"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.
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.
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.
I think they "lose" in that they'll be angry to see someone still making a living on the idea while they saw no returns. Or maybe they can't break free, and keeping it running would still mean just giving the profits to the investors for the next 100 years and it's easier to just close it all together?
But if you are making less than pennies on the dollar, was it ever a success anyway? Having users and traction is not success. Plenty of companies get both users and traction, all they have to do is tolerate negative profits...
I'm not sure it's that useful to compare a <10 person startup to the world's largest online retailer, with revenue increasing by leaps and bounds every quarter, a quarter-billion active customers, and approaching $100 billion a year in net annual sales.
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.
I'm guessing the OP is talking about the PAST of Amazon, not the present. They ran for many years at a huge loss in order to capture the online retailing market, and didn't provide any returns for many, many years. Arguably, it worked.
Amazon is somewhat of a different story; Amazon is enduring small profits by choice in a bid for the future, and investors feel like they see that future, that tremendous potential.
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.
Discussing Amazon's business model is always an interesting topic. The first time I heard about that Amazon made no profit was from the news telling that they had to increase the free shipping criteria to be $35 instead of $25. Basically, they cannot afford to keep the $25 promise, which may lose some customers foreseeably.
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 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.
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.
"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.
Not everyone wants a sustainable business. Some people just want to get acquired. This was even mentioned in a business class I had in the 90's.
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.
Good argument. It's a gambling instead of a business model. According to the traditional business practice, if you don't have a sales projection, you don't have a business. Tech world should not bet on the exceptions. Investment could cause bubbles. Whoever is the last gets caught.
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.
But a business model that depends on having enough users to support the business is a gamble as well. What's the difference between a company hoping for one more user before the end of the month and one more penny to keep them in business versus a company hoping for that buyout offer before the end of the month, that $300m that would pay off their investors and be enough to start the next business? I guess it's the difference between starting a business versus starting a company. But any business is a gamble at first.
"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."
You have two questions in argument if I understand you correctly.
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.
but alot of business value is on the cost side. being the low cost producer. alot of internet business are about finding a low cost substitute for an existing business usually with somekind of scale to it. Google computer index of billions of pages versus hand index. amazon listing milions of products, customer reviews versus retail stores and service reps. it's not hard to find a product/service sell it for cheaper. it's hard to find a product/service product it cheaper that the customer values as much as the original.
Good point. Now we are back to discuss about the valid business model. Making cost effective products and services is one of the value proposition for a new business. But Google and Amazon's contribution are not only to make the services cheaper, they also make the information available easier for online users to retrieve. This is a big step in our information era. Without them, we are still living in a slow and small world.
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.
I think it goes a bit beyond that. The way I understand the story, they shut down because it wasn't bringing the traction necessary to raise the next round. The company needed a VC-backed growth trajectory, which apparently was not happening.
This is right. It was clear we weren't going to be able to raise another round of financing, and even if we could, it was unclear how that would enable us to change the state of the things, namely that our business didn't represent a startup opportunity. Frankly if someone had offered me a term sheet, I wouldn't have accepted it.
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.
Hi - congrats on the openness about DrawQuest.
Did you consider building cloud based offering for DrawQuest that would allow consumers to save their drawings onlike and or share kids drawings with family members?
Or selling physical products like Paper did?
Imagine that all these 400k consumers were bringing just $1 of income (not profit) each. I suppose that operating the whole thing is significantly less than $400k a month. To sensibly kill a service that brings in a couple hundred thousand dollars of profit a month you must be a large corporation, not a startup.
$1 of income per unique visitor per month is much too high to be a good number to plan with. If your site doesn't have a natural commercial interest you're going to be selling adds at a rate that corresponds to maybe a $0.01-$1 CPM. If the average unique visitor views 50 pages a month that's just $0.0005-$0.05 in income per person.
Running a video service without even thinking of a distant possibility to make it an ad platform or a paid video-on-demand platform? I can hardly believe that.
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.
I hadn't heard of DrawQuest before today, but an idea I had while browsing the site is to add a marketplace module, possibly centered around crowd-sourced greeting cards. People can build/buy greeting cards using the creative work. The creative work that I saw on the site seems ideal for the format.
>without even thinking of a distant possibility to make it an ad platform or a paid
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.
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.
"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. :(
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.
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...
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.
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 :)
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.
I help run a site called Doodle Or Die (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.
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/).
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.
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) goggles for a second there.
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.
I commented in another thread about the "4chan users don't buy anything/aren't monetizable" problem, but while I used neither service, I don't think that 4chan users were a signficiant userbase of either Canvas or DrawQuest. Those services didn't really appeal to the average 4chan user at all. I think this was a deliberate decision to keep 4chan users from scaring the rest of the internet away, but I'm not sure it was the right one to make, because it's essentially throwing away the power of moot's name amongst a large and influential audience.
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.
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.
There's also a question of ego, greed and fear-of-failure here. I mean, I can imagine it being pretty damn hard to ignore the fact that you have a "Gain 100.000 Users Instantly" button(that being a tweet, blog post or whatever), right at your finger tips.
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.
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 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.
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.
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.
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...
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.
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.
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.
This has been said elsewhere, but outside of /b/, 4chan is quite a normal board. I don't read the whole thing, but in my experience, /fit and /diy are fairly civil and often work-safe. /v seems about as good as any video game nerd discussion can get, especially since Quentin and his Diamond Dogs have been rescuing everyone.
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.