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Nearing Bankruptcy, Fruugo Burned Through €40 Million to Generate €100K (arcticstartup.com)
90 points by vilpponen 732 days ago | comments


zeemonkee 732 days ago | link

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

See here for example:

http://www.arcticstartup.com/2011/03/03/making-growth-entrep...

http://www.arcticstartup.com/2012/04/03/the-best-april-fools...

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

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

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hammock 732 days ago | link

Every time I see something like this, I wonder- who made out with that money? Forget the commentary about why the startup idea was bust, why the website UX sucks, etc. Who made out like a bandit with $40MM in return for nothing? Whoever that is, this was a GREAT deal from their point of view.

P.S. Not surprising that government involvement plays a part in this. Sounds akin to Solyndra et al. here in the states.

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bergie 732 days ago | link

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

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

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zeemonkee 732 days ago | link

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

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bergie 732 days ago | link

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

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Roritharr 732 days ago | link

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

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mikk0j 732 days ago | link

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

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

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

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chris_wot 732 days ago | link

I'd suggest that you were very, very lucky that you didn't continue with the company. There is nothing more soul destroying than to try to fight your case in an organization of people who believe they know better than you do, even when it's clear they are running the organization into the ground.

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

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chris_wot 732 days ago | link

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

I have a list of issues:

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

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

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

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

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

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

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

http://www.fruugo.lu;jsessionid=jghldhzrqq2mbw0vvnwo.webshop...

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

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

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philjackson 732 days ago | link

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

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miahi 732 days ago | link

They hired extremely expensive top management instead.

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chris_wot 732 days ago | link

They saved some more - I give my criticism entirely for free :-)

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rwmj 732 days ago | link

The way you and the article describe it, it sounds a bit like the boo.com fiasco:

http://en.wikipedia.org/wiki/Boo.com

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dalke 732 days ago | link

Some other usability observations: the hover menu system on the left has what http://uxmovement.com/navigation/why-hover-menus-do-users-mo... calls a 'hover tunnel.' "Hover tunnels are passages that users have to tunnel their mouse through to click a menu item." The Mac did this correctly in the 1980s.

I thought that the massive image in the center was be like a shelf, where you could see things they were promoting, and click on them. But if you click on an item you get an entire category (which was entirely missing for one thing I clicked on), and have to search again for the thing which caught your eye.

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chris_wot 732 days ago | link

Oh dear... in other words, not optimized for tablets. I looked at this on my iPad, and when I pressed the menu, it expanded it, but then immediately navigated to that page.

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chris_wot 732 days ago | link

Oh, hold on a second. If you try to join on the US website, they are using a fruugo.com site certificate, but the domain I'm navigating in is fruugo.us

https://www.fruugo.us/auth/register.htm

Gives me a nice big Firefox webpage telling me that I'm viewing an untrusted connection.

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marquis 732 days ago | link

Oh, it gets better: try searching for something in the top part of the nav then play hide and seek with the auto-complete items. Classically bad JS. Maybe it's for IE only?

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isani 732 days ago | link

When browsing product categories, the page title says "Search results for ''". For €40 million, you could check for empty strings.

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chris_wot 732 days ago | link

There's some weird HTML in the page...

  <script type="text/html" id="template_pulseItem">
	<![CDATA[

  <$
	var textTranslations = {
  .
  etc.
  .
Any idea what this is?

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patrickgzill 732 days ago | link

CDATA means XML, most likely. See http://www.w3schools.com/xml/xml_cdata.asp

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chris_wot 732 days ago | link

Actually, that is also used in SGML. Doesn't make any sense for it to be there! Certainly there's no XML that I can see being processed in the page.

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mahmud 732 days ago | link

uninterpreted templating script?

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StCroix 732 days ago | link

This site looks like it's made for 2002 interwebs at best

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garethsprice 732 days ago | link

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

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

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sireat 732 days ago | link

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

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fookyong 732 days ago | link

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

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

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mdda 732 days ago | link

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

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isani 732 days ago | link

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

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

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

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garethsprice 732 days ago | link

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

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

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

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

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swombat 732 days ago | link

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

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

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

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exDM69 732 days ago | link

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

I think they already did this. Three times.

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swombat 732 days ago | link

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

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loverobots 732 days ago | link

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

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swombat 732 days ago | link

Yeah, having "stores for every country" is almost exactly the opposite of what I'd call "exploring business models with a minimal team". So, in short, that is not what they've been doing.

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wpietri 732 days ago | link

First, find out if anybody has a problem that actually needs solving.

It sounds like they had a plausible hypothesis, that cross-border commerce is a pain for both vendors and consumers. But either the problem isn't a big one or fruugo doesn't actually solve it.

If the hypothesis is still solid, then I'd start iterating on both the vendor and consumer side to find something that does solve their problems.

If the hypothesis is false, it's worth looking to see what assets there are to see if there's another hypothesis within range. But at this point the brightest staff are probably gone, they don't seem to have much in the way of vendor relationships, the platform sounds shoddy and anyway has a lot of assumptions baked in. So if there are no real assets, then I'd put it out of its misery, but encourage the staff to pitch current investors to get seed money for follow-on startups.

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hef19898 732 days ago | link

Try to get the product offerings straight, eject all contries I don't currently need, repair the homepage, check my legal obligations regarding negative equity.

After all, the market they are in doesn't seam to ba a bad one, and high-level connections almost never hurt (maybe here they do, who knows...). But without the right products and what you could sum up as good user experience it won't work.

I'm just not sure if it's possible to make enough money to offset almost 40 mio in losses...

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[deleted]
vilpponen 732 days ago | link

I like to run ArcticStartup as neutral/transparent as possible. People are able to find out my relation to TenFarms from my LinkedIn page anyhow.

In the end, writing about news that are favorable to me aren't necessarily favorable to the startup industry in general.

Integrity builds trust and traction.

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kogir 732 days ago | link

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

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raganwald 732 days ago | link

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

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mikk0j 732 days ago | link

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

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jvandenbroeck 732 days ago | link

Their website is a disaster; I wrote a post describing how bad it is imo http://www.jvandenbroeck.com/2012/04/fruugo-how-to-make-an-e...

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

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brudgers 732 days ago | link

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

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

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

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

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microtherion 732 days ago | link

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

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dasil003 732 days ago | link

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

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bergie 732 days ago | link

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

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hef19898 732 days ago | link

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

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JVIDEL 732 days ago | link

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

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

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andynosebone 732 days ago | link

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

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

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rjzzleep 732 days ago | link

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

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wpietri 732 days ago | link

Oh, that's an easy one to answer.

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

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golakers 732 days ago | link

Wow. This site looks like Quibids.

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

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sesqu 732 days ago | link

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

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chris_wot 732 days ago | link

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

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Draft_it_right 732 days ago | link

Forty million euros? That's complete insanity.

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

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