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Cornershop's post-mortem – pauljmorris

Cornershop’s post-mortem

I recently lodged our official company closure forms to the Australian Securities Commission (ASIC). This is a formality the Australian Government requires all companies that are winding up their affairs to carry out. It’s never a good day when one fills out these forms but I’m not one to mope about.

In this essay, it’s my intention to share some of the things that went well vs things I’d perhaps do differently next time around. If you’re a budding entrepreneur yourself, hopefully this advice will give you some valuable insights.

Background

Like all startups, Cornershop started out with the very best of intentions. We were determined to disrupt the Point of Sales (POS) industry.

In short, POS systems were – and still are – a significant capital expense for most retailers. We saw an opportunity to turn the POS solution from a cost centre to a profit centre. We wanted POS systems to help merchants make money in addition to their core purpose of streamlining operations.

We would do this by offering the following:

  • Making the lives of patrons easier by enabling them to purchase pre-paid credit so they don’t have to carry cash or heavy pockets of coins.
  • Enabling patrons to pre-order their coffees or snacks allowing them to jump the queue and save time.
  • Allowing patrons to make recommendations to friends and be rewarded accordingly.

These first three points focussed on adding value to the patron and the idea was to encourage patrons to download the merchants’ app. Once patrons were actively engaged with the app and deriving value from it, we would be able to help merchants:

  • Learn the habits and behaviours of customers and offer tailored and competitive promotions helping merchants to increase revenue and reward those patrons who actively promoted the merchant.
  • Handle payments processing and settlement allowing merchants to save on expensive Bank merchant facilities.
  • Better manage their cashflow as a result of our unique business model allowing merchants to pay-by-the-month. In CFO speak, it’s moving a traditional CAPEX cost to an OPEX one which allows merchants to free up more capital to spend elsewhere.
  • Become setup and operational in minutes vs days or even weeks. Merchants would download the Cornershop POS app to a tablet device and be operational almost immediately vs. outlaying a wad of cash upfront for expensive hardware, software (plus add-on modules), licenses, setup / installation and staff training which often takes weeks to get sorted.

We felt very strongly the timing was just right in late 2011 / early 2012. We would refer to the following factors as “the perfect storm”:

  • Technology costs were low: Powerful tablets and alternative payment processing services had emerged over recent years at a price point significantly less than traditional POS technology and Bank merchant facility costs.
  • Patrons were still “disconnected”: Even though end-customers had smartphones, POS vendors weren’t taken advantage of new & improved ways to engage the customer in the POS experience.
  • Industry fragmentation: Merchants deal with one organisation for the POS sale, another organisation for support and yet another for payment processing.
  • Outdated business models: Most POS systems are sold outright (few vendors lease) making it expensive for new merchants to acquire the technology or existing merchants to upgrade.
  • Merchant payment processing costs were unnecessarily eating into merchants’ margins: We were going to establish ourselves as the payment processor (on behalf of the merchant with the Bank) which would end up in lower transaction costs for merchants. Even further out on the horizon was Bitcoin which we had started to explore and consider very seriously.

Now that you have an idea of the problems we were solving and the opportunity we saw, with the benefit of hindsight, let’s take a look at those things I felt we did very well vs those things I would do differently in the future.

What we did well

Vision
It was bold. It was unique. It was crystal clear. As a result, we were passionate, excited and engaged. Most folks we spoke with were excited too. It wasn’t difficult to get buy-in and people would willingly support our crusade.

Strategy and knowing when to pivot
Our strategy was to add value to patrons first, get them engaged, keep them happy and then demonstrate to merchants that it was something people wanted. From here we could sell the benefits to merchants (i.e. it would help you make money, you’d know your customers better, it was easier to administer etc).

In the very beginning, we started out wanting to create a market place – whereby all merchants would feature alongside one another under the Cornershop umbrella. Customers would download one app (coincidentally named Cornershop) and see all the deals and special offers from their favourite merchants and the merchants around them.

We learnt from our MVP that merchants prefer their own app. They’re reluctant to promote an app that features their competitors. They wanted customers to be exploring everything about their own brands. This led us to explore the idea of white-labelling our platform. What this means is that we’d use the same underlying technology and allow merchants the ability to apply their own visual identity to the entire app. This was our first (and only) pivot.

It’s difficult to come to terms with having to “scrap” work and almost start again in some respects after so much hard work has gone in to the first incarnation but this is crucial for the success of a startup. I believe we handled the decision and the plan of action around pivoting quite well.

Execution
On-time, on-budget, great MVP, great UX, great code. Overall, fantastic quality result. We always delivered. No issues on that front.

Internal operations
Our systems and processes were second to none. They were fast and easily accessible across any device we chose to use. We used best of breed issue tracking software, project management and source control / environment management tools among others. We adopted the agile methodology and ran weekly sprints to keep us focussed on shipping and not getting carried away with talking about what we should be doing.

MVP was a success
We chose just the right amount of functionality to take to the market which would determine whether our concept had legs. We had contacts with a busy coffee shop in Sydney’s inner west – who were generously willing to test a new product idea – and we worked closely with them on all technology and non-technology related issues as they arose.

Considering we’d gleaned the insight on why merchants would prefer a white-label solution over a marketplace and given that we had a patron activation rate of 50% and a retention rate of 20% with overwhelming positive feedback from both patron users and our merchant, we considered the MVP a success. It provided the market validation we needed and gave us the platform to move forward.

What I learnt

These are my key learnings combined with some tips for those of you working on a startup or about to embark on one.

Don’t register a company until post-MVP
You don’t need a company structure while you’re firming up your product/market fit. It’s unnecessary, expensive and a distraction. Like me initially, you may think this advice is misguided. How do I secure my company name and/or associated trademarks? How do I define a partnership agreement that has any weight? How do I enter into agreements with other companies? You can accomplish all/most of these things with contracts or by just going ahead and registering the necessary trademarks. Once you’re ready to accept payments, then you might want to consider registering a corporate entity – most certainly for tax purposes otherwise, you’re much better off just focussing on the product/market fit.

Vest ownership
Now I want to preface this section by saying that I had no issues whatsoever with my co-founder. We were extremely lucky in that regard. But that isn’t always the case between co-founders and the reality of this world is that things change, relationships especially, particularly when the stakes are high and there’s much to gain or lose.

Fortunately for co-founders there’s an option known as vested ownership. This means that founders effectively “earn” their shares over a scheduled period of time. The company is able to buy-back the shares at the time a founders involvement ceases (usually at a lower price). This effectively means that if one of the co-founders leave, don’t turn in their equity and the company goes on an earns squillions, that partner won’t be entitled to the riches. And that’s only fair given he probably didn’t do much since leaving.

Cultivate an audience / interested user base while building the product
We made the mistake of diving head first in to building the product. Sure, we spoke to users and had them test concepts and prototypes but one major element was missing the day we launched: an eagerly awaiting user community willing, ready and able to use our MVP.

As a result, launch day was particularly quiet for us; crickets were really all you could hear. You ideally want to have a user base primed and keen for your product. This takes a lot of work and dedication but it’s well worth it. The alternative is what we had to do: scram like mad to generate interest. We paid for marketing, explored the creation of short videos, setup social media accounts and considered (Godforbid) “traditional” advertising in magazines. Even the thought of this gives me chills. The issue here is that this was all very rushed and very much “cart before the horse” – marketing should be anything but.

Bootstrap – invest your savings, reinvest profits
This is not going to apply to all startups by any means but if you can bootstrap by investing your own savings and growing the business by reinvesting profits, you’ll be enormously better off, especially in the long-run.

When you’re chasing investment, you’re distracted by investor meetings and pitches instead of building the best world-class product (or service) you can and optimising for maximum traction (or interest if you’re a service-based business). The other issue you’ll have to contend with if you’re successful at securing investment is surrendering control. It’s not much different from having a boss, except that the stakes are higher. If you feel you need “experts” to help guide you or hold you accountable, consider an advisory board. Handpick the best mentors in the industry and work with them instead.

We fell into this trap (more a bad decision on my part than anything else). We spent an inordinate amount of precious time chasing and meeting investors.

Both parties should be full-time OR oversee the project and pay contractors
In our case, one of us worked on the company full-time after quitting his job, the other worked after-hours while keeping his full-time job (mainly due to financial commitments). This worked fine for a while but became very difficult after some months. Full-time work is very demanding and can obstruct the startup schedule. Working on company time is also not very feasible – it’s equivalent to stealing. If living off savings isn’t an option, then paying developers, designers and others to help you while you continue to earn a regular paycheck is much better than trying to burn the candles at both ends (in the case of working on your startup while keeping your full-time job) or risking “everything” (in the case of quitting your fill-time job to work on the business.)

Momentum
If I had to describe in one word what brought us down it would be momentum. This can creep up on you without you even being aware. When you first notice meetings are becoming less frequent, decisions are taking longer to make or that picking up where you left off becomes harder you’re well and truly in the midst of losing momentum. The only thing you can do is attempt to restore motivation. Reignite the inspiration and get back to the core of why you’re doing what you’re doing. Definitely easier said than done but inaction will cost you your startup.

Conclusion

So there it is. Cornershop’s post mortem – 2 years of my life in approximately 2,000 words. Have I learnt plenty? You bet. Would I do it all over again? Highly likely. I recommend everyone try their hand at a startup at least once in their careers. I hope the lessons I’ve shared help you on your journey. Go for it.