We were lucky enough to find an acquisition off ramp last year but all of the feels are the same.
The big takeaway I learned is, if your differentiating product/service could be classified as a feature (which most ML or CV products are) inside a platform or application, you'll be run over by the major platforms who rebuild your product/services inside their platform.
Your only hope is that your team/data/IP is so far ahead and the acquiring company can't build what you're doing in-house more cheaply than what you're willing to sell for. Unfortunately it seems like there are fewer and fewer cases where major players can't rebuild your work more cheaply.
Second, it's excruciatingly difficult to prove the value of your product/service to a potential acquirer because you don't know their metrics, and if you do, you don't know their acquisition strategy. We did an intensive integration of our product with a Fortune 50 retailer, and based on their own numbers showed (using their own A/B tests) that our service provided a statistically significant lift in a core metric that they cared about, in this case paid conversions. Their CEO even talked about it at a public summit. However their acquisitions strategy didn't include small companies that aren't major strategic partners (Only >$200M+ acquisitions).
The worst part here is that, the founders (like I was) are absolutely in love with the technology and how amazing it is. The problem is, from a business perspective, that basically doesn't matter. You could be doing the most amazing work in NLP token inference, but if the product doesn't fit perfectly as an acquisition and it's not so compelling as to build a huge platform around, it's probably going to fail.
I wish it weren't the case, but it leaves me questioning what the value of doing really hard technology is as a startup. It seems clear that the most financially successful startups aren't solving fundamentally hard technology problems until they get to scaling something with broad product market fit.
Totally agree with this sentiment. I think this is why most "hard technology" problems are left to huge R&D departments or the government. Both of which aren't particularly nimble or profitable. There are a few notable exceptions (Oculus comes to mind), but most unicorns don't generally deal with solving tough problems. It's mostly about product-market fit and the balance sheets.
I know this is unrelated, but I want to thank you for your work on Kessel Run. It’s inspiring to meet folks in the DOD working hard on making software work for our national defense. I ran into some of your colleagues and was very impressed and excited about that program.
We're really working hard at changing many different aspects of the DoD all at once, from culture to acquisitions and are starting to see some great fruits but there's still a lot of work to be done.
Microsoft DOS started as a feature of IBM PCs, and Google started as a feature of Yahoo.
Like "tech in search of a problem" IMHO "feature vs product vs company" needs to be applied case by case.
The DOS point is correct in spirit. Google however did not in any regard start as a feature of Yahoo, it was an entirely stand-alone search engine for nearly two years prior to the Yahoo deal. Just one year after launching publicly it was handling several million searches per day directly on their own site. Google had already become very famous, with people going directly to Google's site to use their search engine before Yahoo signed a deal to use them to power their portal search. Just prior to the Yahoo deal, Google was routinely handling 15+ million seaches per day - a large figure at the time.
Here is a Salon article from December 1998 noting Google's superiority and promoting google.com specifically:
Resources may be better spent checking the boxes of a potential acquirer instead of working on real problems except if and when they intersect. Like valuing people with acquisition experience from the other side more than the producers of tech or solving a real problem.
In the ~13 years I've been doing startups I've only run into a few of these people who can pretty consistently build companies for acquisition, and I'm not really sure if it's just survivor bias in a growth market or they really have some secret formula.
Maybe I have overlooked it but I think you have the perfect software to run an online shop. Pay influencers to use your product and viewers who like the results will want to buy clothes from you. The profit margins of the sold products should be higher than anything that can be made from selling an app.
The consumer website is chicisimo.com :)
Your killer app could be a simple FB quiz. People give you their FB/insta and you spit out what looks that they'd think are wicked sick. Ideally culled from Instagram.
This web page sounds like nerds talking about fashion rather than fashionistas. I'm fairly sure that the Kardashians can't spell ontology.
Edit: Also why isn't this app hooking into the hauling subculture? This would totes perfect for folks and YTers planning hauls.
I could be the target market here. I have a desire to look good for work and casual situations but absolutely no fashion sense. I hang out on HN. ML powered fashion sounds great! But then I go on their website and it looks like it's for 13 year olds who can read at a college professor level.
I don't know your market well, so this is not deep advice. I just think that people who care about their look don't want to deal with words. They want to 'see' why your app helps them to look better.
To convince me, show me before and after pics. I don't care how you label stuff, I just want to see nice clothes that look good on me.
Did you edit the site to make it more attractive to prospective buyers? I can’t see how “Omnichannel Personalization Platform for Fashion Retail” being the first block of content on that page is going to help convince users to install the app. Both “outfit ideas” and “outfit of the day” buttons are broken, and they look disabled with the faded color. The text sells the technology and not consumer benefit. Why are the outfits of the day not shown here, with user profiles to give a sense of reality to it?
Someone already mentioned elsewhere, but I’m curious about two opportunities not mentioned in the post: building an online community based on the app, which could be a strong sales lead generator, or operating your own e-commerce platform to profit directly from the tech you created.
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As a tall person dressing and fashion in general SUCK! Online has made it easier but selection is still limited and cost is outrageous.
For some players (second hand for example) size is the number one "personalization" requirement. Imagine you see a feed of products, and none of it is your size...
> “…providing interactive access over a worldwide computer network to the plural fashion images, together with access to the fashion data for the fashion items in each of the plural fashion images and the information linking to the vendors of the fashion items…”
This sentence (with ellipsis!) does not appear anywhere else in the article, so right off the bat it's hard to understand what you're trying to convey. Secondly, it's insanely verbose, the whole sentence can be boiled down to "hosting fashion images with relevant metadata". If it's an excerpt from one of your patents, then without context it only muddles the situation — it makes it seem like you either don't know how to communicate your tech or you're trying to mislead.
Is that intentional? Because I would think with $3.5M in funding, you can hire professional photographers, models and stylists to make the photos and the videos. And a webdesigner to make the site.
The appstore pages look better. And you have good ratings from thousands of users. So why do you want to close it down? How many users do you have and what are your running costs?
You are right, the fashion taste api website does not intend to be stylish. It tries to convey a message to business and tech teams, and we know it could have a better design. Take a look at the consumer product https://www.youtube.com/watch?v=EMMmdCB1-Wg hopefully you like the design better :)
You've REALLY underestimated the power of design.
(a) That's a messy, unappealing closet.
(b) The Alexa interaction felt awkward. Probably a touch interface would've worked better.
(c) Ugh, (used?) boots on the TV stand.
(d) Many of the clothing items we own are Asian items without barcodes. Wonder how the import would work on those.
(e) The website (chicisimo) could use a lot, and I mean a lot of copywriting love. So many walls of text. Some fashion photos should be front and center. It is hard to understand what is going on in the animated iOS screen.
What were the 4 product people doing day to day?
The non-engineers are the:
Head of Ontology
Head of Product Design & User Research
They make the case that they have talent, domain-knowledge, and patented IP. The company may be out of cash, but it is not intrinsically out of the fight, so long as cash can be made to appear suddenly.
Furthermore, any acquirer would be able to see the company's books, removing any information-asymmetry on the free-cash point.
But hey - we all got an interesting read out of it.
Could the state of the business be hidden that you could take a big offer, get the money, and then they would discover the business is stalled?
Even if you could do that I wonder about legal issues / the relationship with whomever bought in.
And that leaves 0 for business + marketing + sales.
Maybe you didn't find the right business model during 5.5 years because you had nobody working on finding the right business model?
This person helps you focus, forces (if given authority) the tram to focus on "things that move the needle". Devs and designers simply lack that customer-development focus.
I think every team would benefit from a qualitative analysis role like this - regardless of title. I have one now. We argue every day, but the balance of perspective is key.
> Devs and designers simply lack that customer-development focus
That’s an unfair generalization. They will have that focus if imbued on them by the company, and the right motivated hires are made.
Me generalization is made from 20ish years as a dev who's now a CEO and was doing a bunch of hiring along the way.
You said my generalization was unfair, and carved out a narrow exception where it would be great. Maybe proving my point.
Query...does your dev team talk about tooling and stack more than customer feelings?
Is it "ohh react native on k8s" or fix the accounting reports and that one UI bug that tricks users into click the wrong button because some eng forgot to use the UI green constant?
My comment was regarding “tram” ;)
And fwiw, a founder friend with a successful exit counts his biggest mistake as not having a founder immediately focused on sales. He built a two-founder (PM, eng) business that had a successful exit but probably nowhere near as successful as could have been possible.
That being said... why did you (or if anyone else can chip in) decide to chase funding when you didn't have a business model? Maybe I'm being naïve here, but isn't it kind of crazy to raise 3.5M in funds for a business that has no plan but to be acquired by someone else?
I'm torn, because I believe that people should absolutely pursue passion projects, and that a passion project should absolutely be monetized... if you have developed a respectable business model and a potential product-market fit.
My first thought is that you could get some funding and use this as a platform for fashion retailers to exchange consumer profiles at the B2B level, or as part of the internals of the recommendation system.
That's a sane question. IMO it's the current financial environment that encourages such "leap without looking" strategies.
Fear of missing out is huge right now.
I know of a startup that received a multi-million valuation and many more million in funding. They don't even have a prototype!
It is worst than tulip mania.
What's changed is that debt is almost free. That allows VCs to take (very!) speculative bets for relatively low risk. They know that if each of their portfolio companies has a 10% chance to reach 30x returns, investing in 10 companies should pay off.
Like if you wanted to open a dry cleaners.
Equity capital is solely interested in business models that either wow people or fail outright. The reason has to do with risk: most such business ideas have various things that can go wrong, and those risks are generally manageable but not really quantifiable. Basically a VC wants to see "These are the assumptions in our model, and if we build this it will revolutionize X industry, which is currently worth $50B but could be worth a lot more with our product, and that will give you a 50% annualized return on your fund." And they're giving you money to prove out whether those assumptions are actually true, with the expectations that for a good number of startups they won't be and their whole investment will be wasted.
You'd finance your dry cleaners with debt rather than equity because (unless you are starting a chain) you are not shooting for the massive, near-zero marginal cost scaling that the venture capital model focuses on. Instead, the bank looks for a modest, predictable return through interest payments.
First, there's a delivery part. Delivery companies often become very big and make a lot of money.
Second, centralizing many small dry cleaning places into one has Significant economic advantages.
Third, they probably use an asset-lite model like Uber.
Fourth, all those make them somewhat similar to some sucsesfull, high growth companies , so it's possible they'll grow big.
WeWork is sort of the golden example of a business being sold as something that works at scale... except the business doesn't actually work at scale.
That is part of why it costs more/takes longer than simple laundry which is frequently still done at the mom and pop location. Although, I think the larger chains (Jack Brown) are entirely just storefronts sending the laundry and dry cleaning off to some centralized location.
So, I doubt there is much advantage to further centralization that hasn't already happened.
Also, I'm not even sure about the hotel bits, most hotel's I've stayed in recently _DO_ their own laundry. They have a couple giant commercial machines sitting in the basement for the sheets/towels. I know this because I always take the stairs and often take a wrong turn and end up in the basement/etc.
When looking at a potential business as something that can be economically scaled you always need to find the saving factor, for WeWork the saving factors are Administration efficiency (to administer 10 properties individually you need 10 administrator labour units, maybe for grouped properties you can get away with 6), rent leverage (being well established might lower the apparent risk of your lease being canceled early, so you may have some savings there) and maintenance (this is a significant one, I bet you could really scale down the expense of janitors and the like if you have multiple properties in a dense area). But none of the costs I listed above are seriously impacting your cost per sale, they're all quite marginal savings, so you'd really need high volume to reap that benefit and it's likely that the cost of marketing, building an app, having a crazy CEO etc... will outweigh the savings you could eek out.
Now, how well the current crop of startups is delivering on that promise is an exercise left to the reader, but it's there in theory. A dry cleaner has marginal costs and no economy of scale, and so can't attract unicorn valuations.
This theory fails to adequately explain WeWork.
I mean, I think you should be right, but in principle I do not see why WeDryClean should not work while WeWork does.
It isn't the absolute size of the numbers that matters. It is the ability to rapidly scale the business once you have the right business model and product.
And quite possibly huge ongoing marketing costs! But if churn is low, or even negative, you can assume something like 10 year customer lifetimes, with a comfortable 5-ish percent cost increase per year, on sale for the first year's contract value. If you have cheap-ish money available, you should buy as many of those as the world is willing to sell.
Once you make money, it's much harder to come up with outlandish numbers. A dry cleaners has a well-established range for revenue and profit, so it's hard to justify why it would be worth $100 billion.
If you want a cleaning company worth hundreds of millions, try ZZZZ Best https://www.investopedia.com/terms/z/zzzzbest.asp
The Medium version did update the terminology a bit (since RSS and 3G weren't as exciting in 2015 as they were in 2009, hah)
Now I can't, which is a shame. So in that sense, I wish someone would fund me. I have a lot of "doodling the internet" type of ideas. I use digital note taking extensively myself, so I know what's missing.
I'll give you another hint. Add shape recognition and move from capturing and storing pen strokes and generating bitmaps to capturing pen strokes and generating shapes. Add rudimentary grouping and ungrouping functionality, ability to move, stretch, rotate, etc. Allow pasting clip art and letting it grow/shrink/rotate when grouped with other objects, but just with a rough scaling, etc -- it doesn't have to look pretty. It's just for sketching things out.
Practically every software/design team needs an application like this and there will be money to pay for it.
P.S. I was on a team that built this as a windows application about 20 years ago, but we were ahead of our time. A SaaS webapp would be the bomb here.
My company reliably earns low-7-figures on high-7-figures revenue, with respectable but not amazing growth, but the only capital "market" open to us is bank loans and merchant financing.
Nobody cares about boring profitability.
That's pretty common, and is basically what seed funding is. The paradox behind markets and investment is that logically speaking, if a potential company has a profitable business model, that company should already exist. After all, with millions of potential entrepreneurs across the globe and trillions in funding chasing them, the chance that an obviously profitable business model hasn't already been dreamed up and implemented by an entrepreneur is basically nil.
So what investors and entrepreneurs do is they agree to take on risk with their capital, for the potential of great reward if it turns out they can come up with a better way of doing things that isn't already being done. The only way to do this is to explore virgin territory: do things that seem plausible but haven't currently been tried by existing companies, and then see if you can create a profitable business model with the results. There's a good chance that you can't, in which case okay, it was an experiment, you spent $3.5M to learn something that had the shot of being worth billions.
This basically amounts to "everything that can be invented has been invented". You sure?
Not exactly. A lot of startups can function as R&D for larger tech companies: Big tech companies have lots of money but aren't great at innovation. They might spend 10s of millions of dollars just to get a lesser quality version of what they could own if they just bought the best startup in the space. This is why companies with $0.00 revenue get acquired all the time. It's a simple calculation: will it be cheaper to buy or build this tech? For many companies it's cheaper to buy.
That being said, Chicisimo is in a very tough situation. The problem with their strategy is:
1. They have to be acquired or they'll go out of business. This is a terrible negotiating position to start from. There is no walk away power. If I was an interested buyer, why wouldn't I offer an insultingly low price? How does $100k to cover legal costs and a nice signing bonus to your employees sound? Do you have a better option?
2. They need a buyer who needs their experimental technology. This is what's called a "strategic acquisition". And they are almost impossible to engineer from the startup's position. The chances of a finding company with a lot of cash with an exec who wants experimental tech enough to spend a decent amount of money on it are almost certainly zero. If they haven't attracted the attention of a buyer by now, it's unlikely that they'll become more attractive now that they're about to fail.
Having been in this situation myself, it is so helpful to have some revenue to fall back on. That way you can demonstrate that the business is worth something.
I wish them the best of luck. Hopefully they pull something out here but the chances are low.
From the startup's side: We don't actually know the business yet, so we need resources to fund our runway while we figure it out (ie. interact with the market enough to make smart pivots toward profitability).
The the funder's side: We basically don't give a shit what the business turns out to be, we want to fund talented teams that we believe can pull off profitability.
This always baffles me the most. Who gives money to a startup without a business model? I guess they just have funds to throw at the wall and hope something sticks.
But from a cynical standpoint, why not take VC money if you can get it? It seems like you should take VC money if you don’t have a business model that would lead to being a profitable ongoing concern.
If I can see profitability, why would I give up equity?
You let other people take the downside risk. Why use your own money instead of other people’s money.
I offer you 3.5M to start a business, without needing a business model, why wouldn't you take it?
The real question is, how did they were able to raise 3.5M and why haven't they made sure that they had a strong business model.
If the only people who can start companies are the ones that have at least a few hundred thousand dollars in the bank, that really limits the field. I think VC probably plays a beneficial role here, opening it up to people who otherwise would have no freedom to spend a year or two pursuing an idea that may or may not convert into a profitable business.
If you can raise them why would it be crazy? It's only crazy for those that give the money (and for them they could be spare change)
> That being said... why did you (or if anyone else can chip in) decide to chase funding when you didn't have a business model?
Biggest mistake IMHO. But is quite common these days. Everybody is chasing the unicorn dream.
You dig where the gold is.
Tapping into the sentiment steered by macroeconomic trends is wise. Limiting that to the consumer product model is unwise.
> we haven’t found a relevant business model
> We are a team of 8. We are 2 full-stack, 1 iOS, 1 Android and 4 product people.
It's a bad sign if your company is 50% product people and you can't establish product-market fit, especially with a "whale" for a competitor.
I guess it wouldn't be unheard of for a conglomerate like LVMH to acquire, but I'm not sure there's enough traction to justify a scenario like that.
+1. Worked on a fashion startup a while back, and being early-stage we still did end up in a meeting with a C-level at LVMH.
They're open to hearing a lot of ideas, but the conversations quickly fell apart at realizing quite how early-stage we were— they generally want validation in the form of success in integrating your product with other fashion companies.
From what we learned, fashion is notoriously behind in tech, and it's a slow climb up the chain if you're B2B.
But seriously. That...feels true. But rather than waiting for things to happen to me, what happens if I go out and expose myself to more events where the dice of fate can be rolled for an outcome in my favor (or against)? Am I manipulating luck that way?
This process needs some work. It replaced the girl with an entirely different girl, and swapped her Metallica tee for H&M, effectively removing her taste.
Is there anybody who really wants that? People with too much money and no fashion sense? Is that a market?
Of course it needs to actually work though, which is not clear from the article (categories like "comfy" aren't going to cut it, you probably need a sophisticated deep learning approach on product images plus brand identity data and maybe Instagram posts with a lot of training data).
Obviously you can also run a store or an affiliate-based site yourself with it, but the problem is that you are going to be missing data on customer's taste; maybe you could exclusively cater to people who love posting their photos on Instagram, connect to their Instagram account and understand their fashion taste from their posted photos - or you could even support imitating someone else fashion's taste by looking at their Instagram profile.
1. Is there a difference between great recommendations and random recommendations?
Maybe purchases are bottlenecked on money rather than desire, so your customers can already find as much stuff as they can afford to buy. Maybe your customers want to browse and look at literally every product on your website and will find it on page 1 or 100. Maybe your customers need to see a lot of options to realize how much they like the perfect recommendations, so showing them what they'll end up purchasing first doesn't really make a difference. Maybe your customers are lazy and will buy the first shirt you show them regardless of how good it is.
2. Can you get by being dumb if you have enough data?
A company like Amazon has soooo much data on shopping preferences based on past purchases. They can construct extremely naive models from their 20 years of logs and expect them to perform very well given your ten years of personal shopping data with them.
3. Does your superior algorithm create a moat?
For any interesting problem, you can get like 80-90% of the quality while spending 1% of the programmer-hours as the best of class. So if you're best of class, does your extra quality buy you anything, or is 80% as good as you good enough for most customers? Eg, can your potential acquirers just halfass something and get all the value you provide for a fraction of the cost, or do they need your extra years of experience to compete?
We will go ahead, eat ramen, and pursuit this, and its a HW product. Wish us luck.
The best use case for such technology is a B2C fashion app targeting 16-36 women with an extremely well-designed UX, that doesn't force to signup or enter any payment details.
Look at the Fashion Finder by Daily Mail, and how it was successfully monetized via affiliate networks.
I could easily see such an app being acquired by one of the latest unicorn fashion startups, such as TheRealReal, Poshmark, thredUP, or Vinted.
Products are about as much as deciding what part of your solution you're building that lines up with what the market is ready to actually do and growing from there incrementally.
A neat example of this I read about was how the iPad was designed for many years before the iPhone came out, but the iPhone in a way was a starter/training device for a larger touch computing experience.
 system to automatically match an item in an image, against its equivalent in a database with ecommerce links to purchase that same product.
The guy of blogger had to fire pretty much everyone, and it was on bay still running, and everyone angry at the former employer. A few months pass and Blogger took off.
Also would have preferred a browser extension and website for the reverse image searching.
We don't share stories of people who believed so hard, and then ended homeless and broke.
xkcd touches on the subject too ( https://xkcd.com/1827/ ), as they tend to do regardless of the topic.
What would be neat is if this system could automatically mine the taste graph from historical photographs pulled from social networks and the like, without effort on the user's part. (For example, everything you've uploaded to common social networks, or everything in your phone - if you choose to provide them)
I don’t mean to tear it down, but the idea as it stands apparently isn’t a business.
You must change the product if you still want to achieve market fit somehow.
I've heard of Basque, off of Northern Spain. Also isn't there a bit of France involved?
Good luck for the future.
> as a startup we need to create value and this method has proven successful in the past
This means nothing to me. You did something I'm not a fan of in the past (patenting software) so that makes it okay to do now?
> we’ve never thought of using patents against others
It doesn't matter that you've never "thought of using patents against others". Things change. And the way that business is going it seems inevitable that these patents are going to end up in the hands of patent trolls. Patent trolls don't usually come up with their own patents. They buy companies that aren't doing well just for the patents.
> And now, our number one driver for building IP: companies sometimes need leverage to negotiate or deal with the big tech players
I don't understand this one at all. What negotiations are you having where patents help?