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The 20+1 Takeaways I’ve Learned From My Failed Startup

We have just announced in a Forbes interview that Brickflow, our startup, had to be closed down because we could not raise the next round of $1m. We faced the fact that this venture was among the 9 out of 10 that fail. On the other hand building it was the best investment of my life. During these two and a half years I have made friends for life but more importantly went through a pretty steep learning curve. Here are the takeaways.

1. Theory vs. practice

We have read all the important books, watched all the recommended videos and got great mentor feedback. However, it took us a good year to learn how to execute on the theory. Practice is above theory, so try instead of reading.

2. Experience

It is surprising that, as juniors with no relevant experience, we made it so far. This says a lot about the importance of courage.

3. Talent

I do not believe in that anymore. You can learn whatever you want, just do not hesitate to jump into greater and greater challenges all the time. Ideas do not matter, if you do not build them.

4. Team

Now we are building a new business with the same team, which is growing faster than Brickflow ever did. (Yes, a typically non-scalable business can grow faster than a potentially scalable one if you have the right setting.) Instead of spending half a year in cafés, meeting random people to establish a team, we already have a proven bunch of great people. This proves that the team is the biggest asset of an early stage startup. Now I understand why investors invest in people instead of ideas.

On the other hand, we should have hired more experienced people. A co-founder or early stage partner becomes your life partner for the venture, so pick wisely. It is hard to execute on the “hire slow, fire fast” approach, but do not forget how poisoning the wrong people can be.

5. Governance

We had no clear decision making processes and governance structure. A startup is unstable enough in terms of product market fit, so do not make your own life harder through a weak governance structure. Our new venture, Lab.Coop’s first hire (also partner) was an organization developer and now we are implementing holacracy to have an iterative, teal and purpose driven organization with motivated partners.

6. Marketing, targeting, product focus

Until the last few months we always had several products and target groups at the same time. Obviously, this was a mistake, as did not have one properly working product for too long. This resulted in wasted time and decreased our chance to reach product-market fit. You need to have a single target and validate an MVP on that market. If needed, iterate. This made the content-discovery iteration work.

7. MVP vs. vision

We mixed these up several times until the last iteration. It is key to have long term vision, but your first steps, the MVP might have little to do with that. By having a simple first product for a niche market you do not lose the big picture.

8. Product development

The biggest step forward was when we finally started to make decisions based on hard data instead of fighting with each other in front of a whiteboard. Looking back, we started to validate our assumptions in the second year of the company.

9. Public and corporate funding

Startup Chile was life saving and helped us a lot; it is an exception. On the other hand we wasted months by waiting for a potential Hungarian public grant. This was a huge mistake, along with counting on getting paid after being accepted to a startup program of Microsoft. I’m not sure if governments or corporations are more dangerous for startups.

10. Growth vs. cash-flow business

Brickflow was a consumer facing, growth business. As such had a hard time raising funds in Europe due cultural and financial differences compared to the US. European consumer trends are led by the US market, but European VCs take less risk, so the US is the home of consumer facing growth businesses. Next time, with this location and funding environment, I’d focus on a cash-flow startup.

To cut ourselves some slack, this time we founded not even a cash-flow, but a non-scaleable consulting service business, Lab.Coop.

11. Location

Because of #10, we made the mistake of putting too much energy into the European market and fundraising. When we raised the first round or at least after the launch of the content-discovery iteration, I should have moved to the USA. We wasted lots of time by talking to the wrong potential investors and business partners.

12. Timing

When starting-out the social media market was still up and coming, way before its peak or saturation. Two years later, at the time of raising the second round, the early stage social media companies were not sexy anymore. Follow the trends and make sure you execute before it’s too late.

13. Speed

If you look at Q3-Q4 2014 (see timeline below), you can see a very clear path, potentially leading to success. Well, for all the above reasons it came too late and we ran out of money. The same growth could have been reached within one year after the kick-off. Of course, being slow impacted timing too. Learn and iterate as fast as possible!

14. Capital

In case of a growth business fundraising is a must, but the time when you are in need of capital and the right momentum for making it rarely collide. Because monetization is possible at later stages (once you have millions of users), you rely too much on funding, which is even harder in Europe. You have better chances to raise money when there is momentum for your business, than when you are in desperate need.

15. Investors

As people, our investors are lovely and open minded. On the other hand they never really ran a startup and did not have domain knowledge in our specific industry. You need investors who have more experience than you, otherwise they cannot help you.

16. Transparency

We have always been very transparent within the team. It was worth the effort and I’d never do it differently. This is true regarding financials, strategy and also technology. For example I’m not tech savvy, nor is my partner a business person, so we rely on each other, and transparency to each-other is key. Our employees stayed loyal and motivated even after salary cuts, and decided to join our next venture after Brickflow.

17. Learning curve

Most of our previous decisions seemed to be wrong within 3 months. This shows how much we learned. Challenge yourself every day to keep the learning curve steep enough to enjoy the journey.

18. Motivation

Learning was the team’s greatest energizer: the only way to keep growth mindset people motivated.

19. Ownership

The team never pushed it as hard as the founders. Partly this is why Lab.Coop is an employee owned corporation. Today, I see partners around me, instead of employees, and are able to hire partners who would have never joined Brickflow.

20. Startup bullshit

Huge growth, Silicon Valley, startupper-is-the-new-rockstar-dream had been sold to us by those who have never been there. (Yes, the young European startup scene is full of opinion leaders, VCs and founders, who have no relevant first hand experience.) Learning things the hard way will help us build much more solid ventures in the future instead of focusing on events, articles or ideas without any direct added value. It is cool to ‘pitch all the time’, but never lose focus on your users.

+1. I’ve learned a lot about myself too
  • I’m not a lonely wolf, but a team player,
  • Single focus is the only way I can properly function, and
  • Being an entrepreneur is what absorbs me and makes me happy.

This end is a new beginning: with Tamas Kokeny, my co-founder we have decided to launch a new business together. We have been able to convince almost the whole core team (7/8) to stick together and now we are investing all this learning into Lab.Coop. It was an amazing ride, thanks for all the supporters!

Annex: Detailed Timeline
Date: 2010-2011
Story: Two friends aimed to make an associative brick movie. Ernő sent a few second sound piece (a brick) to Mihály, who reflected with an overlapping but longer video piece, and so on. This is where the name, Brickflow originates. 
Product: Collaborative multimedia editor to handle such a workflow. Wordpress based, Facebook sharing.
Target: Artists
Users: 0
Team: Mihály Borbély and Ernő Zoltán Rubik, a filmmaker and a musician kicked it off as a hobby project beside work.
Date: Q4 2011
Story: With me coming on board, the focus starts to shift towards social media and user generated content. This showed the clear difference between ideas of the two founders. A tool for artists vs. a tool for mass consumers.
Product: We researched the possibility to build a zoom interface (ZUI).
Target: Hard core social media users
Users: 0
Team: I’ve joined the team remotely from Paris. Only a hobby project beside work.
Date: Q1-Q2 2012
Story: Beside work, the team tries to build a prototype, but we could not deliver in part time. We pitched Kitchen Budapest, but got rejected due to the lack of a prototype. This was the key trigger to start working in full time.
Product: First ZUI demo of the multimedia editor.
Target: Hard core social media users, media professionals
Users: 0
Team: After 6 months of intense search, Tamás Kökény (Eggdice) joins the project as technical co-founder. Only a hobby project beside work.

Date: Q3 2012
Story: This was the real beginning! Mihály, Tamás and I decide to dedicate the summer to Brickflow. We moved into the apartment of my grandmother in Budapest, Hungary, borrowed a laptop (as the only developer didn't have one), asked for the WiFi code of the neighbor and started to build. The goal of the summer was to complete a prototype and to conduct a crowdfunding campaign. True #startuplife.
Product: ZUI multimedia content editor, using social media APIs. We had a basic demo, but not a functioning app.
Team: Beside the 3 core members, Ernő was still around, but started to slowly move away from the project.
Funding: $10,000 on Indiegogo from FFF, but no real reach of target audience.
Date: Q4 2012
Story: The focus is get into an accelerator to learn and get some money. Pitch, pitch, pitch! The team needs to handle huge personal and financial pressure as the project did not seem to get further. After 3 months we made it into Startup Wise Guys and Startup Chile.
Product: Just before the accelerator we decided to create a video-like output for the editor.
Team: Tamás works for Prezi, while Mihály and I focus on Brickflow.
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Date: Q1 2013
Story: Estonia, Tallinn: Startup Wise Guys. We went there to learn. About 80 in-person mentor meetings, cool vertical networking. It was like a school, which we needed very much. However, beside learning there was no room to build or sell. The first angel, Hardi Kampus decided to invest.
Product: We started to rebuild everything from scratch. We wanted to launch by the end of the program, but could not release by the demo day.
Target: Mentors convinced us for a while to become B2B, so we moved towards agencies and edu-tech.
Team: Tamás, Mihály and I moved to Tallinn and worked on Brickflow full time. We made our first hires ever: a developer and a designer.
Funding: €15,000
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Date: Q2-Q3 2013
Story: Santiago, Chile: Startup Chile. This is a big startup program that provides a huge horizontal network of fellow early stage startuppers. We had time to execute. We made business connections and friends for life. Three other angels decided to join our seed-round: Steve Taylor, Andras Reti and Tobias Hegel. We still needed a lead investor by autumn.
Product: At last the social media storytelling tool was launched in August. Mainly B2C, but also targeted event organizers.
Target: B2C again, using the buzz around Vine and Instagram Video. Any social media savvy, in any segment. No detailed metrics, as we were weak on measuring.
Users: Gained about 10k users in the first two months.
Team: The designer was replaced with an outsourced team, UX Studio.
Funding: $40,000
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Date: Q4 2013
Story: Back to Budapest to participate in iCatapult’s training program, and we convinced them to invest. In October we signed the term sheet and vent to NYC with Imre Hild. By the end of the year we realized that we do not have a product market fit, so we had to iterate.
Users: User growth slowed down.
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Date: Q1-Q2 2014
Story: In January 2014 the investment agreement was signed. We got the resources to try new product approaches. This was the first time when we made data driven decisions, which sped us up and eliminated lots of tension within the founding team. Explaining all the iteration and the pivot to the board was not easy.
Product: As the social media storytelling narrative was too complex for consumers, and we wanted to stick to that market, we needed to find a much simpler case. We changed for a clearer usecase: visual content discovery. Based on the users’ previous activity, we provided them relevant content to consume and to feed their Tumblr blogs.
Target: US teenagers, who have visual blogs. As first niche market, we only targeted Tumblr users. 
Users: Basically no new users in this period.
Team: First, we have hired a marketer, later on two junior developers and a financial / admin professional. Except the financial person, we failed to hire more experienced people than us.
Funding: €240.000 for a one year roadmap
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Date: Q3 2014
Story: We set up proper lean and agile product discovery and delivery process, which increased our output speed and quality. Weekly sprints with
  • qualitative tests: A/B, copy, fake buttons, targeting;
  • quantitative tests: UX tests, interviews;
  • new releases.
Product: The Tumblr focused web app worked and we launched on iOS too.
Users: Weekly 10+% growth, 10-20% weekly retention.
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Date: Q4 2014
Story: Even though the user acquisition and product development had never gone better, we were under huge time pressure to raise the second round of funding by December. I’ve started fundraising in Europe in September, once we have seen the hockey stick. In short: it didn’t go well, we have only convinced one German angel.
Product: We tested out monetization, but an agency pilot would have required 1m+ users.
Users: Ongoing growth until we ran out of money.
Team: The founders had strong issues with working together. Mihály, the original founder, decided to leave for good.
Date: Q1 2015
Story: To keep our biggest asset, the team, we had to stop working on Brickflow and started to work for clients. It was not hard to sell our services on such a seller’s market. I was the only one, who continued with Brickflow and tried to close the open investor leads. As time passed our chance to raise the round decreased to zero. Moreover, as our lead investor was out of money, there was no chance for a follow-up investment. Also the fact that the CEO left our VC, was not a good sign for our prospect investors.
Users: No more new users, increasing churn.
Team: Everybody stayed around, which was a pretty good feeling.
Date: Q2 2015
Story: Even though we survived and kept the team together, we realized that Brickflow is over. We had no chance to reboot. Our investors were understanding. We decided to go public with the story.
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Date: Every Since
Story: A product startup failed. With Tamas we decided to continue to work together and came up with the concept of a service company. Lab.Coop is an end-to-end product agency with inhouse UX, UI, marketing, data and software professionals. Co-ownership and holacracy enables us to bring experienced and entrepreneurial partners on board on a market that is in shortage of IT talents. We target foreign startups, as we know their problems and culture well. At the moment we make €55.000 / month.
Team: From the 8 core, inhouse team members 7 decided to stick together and kick-off a new venture. Just in 5 months we have doubled the team.
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