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.
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.
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.
If the business shuts down everyone (founders and investors) loses.
If they now run it as a lifestyle business the founders win but the investors lose.
If I was an investor in that second case I would be deeply suspicious and possibly angry.
Bezos is choosing to reinvest $$$ in business rather than report it as profits. So far it's been a very wise choice.
Back on the topic at hand, I should add that it's sad to see this happen to DrawQuest, and it's very decent of Chris to post this for us to read.
The way they are playing it, IMO Amazon is still neither a success nor a failure. Their story is still being written, as they position themselves for whatever move they have been preparing for the last decade.
Of course, Amazon does a lot of good and successful things, such as running such a huge ecommerce website to fulfill and meet so many customers needs, helping online business to sell, keeping their executives rich and making their employees job secure, including the stock holders happy, etc. And they are also investing into the technology side of the business and expanding into the cloud technology in early years. But how successful is it for AWS?
All of these cannot avoid an issue that their business model was going a wrong direction for many years to reach today's stage and further. So the article below shows that they are going to change their direction and stopping the effort to replace or shorten the supply chain by offering all kinds of services which exhaust their resources and lose focusing:
Amazon’s Future Is Not in Selling Stuff — And That’s a Good Thing
It would be nice if some other mobile/gaming company bought the assets and kept it alive.
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.
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.
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.
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.
Did you make money? Yes. Did your investors get their return? Yes. Sounds like a successful exit to me. Every week I'm seeing an article about Google/Apple/Microsoft buying a small company that had no hope of being profitable on their own. Everyone defines success on their own terms.
The reality is: not every startup and business is qualified for making profit. They should pursue it diligently to merge to a model to have enough margins, but be prepared to fail. Therefore the founder will not be that sad.
"Starting a startup is so hard that it's a close call even for the ones that succeed. However high a startup may be flying now, it probably has a few leaves stuck in the landing gear from those trees it barely cleared at the end of the runway."
1) What's the difference between a business model based on having enough users vs. having buyout offer?
I don't differentiate a business from a company in that way. Business and company in the real world are pretty much the same thing. In the tech world, large number of users may bring a business into profitable stage because they have a huge pool of leads. Even if the conversion rate is low, there is still many chances to earn, especially due to the trust level. This model is similar to the traditional business.
High tech startups rely on the second way a lot because once they catch some investors, they made money no matter if the business is really profitable or not. That's why it's like gambling, you don't need to have a real business, as long as you make somebody believe you can make money, you win.
2) Is every business a gamble?
Not quite. The odds are a lot higher if you follow the typical business rules in the real world to provide true values to your customers. Now, a lot of people believe in that money can make money, so no real product is necessary. That's completely wrong. This belief puts everybody into gambling. At the end of the day, you will find that only the product/service values being realized can make money. So business is not gambling. We consumers are living on it everyday. If there is no product/service value but money trading, we will be running out of the fuel so quickly.
However we need to move further. People know that the web is messy. So we need to organize it to improve the efficiency finding relevant information. So quality should be over quantity. And instead of sorting out from the large amount of information from time to time, we need some way to keep the useful information and share it easily. This is the goal that I'm working on.
We didn't really have many options. We tried to build a business and failed. We could have tried to raise a bridge financing -- but what are we bridging to in that case? A financing (no), an exit (also not an option, as we found)?
Ultimately spinning things down into a skeleton state and doing our best to operate the service for the coming months (heck, maybe years) was the only path forward.
Re: the OP, I think 400k MAUs is actually pretty decent for a mobile app, but maybe I'm mistaken.
We make more than $1 per monthly active user and I know for a fact that our game monetises poorly when compared to the free to play games that monetize very well.
Running a centralized messaging service without ever thinking about selling aggregated data (e.g. sentiment analysis) or anonymized ad targeting data (e.g. based on keywords in recent tweets)? I can also hardly believe that.
I'd like to hear about a monetization model for DrawQuest, even as far-fetched as the ones I listed above — besides simply putting hard-to-target ads on the page.
The point is that distant possibility wasn't enough in this case. Of course everyone had a distant possibility in mind, 95% of the readers of this article already thought of a distant possibility of where the company could have made money eventually if it had kept growing.
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.
> 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.
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. :(
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.
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.
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.
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...
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.
I too took an interest in this thread because of involvment with a product that shares some similarities (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.
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) goggles for a second there.
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.
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 :)
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.
Are you sure? :)
the exception being fundamentally flawed business models
- let's sell bags of rocks over the internet to children!
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.
The real challenge would be coming up with a startup that could benefit from an early infusion of curious 4chan users without being "poisoned" by it. Probably one with less of a community focus, which is unfortunate for moot, since that seems to be what he likes working on the most.
The ability to easily seed any community-driven site is a godsend. Whether they can monetize them or not, it helps jumpstart the activity so they can then focus on bringing new, outside users that can then (hopefully) be monetized.
It solves one half of the chicken-egg problem.
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".
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.
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.
I have been very surprised to not see very many people taking up 4chan's self-serve advertising. The audience on 4chan is pretty clear: video gamers, lovers of Japanese culture, artists, trustafarians and paranoids. They spend money on games, computer equipment, plastic figurines, art supplies, costumes, body pillows, music, camping equipment, tools and knives.
I quit Facebook and pretty much only use Twitter now. It's a fantastic news source.
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.
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.
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...
It's like free money.
IMHO the second start-up bubble is about to pop.
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
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?
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.
Fuckin diet coke and fleshlights. Ice Nine.
And it's probably moot himself. Everyone knows he is the master troll.