any
other super market) even at the same price and in the same conditions it would
lose immediately value because all the research, experimentation, and
everything is lost, and that is a huge part of the experience that you taste
with the wine.

A practical example: you know how to make the best cake in the world, but it
takes a lot of time and it's hard so you can do it only once a year, but you
love it, it's your favourite cake so when you make and eat it you love it and
you wish you could do more. If WalMart started to sell the same cake you would
buy it once or twice but it would not be the same and you probably would end
doing once a year as you always did. This is the same problem of OP, people
wanted the service, used once or twice and then went back to the old habits.

~~~
lubujackson
I think it's an important insight that certain inefficiencies can be tied to
livelihood of the customer (wine sellers) and even the end user (wine buyers).
There are strong emotional attachments to the PROCESS of making wine,
promoting wine and selling wine. If you go to wineries throughout Sonoma
county, you can clearly see that small, independent wineries often take pride
in doing everything by hand and controlling their own selling to restaurants
etc.

It is very similar to bookstores and record stores. Yes, there are big players
that are handling there own optimizations but if you are a small winery (or
bookstore/record store) you are doing it at this point in part as a
preservation of an artisanal experience. There are countless ways they can do
things better but there is a genuine fear that "optimizations" can be a
slippery slope to Walmart-ville, both in how they think and how they are
perceived.

------
unclebucknasty
Thanks for sharing this. You clearly understand well what your core challenges
were.

The interesting part is that you probably knew all of this going in. Perhaps
you were so enamored with your idea, that you wanted to believe these were not
the insurmountable challenges that they were. Reminds me of couples who marry
knowing of certain glaring problems, but proceed anyway because they are "in
love". Whether they downplay the problems, convince themselves they can
overcome them or otherwise, these are frequently the very problems that lead
them to failure (divorce).

But, more frequently, we probably just think these challenges will melt away
or work themselves out somehow. Maybe that's why these businesses always look
so good going in!

This is not to lambast you--quite the opposite actually. I have been there and
I am still susceptible. I applaud you for acknowledging your challenges and
getting out relatively early.

Good luck to you on your next venture!

~~~
jmaskell
We knew exactly what the problems were - we just had a vision for how to
overcome them and how things could be different. Every business starts as an
idea, with a set of hypothesis to validate (even if you don't realise this at
the time).

It was tough to decide to stop - but when you take a step back, look at the
data we had, it was the right decision.

~~~
unclebucknasty
That's absolutely true. I think it's _very_ common in the startup world to
tackle fairly big problems with known challenges--armed with a set of
hypotheses--only to be later stopped out by those same challenges.

But, how much confidence in our hypotheses is enough when it comes to the key
"show-stopper" challenges? How clear should we be on the path before moving
forward? Speaking from personal experience and observation of others, I would
say that we founders tend to be optimistic when assessing these challenges at
times. There's a little hope in there.

I suppose a certain degree of that optimism is necessary, else no one would
move forward. It's just a bit painful to fail for all of the reasons you knew
beforehand.

Because, testing the proposed solutions can be exceedingly difficult and
resource-intensive. I've often wondered if there's a better way to test
assumptions than just going all-in. I've found the much-lauded MVP approach to
solving this doesn't cut it for me or for a lot of models/founders. For models
that require things like network effects, brand credibility, and more advanced
functionality to even be usable the "MVP" is, effectively, the full product.
And, this doesn't even consider the marketing/PR/etc. that must be put behind
it.

Given all of that, you actually did well to move on in only 18 months.
Congrats on making a tough choice and freeing yourself up for the next
opportunity.

------
nemesisj
The statement about wine buying being part of the fun is the crux of the
issue. I'm not into wine but I am into whiskey, and rather than buy from an
online merchant, I much prefer walking into the local shop and getting a
recommendation. That process is extremely enjoyable, and one I happily pay a
bit more for. Same with craft beers. There are some really great high end
sites that cater to luxury goods which are great examples of providing this
experience online, but they require a lot of time and design experience, and
are about as far from a marketplace as possible, conceptually.

~~~
marban
With 'recommendation' you mean tasting? Otherwise i don't see a necessity for
a physical process.

~~~
nemesisj
Yeah, that's kind of what I'm getting at. Sometimes it involves tasting, but
not normally.

~~~
kaitai
In particular, I enjoy getting to know the people who work at a local
establishment and understand their taste. For instance, when it came to fine
teas, I got to know one tea merchant well enough that she'd say, "This new
green came in and I hated it! I thought you'd love it!" because we had
entirely opposite tastes when it came to the astringent characteristics of
tea. (Think a Pi Lo Chun versus a Sencha, for instance.)

While we are getting better at recommendations, the best salespeople still
have a better understanding of what makes you like a product than "people like
you also purchased..." algorithms. This may be particularly important in
markets that are about different things for different consumers: wine
selection may be about taste, or it may be about social signaling. Same is
true in the transaction: it may be about the best price, building a
relationship, having a relaxing escape (buying cigars, for instance), or any
number of other things.

~~~
notahacker
Even when salespeople _don't_ have a better understanding of your tastes
they're more likely to be persuasive and more likely to add the perceived
value to it... a salesperson who admits to hating something she recommends is
a more memorable and compelling call to action than an algorithm

I'm sure Amazon's algorithms often do have a better idea of what I'd enjoy
than many of my friends, but friends' recommendations are still more likely to
induce me to act than a personalised promo email.

------
raverbashing
Well, this is a very interesting writeup

"Unfortunately, over time we found that while people used the site once or
twice, they quickly reverted back to emails and phone calls. We always knew
that people bought this wine for fun."

Do you know why is that? It's not only about 'fun'. It's about knowing about
the wine.

For the technically minded people it is easy to assume this 'wine talk' is BS
(I'm not saying there isn't BS) but most of it isn't.

So the experience of buying it with someone who understands it is superior to
seeing lists of pictures, prices and generic descriptions.

Also, I bet most wine consumers that would go for this service don't care to
learn an iPhone app.

1st lesson for startups: Know your market! I can't make a "disruptive
marketplace removing inefficiencies" for selling sand at a beach (absurd
example, but you get the spirit)

How is it done today? Remove the pains, but don't take the good things out.

Another analogy. People won't exchange eating pineapples for bananas because
bananas are easier to eat, rather, remove the pain of peeling the pineapple,
but sell pineapple.

------
czzarr
This is one of the most interesting "Why my startup failed" type post I've
ever read. You brought up real insights and didn't fall into the "I'm just
gonna generically rehash 4 Steps to Epiphany and Lean Startup to look smart"
trap. Thank you for taking the time to write it up, really excellent read.

------
epoxyhockey
I'm sorry to hear about the closing of your start-up, but your write-up really
shows how much you have come to understand the business of solving peoples'
problems. You aren't in denial about how the start-up failed and it is very
refreshing to see!

In my opinion, you are poised for incredible success in your next start-up,
because of what you learned at Vinetrade.

~~~
jmaskell
I hope so. I can definitely understand why investors prefer second or third
time entrepreneurs so much!

------
bjornsing
> _people were often happy to spend £5,000 on a case of wine, but not £10/year
> for proper storage_

Irrational stuff like this really pains me, especially when it's part of the
reason I'm failing. But people are the way they are, for better or for worse.
You have to find a way around it.

~~~
axusgrad
Include 10 years free storage and charge £5,100? :)

~~~
czzarr
Not sure if you were serious or not, but assuming you were, this type of
"promotion" just doesn't fly for high-end goods such as fine wine.

~~~
drchaos
I think the exact opposite may eventually work. Offer some storage for £250
(or even £500) per year, along with a convincing narrative about how much wine
deteriorates if not stored properly, and why your storage is better than
anything else. It's somewhat plausible that storing expensive wine must be
expensive. But £10 per year? Meh, someone who is really into wine has his own
cellar which costs way more than that.

------
randall
You should take your technology and apply it to the nursing industry. I've
been saying it for years: Healthcare is an inefficient marketplace. Hospitals
always have a hard time filling nursing demand, so they go to extraordinary
lengths. For instance, we currently live in Portland, OR rent free while my
wife makes more than she would if she lived here, all because they don't have
enough nurses. My wife has a recruiter, who sends her loads of paperwork.

There's totally a startup that could make a lot of money. Maybe start out as
software for recruiters to manage their "inventory" of nurses? Then expand
into a full on marketplace, eventually disinter-mediating said agencies.

~~~
mej10
I would like to hear more about taking advantage of the "Hospitals always have
a hard time filling nursing demand"

My wife is a nurse and we are moving to a new city soon. Seems like a good
time to optimize her employment if we can.

With free rent it sounds like she is part of a travel nursing program or
something like that?

~~~
randall
Yeah, Traci is a travel nurse. She's also done "registry" nursing, which is
like local agency nursing on a shorter term basis. When she was a registry
nurse, she would work at different hospitals, once or twice a week.

------
juskrey
And last, but not least - wine market is a bubble itself. As one of my
friends, very high profile sommelier, tells me every time - never pay more
that 7 euros for a bottle, everything more expensive is a fluff.

~~~
mootothemax
_And last, but not least - wine market is a bubble itself._

Wow, just did a very quick Google, and some graphs look incredibly scary:

<http://www.bbr.com/fine-wine/investment-wine-prices>

[http://blogs.reuters.com/globalinvesting/2012/07/09/investor...](http://blogs.reuters.com/globalinvesting/2012/07/09/investors-
hungover-after-wine-binge/)

[http://bordeaux-traders.com/wine-investment/stock-
performanc...](http://bordeaux-traders.com/wine-investment/stock-performance/)

I admit that I know next to nothing about wine as an investment. Are the above
a fair representation of the market over the last few years?

If so, I start to understand why I'd been hearing so many people talking about
wine investments.

~~~
jmaskell
There was a huge bubble, that popped. Our timing was off completely (a lot of
our target sellers want to sit on their stock until prices go back up), but
the other problems we faced (outlined in the post) were greater.

As for wine prices - they're starting to creep back up again. It's an
interesting commodity - a finite amount is produced each year. It tends to
improve with age, while supply decreases and demand increases.

Prices increased so much (more than the normal 10-15% per year) because newly
minted Chinese people got a taste for it and bought everything they could get
their hands on.

~~~
seanmcdirmid
The Chinese have very few domestic investment option, so they invest like
crazy in things like this, not really because they like or care about wine.
They were responsible for the last wine bubble and will be responsible for the
next.

For me, the cheap Xinjiang wine is good enough.

~~~
jmaskell
They were buying a lot for consumption too. Drinking (or gifting) a bottle of
Lafite or Petrus is a good way to show how wealthy you are.

~~~
seanmcdirmid
Ya, but most couldn't tell the cheap stuff from the expensive stuff, wine
scams are common here even at the most reputable high end establishment.

------
rcirka
I'm not sure if this was similar to your business model, but there is a site
called cinderellawine.com that does daily deals for wines and does pretty
well. I had a co-worker that was addicted to it, I don't think he even drank
the wine. It does show that there is a market for "mail-order" wine that isn't
based on personal connections.

------
tapertaper
My impression of the wine biz is that supply is fragmented. In which case the
network of relationships is complex (many-to-many) and so costly to maintain.
In my business (insurance) disintermediation only followed massive
consolidation on the insurer side. Many-to-many became Many-to-few. Cheaper to
maintain, easier to scale.

------
mryan
Interesting writeup James, thanks for sharing. The point about talking to
salespeople being "part of the fun" is interesting - it's counter-intuitive to
my engineer's mind, but I can see how the sales process is actually part of
the value they are paying for.

~~~
jmaskell
Agreed. It's an interesting lesson for tech focused people.

I think you can get around this by introducing social or gaming elements to
the product. We didn't have the resources or the time to try that (and the
size of the opportunity/market didn't justify the investment required).

~~~
mryan
Social, perhaps. Showing off your collection could be a motivating factor. But
gamification I'm not so sure about. IMHO the typical wine collector will not
be impressed by a "bought 10 bottles" badge, or something along those lines.
Keep in mind I know nothing about the wine industry though, maybe the big
collectors are all big kids at heart!

------
damoncali
In hindsight, I suppose it's not surprising that an industry that prefers
expensive, unreliable corks over cheap, reliable screw tops might eschew
technology. If only it were that easy to figure out ahead of time.

~~~
triplesec
OTOH that's also a data issue: some of the top quality US and even French
producers are trying the Stelvin and other new tech closures, but it'll take
30-40 years to know if they're as good as the cork (but without the 10%
spoiling problem). They hope so. Prmeability, reduction and all sorts of
complex chemical issues are on the line, and it's not a linear, rctuangular,
clockwork modernist problem!

And.. it's again a customer-driven thing. People like the ritual of a cork.
It's soft data, but oh so important. Take a long time for people's
expectations and preferences to change as many blind-utopian technologists
find to their cost.

------
colnect
Hmmm... interesting to read
[http://jamesmaskell.co.uk/2012/inspiration_for_startup_found...](http://jamesmaskell.co.uk/2012/inspiration_for_startup_founders/)
now...

------
dmd149
I wonder if the customer in this case (the wine-buyer) is misunderstood. Not
only does he go in for the relationship, but I suspect he wants to be able to
show off the wine and tell stories about it to his friends/guests/people he's
trying to impress. Buying a case of wine with a fantastic story may justify
the premium, as opposed to a case of wine ordered directly from the vendor
that comes unceremoniously in a fedex case.

------
tonyblundell
> The market is valued around $5-6bn per year, with around $1.5-2bn based in
> the UK.

Does the UK really make-up a third of the world wine market, or did I
misunderstand?

~~~
jcampbell1
I think this is just the market for $300-$5000+ bottles of wine.

~~~
tonyblundell
Still a decent effort :-)

I wonder if it's something to do with UK companies importing/exporting between
the US and Europa

~~~
jmaskell
It's fine wine (£100 per bottle and up). Of which about 80% is Bordeaux.

I calculated those figures by looking at widely used market stats, and then
the turnover of the UK's fine wine wholesalers.

------
sopooneo
Is this largely an illustration of the value of domain knowledge? And I mean
as an industry insider, not just a consumer. You don't even know what you
don't know when you enter a new world.

I bet having someone on the team that had spent a couple years in the fine
wine industry would have made a huge difference, though perhaps that
difference would have been to discourage the entire endeavor.

~~~
jmaskell
We did. I had a year of experience (on the operations side), our sales guy had
several years of experience.

Many people in the industry were surprised when we closed - they fully
expected us to do well. There are a lot of buyers who are very price sensitive
(and happy to do things themselves / hunt around for bargains) - they assumed
we'd scoop them all up in time.

~~~
sopooneo
Interesting. Thank you. I stand informed.

------
n_coats
Why do you think people resorted back to phone orders, etc? Did you have some
type of recommendation component for users?

For example, when someone places a phone order (especially for wine), they may
ask the associates preference or suggestions. It would be awesome if you had a
program that took drinkers preferences into consideration and then suggested
maybe 3-5 wines.

------
peteretep
I was expecting this to be yet another navel-gazing exercise, and was
pleasantly surprised by how informative and upbeat it was.

~~~
triplesec
Quite! Also interesting is that you came even though you were expecting navel-
gazing, so you must find value even in that.

------
aurelius83
"Marketplaces need a big disconnect between buyers and sellers".

This is an interesting statement. I'm not sure I quite understand it though.
Can you elaborate further?

It seems to me that you are saying that if buyer and seller know each other
then they would eschew the market for a more intimate trading arrangement.

~~~
jmaskell

      It seems to me that you are saying that if buyer and seller know each other then they would eschew the market for a more intimate trading arrangement.
    

This is exactly what I'm saying. E.g. Airbnb wouldn't work if hosts and guests
already knew or could easily find each other some other way.

------
meerita
Good article. I enjoyed from start to the end. I wish you the best luck on new
ventures, as I stated on Twitter. I'm doing something right now wich has
similar things (not wine) and it was good to read what happens and all the
things that are in the game.

------
fbeans
So you are saying that your start-up failed and you are not whining any-more?
;)

------
_pmf_
> Consumers had been crying out for this, claiming that they no longer wanted
> to speak to a real person or pay the premium for doing so.

Was that only an assumption?

~~~
objclxt
From reading the post, it sounds to me as if people trading wine weren't
necessarily crying out for an automatic process, but were in fact looking to
cut out the middleman.

But because the market was so insular, once you cut out the middleman it
turned out you probably knew the person you were buying from anyway, at which
point you became far more willing to engage with them directly.

~~~
jmaskell
Consumers/collectors wanted a better deal (they were paying minimum 10-20% to
middle men when buying and selling).

We did a lot of customer development work (and were customers ourselves) to
validate these issues. The problem was keeping people on the site - they
reverted to email and phone once the novelty of doing it online had worn off.

~~~
crusso
Fine wine "connoisseurs" are rarely honest with themselves, much less with
each other. They pretend to be able to discern qualities that they can't.
Their whole hobby is a bit of a farce.

Wine Connoisseurs don't WANT TO BUY LESS EXPENSIVE WINE. They don't even want
to buy fine wine vintages for cheap prices. To do so would cheapen the fashion
that is fine wine purchasing. Sure, they'd like to be able to say they got a
"good deal" from a reputable distributor, but that only goes so far.

It would be like buying your Prada products at Walmart. If Prada were to sell
through Walmart, it would destroy the brand and the appeal for the people
looking to purchase it.

~~~
mdda
I'm guessing that reputable dealers don't even give 'good deals' (i.e.
discounts), but rather provide VIP clients access to their secret stash of
exotica.

------
jordan_clark
Excellent write up and thoroughly honest. Great insights.

------
USNetizen
Not every problem "needs" a solution, or wants one for that matter. Good
market research can help avoid these types of situations.

~~~
jmathai
Sometimes the only way to prove a solution won't work is to create it and find
out. Even then, you don't know that it won't work for someone else in the
future.

Do your market research but disruptive innovation isn't something which can be
formulated. Else we'd be much better at it by now.

------
mgkimsal
" Another round, and more time, was possible, but it wouldn't have been right
to take more money for something that I no longer believed would work."

While I understand the sentiment, and I don't suspect it was done lightly, the
rationale here is superficial. "I no longer believed would work". Well,
whether it would work or wouldn't at one point you believed, and now you've
got a team of people working for you. Closing primarily on the basis of your
beliefs (which, apparently, were faulty before - perhaps they're faulty now
too? market might turn around? network connections might kick in in 6-12
months?) comes across as selfish.

I don't think you actually _were_ or _are_ \- I've no doubt there was a lot
more going on that you didn't summarize in this one blog post, and it came
across a bit off-handed. I say this as someone who's had to close down
something with a team of people - I don't think anyone ever takes this
decision lightly.

~~~
rohern
This doesn't make sense as a critique. There is no other way for a person to
make a decision to continue to do something than to base it on their belief in
its possible success. The frailty of these beliefs as proven by past failures
in judgement is irrelevant. Imagine the absurdity of the situation:

VC: So how do you feel about this company going forward once we give you
another round of capital?

Owner: I believe we will fail. I am going to take your money and continue
anyway.

If the VC did not interpret the owner as being irrational, he would be suspect
himself. You are suggesting that it is selfish to give up things you believe
are doomed. What other criteria is there for giving something up?

~~~
mgkimsal
VC: So how do you feel about this company going forward once we give you
another round of capital?

Owner: I believe this is a lot harder than I originally anticipated, and have
learned a lot about the industry that invalidates some of the original
assumptions. Continuing down the same road isn't a good option, but I'm
thinking there are some other opportunities that we've identified which would
be more profitable to pursue. Given that you have paid for this education and
research, would you be interested in continuing to support us during a change
in direction?

~~~
rohern
Now you are arguing that OP should have pivoted to something new under the
assumption that he had an idea of how to so pivot. That's fine, but it is not
a defense of the point you originally made and instead agrees with my
counterargument.

~~~
mgkimsal
I was suggesting that there was probably more going on that wasn't divulged in
the piece, but the phrasing of "i shut this down because I didn't believe it
in" does come across as somewhat selfish. There were/are other people involved
- perhaps they were consulted, but the post doesn't mention that they were
consulted. Letting the rest of the team go on with someone else at the helm,
perhaps with the funders selecting someone new to run things, would have been
an option any more. But "I don't believe in this anymore" = shutting down
something which some other people may have put their lives in - comes across
as selfish.

Again... there's probably more going on that wasn't posted - I was reacting to
what was posted, and trying to suggest there may be better ways to phrase what
was said.

~~~
ucee054
"I don't believe in this anymore" = shutting down something _is exactly the
right thing to do_

The funding you get from VCs comes from Grandma's pension fund.

You think it's better to burn millions from the pensions of Grandma and her
friends to sink into a losing business?

Just to keep a few of us engineers employed for another year before the
inevitable failure?

Screw the engineers.

And let them look for better, non-dead-end jobs _earlier_.

