
Today my startup failed - jc4p
http://chrishateswriting.com/post/74083032842/today-my-startup-failed
======
avenger123
"As we approached the end of our runway, it became clear to us that DrawQuest
didn’t represent a venture-backed opportunity, and even with more time that
was unlikely to change."

I believe this is the heart of the message. It looks like there was no revenue
generation model that could give back the money invested ($3.6 million) and
provide a real return.

The application is successful and there is a large user base. Let's assume
DrawQuest is able to make a profit of $200,000 a year on revenue of $400,000
based on some simple changes to allow users to pay for premium features. For a
very small company with 2-3 people, this may be enough to keep going. Now, I
don't know what these numbers can really be but I would imagine for a
bootstrapped company it would be viable.

It's unfortunate that this business "failed" because the profit it can
generate just isn't enough for the investors and the founders.

It would be nice if instead of shutting it down, it's handed out to others
that will be happy with its lower profit potential.

~~~
moot
This is mostly right. DrawQuest would make a fine lifestyle business for a few
partners, but is unlikely to become a business that represents a venture-
backed opportunity. However because we built it as a venture-backed business,
that's the bar we're held to.

Per my post, I'm exploring options for keeping the service alive for the next
few months (and hopefully longer), and am cautiously optimistic we'll be able
to figure something out.

~~~
icambron
I don't think that's the right way to look at it. The VC money you spent is a
sunk cost; it's part of the past and the only question is how to make the most
of its assets. That VCs are no longer interested in the business makes sense,
but it doesn't follow that it needs to be shut down, eliminating its remaining
value. They could write it down as a loss, stop thinking about it, and let the
founders run it at zero cost to themselves. So I don't the bar you're being
held to is a real thing.

What I do think is real is that a bunch of equity is missing, and for the
company's cashflow, that might make it non-viable. You may have also built in
a way that makes its operating costs too high to turn it into a lifestyle
business. Or perhaps you just don't want a lifestyle business. All of those
(and others I haven't even thought of, I'm sure) are great reasons to call it
quits. I'm just objecting to the "bar" part of it.

~~~
moot
As I said, we're considering our options going forward, but for all intents
and purposes, the venture-backed startup that was Canvas Networks has failed.

------
mildtrepidation
_It may seem surprising that a seemingly successful product could fail, but it
happens all the time. Although we arguably found product /market fit, we
couldn’t quite crack the business side of things._

Hopefully people will read into this and learn that building a product without
figuring out how to make money and just hoping it becomes obvious -- or that
someone will acquire you -- is NOT a business model.

~~~
freehunter
I would say that many people would disagree. Launching without a profitability
model is what a lot of startups do, and some of them are successful. I'd like
to see numbers on how many of those types are successful versus the startups
looking for profit to begin with.

I would argue that it _is_ A business model. The debate would be around
whether or not it's a _good_ business model. I guess as long as you're honest
with yourself and your employees, aiming to be acquired as a profitability
plan is perfectly valid.

~~~
mvkel
"aiming to be acquired as a profitability plan is perfectly valid."

Getting acquired and becoming a cost center for another organization is not
how I'd define success.

Yes, companies like this exist, but they typically are in the news because
they're the exception to the rule.

For any sustainable business, the obvious part has to be how it makes money;
the tough part is building it in a way that captures the customer.

~~~
GauntletWizard
"Getting acquired and becoming a cost center for another organization is not
how I'd define success."

I'd not consider that failure, either; Many things are valuable, yet often
defined as "Cost centers". IT Support, for example, is almost always defined
as a cost-center, yet it fuels so many parts of the business and can be such
an improvement to getting things done it's insane in the modern world not to
have it.

Building a technology or product that is only good as an add-on, loss leader,
or tech demo isn't shameful. If somebody's willing to pay for it, if you and
your investors can get a good return, that's a reasonable measure of success.
It's nice when a product is successful on it's own, but not everything is
about direct-sales.

------
jackgavigan
I have a thesis that the success of startups that operate in a market with
strong network effects is often more about luck than skill and that,
therefore, repeat success on the part of the founder(s) is by no means
guaranteed.

It's like when a first-time golf player scores a hole-in-one. If you try to
get them to repeat the feat, they can't because they don't actually know what
they did to get the ball in the hole - they just whacked the ball in the
general direction of the tee.

Now, take a thousand ball-whackers (startups) all targetting the same tee
(market). If the network effects are strong enough, one of them is going to
win simply by getting their ball closest to the pin. They don't have to
actually get it _in_ the hole - as long as it's the _closest_ , the network
effects will take over and push the ball into the hole.

Result: The ball-whacker is perceived as a genius and VCs line up to invest in
his next startup.

However, if the first success was, indeed, down to luck, there's no guarantee
that the second attempt will be equally (or, indeed, anywhere near as)
successful.

This isn't to say that _all_ first-time hole-in-one ball-whackers are just
lucky. Some are clearly naturals. The trick is distinguishing between the
naturals and those who were simply lucky.

~~~
JackpotDen
we're all a massive statistical experiment. in every stage of every thing.

------
jc4p
Putting who he is aside, I think the very tough realizations they made apply
to a lot more than just DrawQuest's situation:

> As we approached the end of our runway, it became clear to us that DrawQuest
> didn’t represent a venture-backed opportunity, and even with more time that
> was unlikely to change.

It takes a lot to decide that you should kill something rather than try to
funnel more money into it without having an end-game set up.

~~~
dclara
"It takes a lot to decide that you should kill something rather than try to
funnel more money into it without having an end-game set up."

Correct. But you may miss out one point: not every innovation or successful
apps is able to meet this criteria. I believe as an online app, they've
already stretch to its most, even received VC funding in the first place.

Apart from the planning for exit earlier, they are quite successful. Apps have
very little room to be profitable due to the high competition. I was in a
seminar when the presenter did a survey to count how many people have 5 apps
installed: majority. How many people have 20 apps installed? 1. The funniest
thing is the "1" said, I barely use my smart phone. Everybody was staring at
him, why? He said I like to use computer. :(

~~~
JacobAldridge
When we launched EveryDayDream Holiday as a daily email thing, so many people
came out of the woodwork and declared "You should make it an App!"

When I asked _all_ of them (yes, anecdotal) how often they used Apps versus
how often they checked email, a large majority replied ... "Yes, but people
make lots of money out of Apps."

Not that we made money out of email either, of course.

~~~
dclara
Yeah, it's like an illusion. Some early apps did make a lot of money out of it
though. Now it's like overflooded, and everybody expects free apps for sure.

When they suggested you, they only care about whether they can get it on smart
phone. Email actually reaches broader, but just like you said, it's hard to
make money either.

So a real business model comes out from intensive marketing research and
practice, especially experts always suggest to create a business plan
including marketing plan for any business.

------
fidotron
I think it's important to distinguish between having an audience and having a
market. As is fairly well understood, it's possible to have very small
audiences that monetise effectively, and very large ones with next to no
spending.

One more subtle problem is that products aimed at highly internet savvy
westerners seem less likely to stand a chance of making money, as those people
are precisely the least likely to spend anything. Reddit has a similar
disparity between audience size and ability to get money from them, but aiming
at the 4chan crowd strikes me as a recipe for pain. Hopefully eventually he'll
find an actual market.

------
Phil_Latio
Canvas was fun. While I don't know the details, imo it failed (at least
community-wise) because they made some strange changes for strange reasons
(removing so called sticker-rain, removing audio-remixes, etc). The weeks
after these changes the user base dropped largely and once that started there
was obviously no coming back due to massive decrease in activity on the site
that would scare away new users. Myself included: Previously I was spending at
least 1 full hour a day on Canvas for about 5 months straight and just some
days later it went down to like 5 minutes a day before leaving completely.

To this day I fail to see how they ever wanted to monetize Canvas. I think
that was the real issue here. It looks like the site had a few hundred uniques
a day for the last couple of months and the servers are still running...

[http://www.alexa.com/siteinfo/canv.as](http://www.alexa.com/siteinfo/canv.as)

~~~
dclara
I think what you said is very typical. Apps are like mini toys or online
games. People lose their curiosity very soon since there are so many free
choices out there. We cannot expect or take it too seriously for the long run.
Being adopted to a certain extent as Canvas DrawQuest is good enough.

------
dodadmin
I help run a site called Doodle Or Die
([http://doodleordie.com](http://doodleordie.com)), which is very similar to
DrawQuest. Much like them; we barely cover our costs. But we've largely
automated away most human effort so that we can keep the site going for our
community while we figure out a brighter future for it.

While our game is similar; I think the way we have approached it from the
business standpoint is more realistic. We fully bootstrapped it ourselves and
never put ourselves in a position where it had to make money. All of the
people working on it still have day jobs. We see Doodle or Die as a great side
project that we will continue to work on and maybe we will get it enough
traction to attract a buyer. As much as we want it to be the next
DrawSomething we knew that it would be a hard road towards that and therefore
we were never holding our breath.

There is something to be said for going out and taking the bigger risk like
DrawQuest did. But I think we have all agreed to save our bigger risks for
bigger opportunities (i.e. we are all working at successful startups outside
of Doodle Or Die that have a much better future). We never took the risk; and
that's why you don't see us writing a blog about our failure. With all that
being said we welcome DrawQuest users to try out Doodle Or Die.

~~~
erichate
That's a nice site, have come across it before and had a couple laughs.

I too took an interest in this thread because of involvment with a product
that shares some similarities
([http://www.freeriderhd.com/](http://www.freeriderhd.com/)).

Unfortunately one thing is likely, it won't become the next draw something if
it is being tackled as a side project and not full time.

I commend you guys for bootstrapping it but if you aren't in a situation where
you have to make money from it that removes a big motivator for success or
even failure for that matter and you just end up waiting on or hoping for
better days ahead which likely won't come without some hard dedicated work.

~~~
dodadmin
Awesome work you have done there with Free Rider. I think I can play that for
hours.

It is true that dedication is necessary when doing a startup. But I guess my
point is that we must prioritize our dedication. So far, the other startups we
are currently working for have a much higher chance of success than the really
fun drawing game we created.

When evaluating a startup you must look at how big the thing can be if
everything goes perfect. It is obvious moot saw that with 4chan. And I think
there was a good opportunity there with Canvas. But with DrawQuest I think the
opportunity was smaller and therefore a different model of dedication (which
he seems to be moving towards) might be more appropriate. Every week I want to
start programming on a new idea that pops into my head; and many times I do.
But prioritizing which of those stay as thoughts in my head, side projects, or
companies is something I am always evaluating. Given what Doodle Or Die is and
what it can be; I think a bootstrapped side project approach was best.
DrawQuest would be a great side project success story if it stayed that way.
But then again, it probably would have not even been as successful as it was
without the dedication he put forth in a full-time way.

In short, I have concluded that I know nothing and that we are both right. I
guess the choice of which way to go depends a lot on the person and the
circumstances around them. I think I put on my Captain Hindsight
([http://doodleordie.com/c/1qLInbnKCE](http://doodleordie.com/c/1qLInbnKCE))
goggles for a second there.

~~~
erichate
Both right, I will take it!

One thing I would add, without going into DrawQuest too deeply, it looks to be
a decent app to kick off a portfolio of apps and not be the sole provider for
$3-million in funding.

Anyways, thanks for the chat.

------
aditya
I wonder if moot would've been able to turn DrawQuest into a revenue
generating product if he'd had more runway?

I guess my question is this: what is the difference between DrawSomething
today and Google and Twitter before they started making cash? All three seem
to have great usage and engagement? Is it just market size that prevented more
capital being deployed?

edit: I meant DrawQuest but wrote DrawSomething, thanks for the bug report
tricolon :)

~~~
mattzito
I suspect that most general interest applications could generate revenue
eventually with enough cash put in (the exception being fundamentally flawed
business models - "let's sell bags of rocks over the internet to children!").

But the curse is that the longer your runway, the more cash you've
raised/invested, the longer payoff time, and the longer you/your investors
have to wait to get there.

That's why shutting down and cutting your losses is worth it in a lot of
cases. If you don't see a clear path to the hockey stick or to breakeven,
you're better off closing the doors, even if you can raise a little more
money.

And I would say that the difference between DrawSomething and Google and
Twitter is that the upside potential is correspondingly larger. Search is
ubiquitous, twitter is a communications mechanism (albeit one I never "got" or
cared for). DrawSomething is more of a game, and while games can definitely
make money, it's a highly competitive space with lots of churn. It's just less
appealing from an upside potential.

So, when you solve really big problems, you might be able to raise more
capital for a longer runway, because the risk/reward is greater. I suspect
that DrawSomething was cool, users liked it, but that it didn't have the
upside potential that something else might have.

I give Chris credit for recognizing this and walking away - and for all we
know, there might have been more money to raise, but at terms he didn't care
for. Which is totally reasonable.

~~~
ama729
> (the exception being fundamentally flawed business models - "let's sell bags
> of rocks over the internet to children!")

Are you sure? :)

[http://en.wikipedia.org/wiki/Pet_Rock](http://en.wikipedia.org/wiki/Pet_Rock)

------
dchuk
I feel like one of the problems moot will always face, simply because of his
legacy, is that his core userbase with any venture will end up being those who
frequent 4chan...possibly be the hardest to monetize group in the world.

While the app was successful in the sense of popularity, it was not successful
in the sense of profitability. That line is far too blurred for far too many
startup founders nowadays.

~~~
AznHisoka
That's a trivial problem to solve. Simply don't even mention you're the
founder. Or demote yourself to a tech lead, or someone. It's only a problem if
you glamorize yourself and jump and shout to everyone that you're the founder
of so and so.

~~~
dchuk
Yeah but simply mentioning his association with a project will lead to 10s if
not 100s of thousands of users basically instantly. They're just not the kind
of users who you can monetize easily.

~~~
ben010783
Having Christopher Poole as CEO probably helps raise money too.

------
Lionga
With 25K DAU und 400K MAU you have 6% DAU/MAU which is the worst engagement
rate i have ever seen (25% might be acceptable). Yet he says "Retention and
engagement are great"

Using 3.6 Million $ to build a simple drawing app probably worth about 3.600
$. "Our most recent product, DrawQuest, is by all accounts a success".

------
udev
I read many post-mortems, but this one, for some reason, struck me as being
very frank and unforgiving in its assessment.

~~~
Phil_Latio
Still kind of shady (or is it just me??..): When they launched DrawQuest,
Canvas was already dead. However they did not acknowledge this in any way.
Today Canvas is still online while not having any proper audience or any
changes to the site for like 2 years. All in all they got like $3.6 million
for Canvas in funding without any income.

He writes it himself:

> we created DrawQuest after the failure of our first product, Canvas

Why keep it online for another 2 years if it failed? I don't get it.

~~~
anthony_franco
Not sure about his case, but in my case I still keep my failed startup online
([http://friendcameo.com/](http://friendcameo.com/))

Mine failed in the sense that there's no way of growing or monetizing it in a
way that's worth my time and effort. But at the same time, I can sometimes run
experiments/surveys on it that allows me to learn and apply finding to other
more successful ideas.

I'm guessing Canvas is along the same lines.

------
pearjuice
For someone who's running the garbage bin of the Internet, Chris is really
down to earth.

~~~
brokenparser
Are you referring to 4chan? If so, I think Twa^Hitter is far worthier of that
title.

~~~
Kiro
Twa^Hitter?

~~~
nemo1618
^H is the escape sequence for the backspace character. Since the days of BBS
it has been used to comedic effect in the manner you see here.

~~~
typon
I guess different people have different definitions of the word 'comedic'.

------
baldajan
I actually run a startup (in someways similar to draw quest) and was
constantly told it is a lifestyle business; but I've only recently realized it
doesn't have to be. That model is difficult to find, and will seem all too
obvious once it's discovered (look at Facebook or Twitter).

I believe if moot had cracked it (that model) and had sustainable week over
week growth, draw quest could have survived.

I was once told by the CEO of Kik, it's a lot harder to get to 100 million
users than it is to get to a 100 million dollars. I couldn't agree more.

------
AznHisoka
He needs to move all his infrastructure to OVH servers before he can talk
seriously about 'keeping the lights on' as long as possible.

~~~
georgemcbay
I have no idea how things work with moot's company, but depending upon how
your backend is built, moving it can be rather a lot of effort, effort which
will be in short supply as people involved with the company are now suddenly
very busy looking for new employment.

We went through something similar as chumby industries was dying where a lot
of effort near the end (and even past it) went into network traffic
optimization aimed at "keeping the lights on" as long as possible past the
retail death of the product. Significant dependencies on Amazon's AWS/S3
infrastructure were built into our backend at that time, which limited our
effective ability to host on something cheaper without making changes much
larger than were warranted to make on a volunteer effort for maintaining a
dead service.

TL;DR/Lesson learned -- It is a good idea to implement your backend services
in such a way that they could, in the future, be deployed on vanilla Linux
hosting if need be, even if you currently rely on some "cloud" provider with
its own APIs.

------
Keyframe
Damn, I have a draft of an idea that is similar to this that I want to
dedicate my time to later this year. I haven't even heard of DrawQuest, and
it's not essentially like it, but is rather similar. However, I can see at
least 10+ ways to monetize it. I wish there are/will be more details why this
failed.

------
ojbyrne
Surprisingly gracious and heartfelt.

~~~
udev
Exactly. I got the same impression.

------
erichate
I am an android dude so couldn't download the app but am curious as to how the
app is currently monetized and what the daily installs look like.

With high CPMs on mobile decent ad strategy should be able to monetize that
app quite well. Or even a virtual currency of some kind of drawing tools,
bigger uploads etc. Should be more than enough revenue there to keep the
lights on and build out a new app...

~~~
mentos
I assume they pursued those things but still wasn't enough? Otherwise how else
were they trying to monetize?

------
siliconc0w
Mobile gaming is about risk management. There are a lot of failures but the
successes can be huge and pay for everything else. You try and try again until
you strike the rich vein of players who are actually willing to sink money
into virtual crap. Even with incredibly coercive game design and analytics -
finding and engaging these users is hard.

~~~
dclara
Expectation must be adjusted. A lot of apps and even real world products
should shoot for a short term profit and gain in before the majority of people
lose the curiosity and become tired of it.

------
geolisto
Failure is one of the best educators in business. Get back in the game and
start another company.

~~~
quadrangle
Why? Starting companies just for the hell of it is the worst part of start-up
culture. Go find something actually useful to do. The world has tons of needs
but that doesn't include having yet another random startup with no deeper
mission than being successful.

------
diestl
Startup delusion is the new gold rush, the only ones making money are those
selling the dream. As soon as I see someone using startup buzzwords like
runway, pivot etc I see a sucker who is has stars in their eyes.

~~~
jgh
Except Moot is the guy who made 4chan

------
beauzero
I would find it very helpful if you posted about how you went about the
monetization decisions...both successes and failures. Thank you for sharing.

------
jmnicolas
It never cease to amaze me how in the start-up world people can "loose"
millions and nobody cares.

It's like free money.

IMHO the second start-up bubble is about to pop.

------
dclara
What a splendid marketing campaign for attracting new users to visit 4chan?

While we are busy discussing about the failure or success, while we are
feeling the ups and downs as if we are experiencing, 4chan is way bigger than
the two apps.

Why whining? It's a joke. But now I got caught by 4chan. I became one of the
unique million visitors of it.

From this perspective, I fail forever, because I don't have this level of
marketing skills. But hopefully, I have better product to show.
[http://kck.st/JNqv8z](http://kck.st/JNqv8z)

------
Kiro
Is it bleeding money? Otherwise I don't understand why anyone would shut down
a service with 25,000 uniques daily.

~~~
josh2600
Do you think of that as a large number? What would be a number that would
cause you to shut down?

I'm not trying to be facetious, I just think that 25,000 uniques/day in a
consumer play is not a lot. Do you feel differently? If so, can you provide
some context for me to help understand your position?

~~~
erichate
That is definitely a healthy number for a mobile app / game, something that
can be leveraged into a new product.

With the $$ amount that advertisers are paying for mobile installs, a app with
good engagement and viral reach should have no issues being monetized.

If their goal was to build a company around 1 app then that could be their
issue but doesn't seem like the kind of app that could grow to support full
team indefinitely.

------
jsemrau
Just a thought exercise. How many cars would Mercedes-Benz sell if they would
give out the cars for free?

~~~
dclara
Good point. But there are numerous apps available, are you going to choose
anything not free? Actually I did once. I cannot find a good background for my
Nook tablet, I spent $1.99 to buy one since Nook does not open to Google
Appstore. But how can you make your app being listed on the top? So I think
the apps builder are more for fun than making money out of it.

------
DanBC
moot - what was the worst part of the community and how was that handled? And
what was the best bot of the community, and do you have any ideas how that was
fostered and encoraged?

------
Sindrome
How do I created successful startup? - Business Spiderman

------
billnguyen
Love seeing these posts but without any details on what he was doing on the
"business side" that failed its unfortunately not very useful for the reader.

------
andrew_wc_brown
[http://memegenerator.net/instance/45092497](http://memegenerator.net/instance/45092497)

------
stesch
Oh, shit. Our startups should have been ready today? Shit! I failed, too. I
haven't even started yet!

------
pmcpinto
Thumbs up for the honesty

------
lafar6502
Oh, i think the investors need therapy more than these enterpreneurs. But did
any of these anonymous 'investors' write how bad it was to see his pile of
money being burnt?

~~~
JDDunn9
Investors expect to see most of their investments fail. That's built in to the
business model.

~~~
lafar6502
So it must be built into startup model too. Otherwise investments wouldn't
fail.

------
swayvil
Convert the magical subtleties of drawing into a shallow engineering exercise.
Throw away your magic lump of charcoal and replace it with this species of
narrow cerebral wasteland that everybody and his dog is getting skinny on
these days. Just plastic the fuck out of the whole deal. What's not to like?

Fuckin diet coke and fleshlights. Ice Nine.

~~~
pc86
I truly have no idea what you're talking about.

~~~
diydsp
I think he's saying computers don't add value to the practice of hand-drawn
media. And that everyone who tries to monetize traditional practices is a
sellout.

And it's probably moot himself. Everyone knows he is the master troll.

