
Why my first startup in the valley “flopped” - pat2man
http://pozo.me/post/28603867718/startup-flop
======
ChuckMcM
I've seen a lot of startups come and go and there is a huge difference between
'coming up with a problem to solve' and 'finding a problem to solve.'

They sound the same but they aren't. In the first case you look around and you
say "What problems are people having?" and you see one and you thing "Oh, I
could solve that, let's go!"

The challenge is that if you asked them they might agree its a problem but
might not think it is worth solving. If instead you talked to a bunch of
people and said, "I'm here to solve your biggest problem, tell me about it so
that I can get started." you get from your future users what they think is the
biggest problem that needs solving.

Now if you talk to a lot of people you will get a set of problems. If you make
sure you talk to people of different ages then you'll populate your set with
problems from different age groups (and different life stages), if you talk to
people in different industries you will populate your set of problems with
with different skill sets, and if you talk to people at different sized
companies you will populate your problem set with people with varying levels
of time/money to invest or spend.

Now if you take those problems, and try to tease out what the underlying
structural issue is that makes it a problem you will get a list of structural
issues.

Finally, after all this talk talk talk, you find the structural issues which
are at root of many problems, and then design a product around that.

Your will have a huge advantage. You'll know _why_ you built your product, you
will know the kinds of problems it can make go away and how much of the
problem it will mitigate. You can quantify the impact on your customer's
quality of life, and you can target people who you can reasonably expect are
having the problem you can solve.

In many ways understanding how your vision fits in to the rest of the world
will be the 'secret sauce' that makes you successful.

~~~
seunosewa
This sounds very good, but many sensible ideas don't work in practice. Any
practical experience to back it up?

~~~
ChuckMcM
Well this the way we went about developing our product at FreeGate which was
widely praised by our customers and lead to a successful exit (acquisition )
in 2000. However through out my career so far I have had more success when
problems come to me rather than making ones to solve.

~~~
freeflop
FreeGate? Wasn't that the company that thought the way to build a manageable
router appliance was to take FreeBSD and rewrite all the software to use a
_custom built database_ instead of their existing config files (without
/etc/passwd, /etc/hosts, etc)?

Didn't that mean replacing a large body of stable working code and engineering
knowledge with fresh stuff with unknown behavior possibly understood by no
more than one or two people in the entire world?

Didn't that cause recruiting headaches, quality issues and schedule slips
causing them to almost entirely miss the window for their product?

I'd think it a bit disingenuous to call that company a success. If anything
they should serve as an example of what happens when a company's technical
leadership identifies the wrong problem to solve.

Edit: there appears to be a timeline here
<http://www.freegate.net.au/news/press_releases.html> with plenty of mention
of funding and partnerships starting in 1997 but no announcements of actual
shipments or sales.

~~~
ChuckMcM
Throw away accounts with snarky names aside [1], the problem FreeGate set out
to solve was that small to medium businesses wanted to be on the Internet,
ISPs wanted to sell them Internet service, but the economics of doing that for
non-tech savvy businesses was broken. This was in 1996. At that time, if you
were Pizza hut, and your Internet access went down, and then you called
support, they would likely as not ask you something like "can you ping the
router on our end?" If the telephone company was run like that their question
would be like "Can you measure the voltage between ring and tip?" We talked to
a lot of ISPs, and a number of value added resellers (VARs), and small
business (SMB) owners, and networking companies, the common bit that was
underpinning a huge number of issues was that SMB's didn't have the resources
to hire a system administrator or IT guy, the kinds of things they wanted to
do however could mostly be automated. The ISPs wanted to sell to SMBs but if
they called support too often it cut into their margins so much that they
started losing money. The VARs were selling switches and patch panels but the
'big money' was above them selling servers and routers, they wanted to capture
more of that business.

The solution then was a system that could provide a full point of presence on
the network _and_ be fully debuggable by a service tech without having to roll
a truck to the customer site or ask them questions they had no way of knowing
how to answer. This has been a remarkably successful tool in the telephone
market in the form of private branch exchanges (PBX). So how do you build a
network server with the management and usability characteristics of a PBX?

The path FreeGate chose was to design and build a 1U server that could fit
inside the telephone racks of the time, and then create a management package
on top of a stable OS release that would allow us to offer the local customer
a UI for doing the kinds of things they wanted to do (like add or delete email
accounts, put up web pages, or create a VPN tunnel between outlets or offices.

FreeGate shipped the first one about 3 weeks later than the original schedule
called for it to be shipped. That included designing a new motherboard,
creating a chassis to hold it, and getting it through a bunch of modem
qualification paperwork. As for market window, FreeGate, Whistle, and Cobalt
who all ended up in variations of this space shipped about the same time. So I
really don't think we'd characterize it as a market window 'miss.'

We also didn't replace "large bodies of stable working code", we did create an
entirely new management system, and we did create a way to proxy DNS requests
so that you could have a DNS namespace for all of your machines both those
with public addresses and those with private addresses. (the box did NAT and
Firewalling as well).

The biggest headache turned out to be Java. And more importantly how 'not
true' the 'whole write once run everywhere mantra' was. Of course Microsoft
and Netscape and Sun were all pointing fingers at everyone else but Java code
that worked fine on Netscape didn't on IE and vice versa, and to make it worse
from minor release to minor release of either of them.

This comment: "Didn't that cause recruiting headaches, quality issues and
schedule slips causing them to almost entirely miss the window for their
product?" is amazingly exactly opposite reality.

During the dot.com "boom" recruiting was challenging for everyone due to the
insane competition for talent, people were giving away 1 year leases to a BMW
sports car for sign on bonuses, kids with 1 year of experience out of school
were demanding titles and pay of "architect." But none of that was at all due
to our implementation.

We did have a weird quality issue, it was too high. One of the strangest
things I learned from that experience was that VARs (those people who re-sell
gear from Cisco and Juniper etc) loved the fact that our product dropped in
and worked, but they didn't like that it never broke. As it turned out their
business model was predicated on making service calls and charging for each
one. When they installed the FreeGate box the customer was 'done', they just
didn't have issues.

After the acquisition, the stock continued to gain value. I don't know about
you, but being worth multiple millions of dollars (on paper of course) post
acquisition made me feel pretty good about the exit.

[1] Sidebar: This comment from 'freeflop' is showing as posted 8 hrs ago from
an account created 8 hrs ago. This is not particularly unusual, especially
when someone wants to talk about their own company in a bad light, but these
things happened last century man. And it seems you still have a lot of pent up
anger/hurt. I think if you came out in the open and had the discussion you
might be able to get some closure but also respect your choice to live with it
inside of you too.

~~~
freeflop
From my perspective[1], instead of being a good example of a company that knew
the right product to build and the right way to get it built, I think it just
shows what happens when a company gets some bubble funding, tries to build
"The Right Thing" and gets forced into an acquisition when it turns out too
hard to do and the easy money runs out.

I find your quality claims rather incredible but I have no experience with
your box. However I do find it rather curious and ironic that you of all
people, an original member of the Java team, were burned by quality problems
in Java. I know WORA fooled a lot of newbies but shouldn't you of all people
known enough about Java at that time to have avoided being bit by those?

Perhaps you personally benefitted from the deal and I'm sure it was fun while
it lasted, but your overall rationalization leaves me unsatisified. Let's be
serious here. If FreeGate

a. knew what to build

b. knew how to build it

we'd all know about it.

[1] Well, I could have posted this from the HN account I abandoned 4 years ago
but who cares. I'm just a FreeBSD contributor who got wind of what FreeGate
was doing second hand and was a bit saddened when I heard about the whole
database thing. That meant I thought they would be unlikely to ever be able to
contribute back to the FreeBSD codebase in a meaningful way (e.g. the way
Whistle did with netgraph).

~~~
ChuckMcM
FWIW we sold a few million units between the A1000 and the A500 over the
lifetime of the product. The FreeBSD folks weren't interested in some "other"
way to manage system configuration (it was all user level anyway), and third
party awareness isn't a measure of quality for any product.

To this comment "Well, I could have posted this from the HN account I
abandoned 4 years ago but who cares." I don't know if anyone 'cares' whether
you post on a newly created count or existing count, but I do care that
creating a throwaway with a snarky name often can indicate a lot of unresolved
personal pain and anger on the part of the poster. That stuff can eat away at
you and leave you in a bad place. As a community we've lost too many good
people to unresolved anger and depression.

------
kkowalczyk
"We took a small friends and family round"

That I do not understand. Why are people so desperate for funding, any
funding?

An ex-Zynga engineer should be easily able to save enough money for at least 6
months, while he's working on an mvp.

Pre-emptive note: I do understand the value of idea validation, expert advice
and connections that comes from getting a small investment from YC or a well-
connected angel investor like Kevin Rose.

But "friends and family"? It seems bad for both parties.

If successful, the founders will loose a significant portion of the business
for insignificant help (small amount of money but no expert advice and no
network to help them in the future).

But most likely they'll fail which doesn't seem fair to their friends and
family.

Incubators like YC and angel investors are sophisticated. They only invest
money they can afford to loose, they understand that any single investment has
10% chance of succeeding so they hedge their bets and they also have a much
better understanding of what has a potential to be successful enough to offer
enough ROI for the investor.

Compared to that, an average person is naive and over-confident about
investing, just like the author of the article was ("I quickly learned that
unless your product has mass appeal and traction, or you are Kevin Rose, high
profile Angels are not going to throw money at you.").

Both parties are victims of confirmation bias: reading TechCrunch one reads
mostly about successful investments and exits which makes inspiring
entrepreneurs think that an investment is normal and inevitable (reality: it's
extremely rare and only awarded to those who stand out from the crowd) and
makes naive "friends and family" investors think that making 10x ROI is a sure
ticket to riches (reality: only the top investors make significant returns).

------
dglassan
It flopped because you didn't make it into an incubator? C'mon.

I don't know what product you built but it sounds like it flopped because no
one needs a better way to gather their friends. That doesn't sound like a
problem (or a business) to me.

~~~
emmanuel_p
That was one of the factors that contributed to the "flop". And your point was
addressed in my first issue. "Identifying a problem vs fabricating one".

~~~
dglassan
There are tons (maybe more?) companies that are successful without the help of
an incubator. People have been raising money and building successful companies
decades before the idea of an incubator even came about.

Not making it into an incubator didn't contribute to the flop at all. A bad
company going through an incubator is still a bad company. I'm not saying your
company was bad, I'm just trying to explain that this whole idea that a
startup can only be successful if they go through an incubator is completely
bogus.

~~~
cutie
I read it as, perhaps the incubator people would have helped shed light on the
reality of the situation.

~~~
dglassan
I get that, and I'm saying you don't need someone at an incubator to tell you
that.

------
bitanarch
My last startup flopped as well. But honestly I couldn't be happier - I think
a lot of first time entrepreneurs make similar mistakes. But you wouldn't be
able to learn them by heart until you've made them and seen what'd happen
after each and every thing you did. Learning by screwing up is 1000x better
than learning by reading Hacker News or Venture Beat.

------
robomartin
It's tough, particularly if it's your first time out. Thankfully the cost of
trying out ideas in the software world is very low. Try experimenting with
hardware to see the other extreme.

In many ways doing hardware ventures teaches you something very important:
Ideas are not what's important; Opportunities are important. This, because the
cost of failure can be very high, and so you learn very quickly that the idea
is almost of no real value until a matching opportunity is identified.

Everyone has ideas for a million different gizmos. I certainly get approached
on a regular basis with "let's build this thing that does this and that and
that". When I ask about the opportunity I usually get blank stares. People
think in terms of ideas. Business is about opportunities that are then matched
with solutions and execution in order to turn a profit.

I used to be on the "I have this great idea" camp. After a number of
businesses all I really care about are solid opportunities. Ideas are nearly
worthless on their own.

------
joshu
i wish people would stop distilling their experiences into pithy blog posts.
the experience is the valuable bit; if you just supply the lessons learned, no
lessons are actually learned.

~~~
rachelbythebay
Speaking as someone who learned a lot from Usenet back in the day, I'm going
to have to disagree with you. Remembering nuggets of data from old posts has
made me able to pull off feats of magic at times when I shouldn't have known
anything about a system in question (because I had never touched one before).
Even just knowing where to look can give you a head start.

Now, if I never remembered this stuff, okay, it would have been time wasted.
If that's the case for you and you don't take away anything from blog posts
(the closest thing we have to rich Usenet posts any more), then perhaps you
could try not reading them.

~~~
joshu
Did the nuggets concern software or people?

I think useful advice about the latter is far more rare about the other kind.

------
klawed
>Changing consumer behavior

Kevin Maney, in Trade-Off, posits that something needs to be 10x cheaper (or
better, or faster or...) to compel someone to change a behavior. Ray Ozzie
liked to apply this rule during his tenure at MS as well. Obviously, measure
10x cheaper is much easier than measuring 10x better but the point remains
that if you're asking people to change their behaviors in any meaningful
fashion, you need to give them real incentives. Edit: adding line break for
clarity.

------
zeeed
but hey, you had a start-up in the valley. congrats on learning from your
mistakes and committing to making it better, next time. Good luck finding your
path!

