Top Tips: Learning From Your Startup Failures – Part 3, Validation

By Silicon Allee |

This is the last in a three-part series by Parham Mirshahpanah looking at startup failures (read part one here and part two here). Parham lived in Berlin for nearly eight years before moving back to Silicon Valley early this year to work on a new startup. In this chapter, he talks about his Berlin startup, and why it didn’t work out. You can follow Parham on Twitter.

Cultural Differences Spawn Opportunity

In the summer of 2007, I had the opportunity to move to Berlin with a large company. Relocation was part of the package, which meant helping me with visa and work permit issues, finding housing, and even getting started with the language. Moving was a very pleasant experience, and my new home felt as comfortable as the one I had left in California.

Fast forward a couple of years and I could fill out a book with the cultural differences that make Germany a very different place to the US. I previously wrote about the three ways Americans can learn from Germans, but in that article I didn’t mention that I actually launched a business around a major cultural difference between the two: if you can pay someone to make your life easier in the US, there’s a demand for that service. In Germany on the other hand, it almost felt like the cultural norm was to do things the hard way, just because there was an outdated rule that said that’s how it should be done and any deviation from that outdated rule would be treason.

That is probably not a totally fair assessment, but it’s how I, and many other foreigners, felt with regard to certain aspects of German life. If interested, you can read a bit more on how to be German in this hilarious blog post by a Briton in Germany.

Customer Service For All

With this background, in the winter of 2012 I decided I needed a change in my professional life and wanted to draw upon my years of international management, MBA, and cultural experience to launch a bilingual personal assistant service to make life easier in Germany. I imagined a comfortable blanket service that would serve as a buffer between foreigners and the often confusing circumstances of everyday life in Germany. The first version of Ask Geoffrey was born.

The business concept was simple: customers could email in their tasks, questions, or problems, and a local bilingual assistant would help them resolve it. Each request was limited to 15 minutes of assistant help; bigger requests would need to be broken down into separate tasks. The service would be provided on a subscription basis (X amount per month for Y number of requests).

Collecting Interest

I tried to be smart about the business, following the validation approach of gauging demand before fully launching the service. So I setup a simple landing page through Launchrock, and started telling friends about the service, tweeting links to signup, and posting on Facebook. The list of submitted emails started to grow. So I decided to open up shop for the first small batch of users and start processing requests myself. It worked, and people liked it. They in turn referred more people and the email list grew to a few hundred.

Running Lean

At this point, I decided that this system would only grow if I figured out an efficient way to contract local assistants, train them, and get them running in the system. (The ‘system’ was a cleverly hacked-together system of emails and off-the-shelf customer service software). So I did exactly that: prepared job postings, interview procedures and training material. Before long I had two freelancers in the system answering ad-hoc requests and getting paid for each one.

Turnaround time on requests was really important, and the freelancers were not always immediately available. So I thought it would be wise to increase the number of freelancers in the system to increase the chance that one would be quickly available to answer new requests. I assumed the incentive of getting paid per request would encourage them to be first to answer.

Users – Yes; Customers – No

Over the course of about five months, users (free users, careful distinction from paying customers) steadily grew to over 200, with more than 100 of them active on a monthly basis. The system was working OK for the most part, with occasional screw ups on requests, or extended delays in response times. In July 2013, I introduced the pricing model:

  • €25 per month for five requests
  • €45 per month for ten requests
  • €85 per month for 20 requests

Of the 200+ registered users, no more than five signed up over the first two weeks. BURN. I decided it would be a good idea to offer discounts, so I dropped the rates by about 20 percent. I got a few more signups, but nothing near 200.

At the same time, I was in discussions with some newfound friends in Tel Aviv who loved the idea and wanted to try it out there. We spent a good amount of time mapping out the strategy and translating the website. In the end, it never happened. Sidetrack and distraction.

Meanwhile, back in Berlin, I thought the lack of interest was due to a lack of publicity. So I went to work trying to spread the word – through personal and extended networks. I even managed to get a few articles (in German and English) written about the service in blogs or local tech news. It barely moved the needle.

At this stage I had poured a few thousand euros into the website (nice design matters for B2C products), payments to agents, and admin fees for setting up a legal entity. But the actual (revenue) numbers were nowhere near the estimates in the financial plan I had so carefully crafted.

Pivoting from B2C to B2B

Around Q4 2013, I shifted gears to reposition the service as a perk for employees that businesses could offer, because I finally learned that B2C is a very challenging model and B2B was a potentially far better model for this service, in-line with my original subscription model. Furthermore, we had a couple of power users for business purposes and paid for by their companies, and these were the best customers in terms of accountable revenue as well as being low maintenance.

By the end of 2013, it was clear that the service would need more investment and time to reposition as a B2B service and it came down to personal belief in the service. And while I loved building the business, I had to admit that I was not personally fulfilled with what I was building. It went from trying to fill the void in customer service culture in Germany, to taking care of largely trivial tasks for the international elite. Perhaps the future may have been bright, but in order to pull myself through the rough patches, I would have needed the burning belief that this service was truly solving a far-reaching problem. And I had to be honest with myself that I didn’t believe it anymore. I shut down in January 2014, transitioned customers to an alternative service, closed the Berlin chapter of my life and moved back to California in February 2014.

Five Lessons Learned

Lack of validation: I thought I was validating the business, but I wasn’t really because validation includes the service/product at a given price; free users are obviously different than paying customers, but I was too caught up in the idea to realise this.

Not addressing or framing a problem: We offered the service as a convenience to individuals who didn’t necessarily need it, or didn’t have the perception that they needed it. This links back to validation, where we should have done a far better job at identifying the real burning pain that we could have solved and focused on that key topic.

Wrong market: My network was in the startup scene in Berlin, which is vibrant, but not necessarily well-financed. And having positioned the service as a convenience, most were quick to categorise it as a nice-to-have instead of a must-have problem solver. Again, we should have found the most urgent pain we could solve and focused on that market.

Lack of focus: We tried to solve too many problems for too many people. While that was our eventual goal, our service offering was too broad and general so people didn’t make an immediate connection between pain and solution. We should have focused on singled out pains, established a loyal base, gained credibility, then expanded to other pain points we could address well.

Complexity: At one point, we had ten simultaneously contracted agents. This happened with the customer in mind and ensuring certain responses were provided within two hours max. Instead, it had the opposite effect where agents were demotivated as it meant a lower chance of a significant earning for the month. For example, instead of paying €20 to ten agents, we should have concentrated €200 on one agent.

So What?

Writing this three-part series was a great exercise in reflection. We tend to get caught up in the fast-moving environment of our work and life, and it really helps to pause and take a step back once in a while. As much as I hope I don’t get caught in the same mistakes and failures that I’ve written about, I’m sure I’ll relapse to old behaviors once in a while, but I also hope I’ll catch myself in time to correct course.

The one mistake I’m clear about now is to pursue an idea I care about. As many have said before, startups and the entrepreneurial lifestyle are an emotional roller coaster; there’s no challenge in staying the course when everything is (or at least most things are) going well, but the real test of your perseverance is when everything seems to be going wrong – what will keep you motivated then? Most likely a strong support system of friends and family, and your own conviction that what you’re doing is worth the (temporary) pain.

Since moving back to California, Parham has started working on the first marketplace for medical writing.

Photo: David Knight