January 28, 2009

Farewell Ferrit

How do you feel about the demise of Ferrit?

In the days immediately following the announcement there was a lot written about this, and a number of reasons suggested for where they went wrong.

The tone of many of these posts and tweets, as Dylan pointed out, seemed to delight in their failure, which is unfortunate.

To be fair many of the people commenting had previously pointed out faults in both the site itself and the approach those running it had taken in trying to build an audience. So, I suppose, when the plug was pulled perhaps that was a vindication of sorts?

One thing that got very little coverage was the size of the challenge.

What they were attempting to do is extremely difficult. There are not many examples of this sort of venture turning out successfully, here or anywhere. If they had pulled it off it would have been remarkable.

So, why do you think they failed?

Here are some popular reasons to choose from:

And, of course, some that are even more fundamental:

So, here’s an interesting question:

Let’s say they had instead done all of these things right - i.e. spent nothing, launched quietly and iterated quickly based on customer feedback, relied entirely on word of mouth and focussed relentlessly on usability, carefully crafted an authentic and likeable reputation…all the time thinking small, just like a good startup, plus somehow finding a way to provide some sort of value to customers without screwing their suppliers and leaving enough for themselves in the middle.

Would that have been enough?

Would they have then been successful?

Maybe not.

Build it and they won’t necessarily come, no matter how good you think it is and how much you try and tell them about it.

Looking at a high profile failure, and thinking that you just need to do to the opposite to be successful can be quite misleading.

If you will, let me try and make the same point from the complete opposite direction:

Trade Me, for example

I meet a lot of people who see Trade Me as a role model for their own ventures.

I struggle with this a little, for a number of reasons.

Firstly, the success that Trade Me has achieved was not nearly as premeditated as people assume.

As Paul Graham says in his essay about wealth:

There is a large random factor in the success of any company. So the guys you end up reading about in the papers are the ones who are very smart, totally dedicated, and win the lottery.

That’s true.

The “win the lottery” part of that equation is not widely acknowledged.

Very few column inches are dedicated to all of the other companies started around the same time as Trade Me by people who were just as smart and dedicated, but who didn’t have things fall their way.

Secondly, evidence would suggest that few people were able to imagine, let alone predict, the success that was ahead.

During 2000 and 2001, Trade Me was not yet at break-even and was quickly running out of cash. A lot of time was spent chasing potential investors. Nobody was interested.

Thank goodness - or things could have worked out quite differently.

Necessity is the mother of invention: we didn’t spend much on advertising because we never had much to spend, we were a small team because there was no other option, and we were pretty much forced to start charging success fees (a model which ultimately proved to be massively lucrative), probably sooner than we would have otherwise chosen to, just to stay alive.

Looking back, and knowing the outcome, it’s easy to identify those things that sign-posted what was to come. This is what Nassim Nicholas Taleb calls “retrospective determinism” in The Black Swan.

But at the time, looking forward, the phenomenal growth which was literally just around the corner was actually far from obvious.

Which surely begs the question: how good is our collective judgement, when we look at early-stage ventures today and try to determine whether they will be successful or not?

This is especially interesting given that many of those who cashed out when Trade Me was sold, myself included, are now involved in funding early-stage businesses, and trying to pick new winners (is there any evidence that we’re better at it than anybody else?)

Last, but definitely not least, the the environment has changed.

It’s not 1999 any more, Dr. Ropata. Nor 2008 for that matter.

The things we did right back then are not necessarily the things you’d need to do today, even in exactly the same situation.

Trade Me was, and is, an exception.

Yes, we made the most of the opportunity, but let’s not discount the impact of being in the right place at the right time and a not insignificant dollop of luck.

The next Trade Me (almost by definition) will be an exception too, but probably won’t look anything like Trade Me did or does.

Looking at a high profile success and thinking that you just need to do the same to be successful can be quite misleading.