Open to ideas or acquisitions

Failure is an unavoidable aspect of life, yet many recoil at the word.

I've worked on unrelated startup projects. This is a list of products I developed (often as the tech lead or co-founder) and why they failed to launch.

Chess Bet (Betting)

As a chess player who plays 5 games a day and has an ELO rating of 2100, I tried to design a chess engine to rival stockfish and Houdini.

While constructing my chess engine, my cofounder asked me about building a p2p chess betting app. Chess Bet. There couldn't be a better time.

Two people in different locations could play a staked game. The winner got 90% of the bet and we got 10%. The business strategy was clear, but our mini-launch was unusual.

People started employing the same cheat engines I mentioned, causing user churn and defaming our product.

It was the first programming problem I couldn't solve after building a cheat detection system based on player move strengths and prior games. Chess.com, the most famous online chess software, still suffers from this.

We decided to pivot because we needed an expensive betting license.

We relaunched as Chess MVP after deciding to focus on chess learning. A platform for teachers to create chess puzzles and teach content. Several chess students used our product, but the target market was too tiny.

We chose to quit rather than persevere or pivot.

BodaCare (Insure Tech)

‘BodaBoda’ in Swahili means Motorcycle. My Dad approached me in 2019 (when I was working for a health tech business) about establishing an Insurtech/fintech solution for motorbike riders to pay for insurance using SNPL.

We teamed up with an underwriter to market motorcycle insurance. Once they had enough premiums, they'd get an insurance sticker in the mail. We made it better by splitting the cover in two, making it more reasonable for motorcyclists struggling with lump-sum premiums.

Lack of capital and changing customer behavior forced us to close, with 100 motorcyclists paying 0.5 USD every day. Our unit econ didn't make sense, and CAC and retention capital only dug us deeper.

Circle (Social Networking)

Having learned from both product failures, I began to understand what worked and what didn't. While reading through Instagram, an idea struck me.

Suppose social media weren't virtual.

Imagine meeting someone on your way home. Like-minded person

People were excited about social occasions after covid restrictions were eased. Anything to escape. I just built a university student-popular experiences startup. Again, there couldn't be a better time.

I started the Android app. I launched it on Google Beta and oh my! 200 people joined in two days.

It works by signaling if people are in a given place and allowing users to IM in hopes of meeting up in near real-time. Playstore couldn't deploy the app despite its success in beta for unknown reasons. I appealed unsuccessfully.

My infrastructure quickly lost users because I lacked funding.

In conclusion

This essay contains many failures, some of which might have been avoided and others not, but they were crucial learning points in my startup path.

If you liked any idea, I have the source code on Github.

Happy reading until then!

5 VC investment criteria

I reviewed 200 startup business concepts last week. Brainache.

The enterprises sold various goods and services. The concepts were achingly similar: give us money, we'll produce a product, then get more to expand. No different from daily plans and pitches.

Most of those 200 plans sounded plausible. But 10% looked venture-worthy. 90% of startups need alternatives to venture finance.

With the success of VC-backed businesses and the growth of venture funds, a common misperception is that investors would fund any decent company idea. Finding investors that believe in the firm and founders is the key to funding.

Incorrect. Venture capital needs investing in certain enterprises. If your startup doesn't match the model, as most early-stage startups don't, you can revise your business plan or locate another source of capital.

Before spending six months pitching angels and VCs, make sure your startup fits these criteria.

Likely to generate $100 million in sales

First, I check the income predictions in a pitch deck. If it doesn't display $100M, don't bother.

The math doesn't work for venture financing in smaller businesses.

Say a fund invests $1 million in a startup valued at $5 million that is later acquired for $20 million. That's a win everyone should celebrate. Most VCs don't care.

Consider a $100M fund. The fund must reach $360M in 7 years with a 20% return. Only 20-30 investments are possible. 90% of the investments will fail, hence the 23 winners must return $100M-$200M apiece. $15M isn't worth the work.

Angel investors and tiny funds use the same ideas as venture funds, but their smaller scale affects the calculations. If a company can support its growth through exit on less than $2M in angel financing, it must have $25M in revenues before large companies will consider acquiring it.

Aiming for Hypergrowth

A startup's size isn't enough. It must expand fast.

Developing a great business takes time. Complex technology must be constructed and tested, a nationwide expansion must be built, or production procedures must go from lab to pilot to factories. These can be enormous, world-changing corporations, but venture investment is difficult.

The normal 10-year venture fund life. Investments are made during first 3–4 years.. 610 years pass between investment and fund dissolution. Funds need their investments to exit within 5 years, 7 at the most, therefore add a safety margin.

Longer exit times reduce ROI. A 2-fold return in a year is excellent. Loss at 2x in 7 years.

Lastly, VCs must prove success to raise their next capital. The 2nd fund is raised from 1st fund portfolio increases. Third fund is raised using 1st fund's cash return. Fund managers must raise new money quickly to keep their jobs.

Branding or technology that is protected

No big firm will buy a startup at a high price if they can produce a competing product for less. Their development teams, consumer base, and sales and marketing channels are large. Who needs you?

Patents, specialist knowledge, or brand name are the only answers. The acquirer buys this, not the thing.

I've heard of several promising startups. It's not a decent investment if there's no exit strategy.

A company that installs EV charging stations in apartments and shopping areas is an example. It's profitable, repeatable, and big. A terrific company. Not a startup.

This building company's operations aren't secret. No technology to protect, no special information competitors can't figure out, no go-to brand name. Despite the immense possibilities, a large construction company would be better off starting their own.

Most venture businesses build products, not services. Services can be profitable but hard to safeguard.

Probable purchase at high multiple

Once a software business proves its value, acquiring it is easy. Pharma and medtech firms have given up on their own research and instead acquire startups after regulatory permission. Many startups, especially in specialized areas, have this weakness.

That doesn't mean any lucrative $25M-plus business won't be acquired. In many businesses, the venture model requires a high exit premium.

A startup invents a new glue. 3M, BASF, Henkel, and others may buy them. Adding more adhesive to their catalogs won't boost commerce. They won't compete to buy the business. They'll only buy a startup at a profitable price. The acquisition price represents a moderate EBITDA multiple.

The company's $100M revenue presumably yields $10m in profits (assuming they’ve reached profitability at all). A $30M-$50M transaction is likely. Not terrible, but not what venture investors want after investing $25M to create a plant and develop the business.

Private equity buys profitable companies for a moderate profit multiple. It's a good exit for entrepreneurs, but not for investors seeking 10x or more what PE firms pay. If a startup offers private equity as an exit, the conversation is over.

Constructed for purchase

The startup wants a high-multiple exit. Unless the company targets $1B in revenue and does an IPO, exit means acquisition.

If they're constructing the business for acquisition or themselves, founders must decide.

If you want an indefinitely-running business, I applaud you. We need more long-term founders. Most successful organizations are founded around consumer demands, not venture capital's urge to grow fast and exit. Not venture funding.

if you don't match the venture model, what to do

VC funds moonshots. The 10% that succeed are extraordinary. Not every firm is a rocketship, and launching the wrong startup into space, even with money, will explode.

But just because your startup won't make $100M in 5 years doesn't mean it's a bad business. Most successful companies don't follow this model. It's not venture capital-friendly.

Although venture capital gets the most attention due to a few spectacular triumphs (and disasters), it's not the only or even most typical option to fund a firm.

Other ways to support your startup:

• Personal and family resources, such as credit cards, second mortgages, and lines of credit

• bootstrapping off of sales

• government funding and honors

• Private equity & project financing

• collaborating with a big business

• Including a business partner

Before pitching angels and VCs, be sure your startup qualifies. If so, include them in your pitch.

Know why it's important.

The entrepreneur I was meeting with said, "I should be doing crypto, or maybe AI? Aren't those the hot spots? I should look there for a startup idea.”

I shook my head. Yes, they're exciting, but that doesn't mean they're best for you and your business.

“There are different types of entrepreneurs?” he asked.

I said "obviously." Two types, actually. Knowing what type of entrepreneur you are helps you build the right startup.

The two types of businesspeople

The best way for me to describe the two types of entrepreneurs is to start by telling you exactly the kinds of entrepreneurial opportunities I never get excited about: future opportunities.

In the early 1990s, my older brother showed me the World Wide Web and urged me to use it. Unimpressed, I returned to my Super Nintendo.

My roommate tried to get me to join Facebook as a senior in college. I remember thinking, This is dumb. Who'll use it?

In 2011, my best friend tried to convince me to buy bitcoin and I laughed.

Heck, a couple of years ago I had to buy a new car, and I never even considered buying something that didn’t require fossilized dinosaur bones.

I'm no visionary. I don't anticipate the future. I focus on the present.

This tendency makes me a problem-solving entrepreneur. I identify entrepreneurial opportunities by spotting flaws and/or inefficiencies in the world and devising solutions.

There are other ways to find business opportunities. Visionary entrepreneurs also exist. I don't mean visionary in the hyperbolic sense that implies world-changing impact. I mean visionary as an entrepreneur who identifies future technological shifts that will change how people work and live and create new markets.

Problem-solving and visionary entrepreneurs are equally good. But the two approaches to building companies are very different. Knowing the type of entrepreneur you are will help you build a startup that fits your worldview.

What is the distinction?

Let's use some simple hypotheticals to compare problem-solving and visionary entrepreneurship.

Imagine a city office building without nearby restaurants. Those office workers love to eat. Sometimes they'd rather eat out than pack a lunch. As an entrepreneur, you can solve the lack of nearby restaurants. You'd open a restaurant near that office, say a pizza parlor, and get customers because you solved the lack of nearby restaurants. Problem-solving entrepreneurship.

Imagine a new office building in a developing area with no residents or workers. In this scenario, a large office building is coming. The workers will need to eat then. As a visionary entrepreneur, you're excited about the new market and decide to open a pizzeria near the construction to meet demand.

Both possibilities involve the same product. You opened a pizzeria. How you launched that pizza restaurant and what will affect its success are different.

Why is the distinction important?

Let's say you opened a pizzeria near an office. You'll probably get customers. Because people are nearby and demand isn't being met, someone from a nearby building will stop in within the first few days of your pizzeria's grand opening. This makes solving the problem relatively risk-free. You'll get customers unless you're a fool.

The market you're targeting existed before you entered it, so you're not guaranteed success. This means people in that market solved the lack of nearby restaurants. Those office workers are used to bringing their own lunches. Why should your restaurant change their habits? Even when they eat out, they're used to traveling far. They've likely developed pizza preferences.

To be successful with your problem-solving startup, you must convince consumers to change their behavior, which is difficult.

Unlike opening a pizza restaurant near a construction site. Once the building opens, workers won't have many preferences or standardized food-getting practices. Your pizza restaurant can become the incumbent quickly. You'll be the first restaurant in the area, so you'll gain a devoted following that makes your food a routine.

Great, right? It's easier than changing people's behavior. The benefit comes with a risk. Opening a pizza restaurant near a construction site increases future risk. What if builders run out of money? No one moves in? What if the building's occupants are the National Association of Pizza Haters? Then you've opened a pizza restaurant next to pizza haters.

Which kind of businessperson are you?

This isn't to say one type of entrepreneur is better than another. Each type of entrepreneurship requires different skills.

As my simple examples show, a problem-solving entrepreneur must operate in markets with established behaviors and habits. To be successful, you must be able to teach a market a new way of doing things.

Conversely, the challenge of being a visionary entrepreneur is that you have to be good at predicting the future and getting in front of that future before other people.

Both are difficult in different ways. So, smart entrepreneurs don't just chase opportunities. Smart entrepreneurs pursue opportunities that match their skill sets.