3 Part Series On Startup Failure: Part 2, Execution



2008: The Markets Collapse, An Opportunity Emerges

In the Fall of 2008, I was sitting in Berlin, glued to the BBC TV station, watching hourly reports of the NYSE dropping at record levels. This was the unraveling of the US financial system that eventually spread like a malignant cancer throughout the global financial community. It was surreal.

During this time, my soon-to-be-cofounder of our second business together was working at a commercial real estate consulting firm in San Francisco. Their firm was booming by taking advantage of California Proposition 13, which enabled owners to calculate property tax based on current market value. This was especially useful during the post-2008 financial meltdown, as many people had purchased homes at the peak of the real estate bubble pre-2008, and were paying property tax on a higher value than they should have been.

For example, if I had bought a house in early 2008 for $700k, I was probably paying about $7k per year (1% of value) in property tax. But in 2009, when real estate went south, my property dropped in value to $500k, meaning I was paying an excess of $2k for property tax. Prop 13 gave me the right to file for a property value re-assessment to current market value, and correspondingly adjust my annual property tax to $5k.

tax reduction

Automating A Manual Process

Re-assessing property values was usually done by consultants who would charge large fees (upwards of thousands of dollars). We figured out a way to automate the process using Zillow API’s and publicly available county forms. An online turnkey solution would pull comparable values from Zillow, walk you through the form, and provide you all the documents needed for the appeal process in PDF format to send into your local county office. The entire package would cost about $50 and save you many multiples more. It was a home run idea in a high-demand market, all it needed was a robust website.

Too Little Planning, Too Much Outsourcing

We basically knew what we needed on the website, and had to develop a first prototype to get in front of customers and test it out. Neither of us was able to setup a dynamic website pulling data from Zillow, so we had to hire a third party. Our budget was limited and we found an outsourced solution in India to complete the project. They spec’d out the project, provided exactly what we asked for on paper, and we agreed on milestone payments in 4 parts.

At the first checkpoint, we had basic functionality. At the second checkpoint, we made further progress in terms of function and some aesthetics. At checkpoints 3 & 4 we started to recognize our cultural differences and extreme level of micromanagement needed to create a logical UX and decent UI. We lost our patience and instead of staying focused, working together with the dev team to complete our vision, we grew frustrated and lashed out at the project manager for being incompetent. We grew increasingly frustrated with the entire situation and felt that we had come too far to turn back. We also realized our contract was setup in a way that we had to complete all 4 payments in order to take ownership of the code. We thought we could take what they had done and hire a freelancer to polish it off. Unfortunately, once we did this and showed the code base to other developers, they explained that the entire project would be better off scrapped and started from scratch as the code base was a total mismatch with our goals.

Three months and thousands of dollars later, we were out of budget and time. Competitors started to pop up and we lost our window. Our golden opportunity had passed us by. It’s still frustrating to think about it today; we definitely learned our lesson the hard way.

Four Lessons Learned

  1. Whether you’re hiring a marketeer or a programmer, make sure his/ her skills match the job requirements, which also means you need to know (or have access to someone who knows) about that subject.
  2. Map out the user experience as much as possible before submitting anything to code. Use power point or any other means to walk through the entire process, show it to friends and strangers, and make sure it makes sense. It’s your job to understand your customer’s needs.
  3. Stay focused on your end goal, especially at the hardest of times. It’s easy to get things done when they’re going well, but it’s critical to stay focused when everything seems to be going wrong.
  4. Allocate a realistic budget, and then set aside another 50% as a rainy day fund. You don’t want to get halfway through you development, only to realize you under-budgeted and won’t be able to deliver the best possible product.

Thanks for reading. In the next and final installment in this 3-part series, I’ll review a business that had a proven business model but failed at the most crucial step, validation. You can also access the first part on Focus here.