Learning from my first startup’s failure, The Other Home
It was a very hard decision for me to quit my full-time job with a public enterprise and build my first startup — The Other Home. I still remember when I sent my resignation letter to my boss on 23 November 2010 and left my job on 18 December 2010. It felt a lot like skydiving without a safety net. One needs to trust his skills to either fly high or at least avoid a crash landing.
Before quitting my job, I worked on the idea for the company for eight months with my co-founder. The office was set up, and the MVP had been released. So, I jumped the plane and moved from A787 to a single-engine jet in the mid-air. The challenge was to keep afloat while learning how to fly. The Other Home managed to leave some mark in the industry, featuring over 2,500 amazing properties in India. We had 10 employees at the peak time of our entrepreneurial journey. After our unsuccessful purchase discussion with HomeAway (VRBO), we decided to pull down the shutter in December 2014 to move forward.
Key learnings:
Greg Anderson said that “Focus on the journey, not the destination. Joy is found not in finishing an activity but in doing it.” I can say that it was an experience I won’t soon forget. Although the start-up was a failure, it was a valuable learning experience for everyone involved. For two reasons, I’m sharing these lessons with you: First, failures aren’t beneficial unless you learn something from them. Second, remember that every setback serves as a springboard for greater achievement in the future.
Some of the key lessons learned from my failure are listed below.
- Side hustles are not permitted in the realm of entrepreneurship
The first or biggest mistake was that none of the co-founders was full-time in the venture from day one. I did not have a full-time job but was working on a side project to generate some cash flow to invest in the venture, as well as, meeting basic expenditures. We were in a strange position since we had one foot in and one foot out. I used to spend around 2–3 hours a day in the office, giving directions to staff before leaving out. In a strange irony, our employees worked for the company while we worked to pay their wages.
My life mentor served as my co-founder, which was a huge blessing. However, when I look back at my journey, I feel that the co-founder agreement is very critical to the company’s success. It is important to decide how much time and money you’re putting into the project. Don’t shy away to have unpleasant conversations in the beginning and create a RACI (Responsible, Accountable, Consulted, Informed) Matrix.
2. Preparation and evaluation of a financial strategy are crucial
Even though it was my first venture, I made certain that we had a solid business strategy and financial model in place from the beginning. The first priority of the business is to make sound assumptions and maintain a healthy cash flow. Many entrepreneurs failed to get their research and assumptions right.
There were two lessons here for us to take away. One is that we had a financial plan but never follow through on them or check in on them if we were on track. If the business failed to achieve milestones, what were the key reasons? Did we spend enough on marketing as projected? Second, we never made large capital investments; instead, we just kept adding funds to cover our monthly expenses. As a result of never having a healthy financial account, we were obliged to keep our goals modest. Between 2010 and 2014, we put roughly $100,000 into the company’s stock but it never made any impact. The entrepreneur should put capital in bulk and have at least a 6–12 months plan.
3. Technology is the key to business success
The Other Home’s core objective was to revolutionize the booking system for homestay and vacation rental properties in India. The company aimed to build a platform to facilitate easier booking management for both owners and guests. In short, The Other Home was a travel tech startup with a human-centric approach. However, we did the big mistake of relying on part-time developers to keep the cost low. We went through three different developers since no one produced decent work.
We were confident to build a technology platform by hiring outsourced manpower. Ideally, we should have looked for a third co-founder with a technology or product development background or hired an agency to build our platform. The key lesson here is to assess the skill gap in your core team and try to onboard someone who can bring those core skills.
4. The importance of timing cannot be overstated
Accordingly to CB Insights, the single biggest reason for startup failure is “No Market Need”. To put it another way, I believe that The Other Home was an excellent idea placed in the wrong location at the wrong time. We were a little early in the market as people were not used to these new concepts. We were so fascinated with our concept that we didn’t spend any time soliciting input from potential customers. The Other Home was trying to build a new category in India at that time. We underestimated the efforts and resources required to create a new category. Further, the Indian economy registered a major shift after 2014 as millennials and Gen Z took the driving seat.
At the end of 2014, we decided to close the doors of our company. In 2015, Airbnb began growing into India, and the country has since become one of the company’s most important markets.
5. Business is a team not a family
This was a colossal blunder on our part at the time. I now realize how critical it is to assemble the ideal group. It was important for us to stay humble while establishing our business, so we didn’t fire anyone who didn’t perform well, and we gave them complete control over their job with limited accountability, We hired a team of junior resources without a supervisor. As a result, the company suffered a significant setback. One of our employees was involved in some fraudulent transactions and the other failed to deliver promised services to the guest.
One thing I’m pleased of is that we were considerate to the people who worked for us, giving them at least three months’ notice before we shut down. The majority of our former employees are now employed in high-paying jobs. Tobias Lütke’s comment, “Shopify is a team, not a family,” really struck me. Successful teams are made up of just the most talented individuals.
6. Build MOAT around your core idea
As a founder, it is very important to stay focused on your core idea and build a moat. We launched 5 new verticals (or new ideas) with the main business, believing they will contribute to the main idea. In reality, they diverted our attention and proved the recipe for the disaster.
- Properties Management — Platform to manage owners properties on lease
- The Other Home Properties — Platform to buy and sell vacation rental properties in India
- Live and Learn — Helping international students to do internships with a local organization
- Offbeat Destinations India — Promoting some of the offbeat destinations in India
- Digital Marketing platform — Starting offering SEO and SMO services to external clients
The important lesson is that one should stay focused on one core idea. You can pivot but can not add new layers to the main business in the initial years.
7. Create an advisory board to receive input
As part of our efforts, we tried to form an advisory board and devised a comprehensive strategy for contacting influential individuals and soliciting their input. Two C-level executives with enormous expertise and knowledge joined our team. However, we were so preoccupied with developing the product that we never cared to approach these individuals and ask for their advice. We should have onboarded someone from travel space to give us the right direction. This is an important lesson for building business. Your advisors can play a key role in the success of your venture so go out and form a board of advisors.
7. Early fund-raising is essential
We decided to bootstrap rather than seek outside funding in the first stages of our business. In part, it’s because we approached a few angels and VCs and received a negative answer. It was also not a pressing issue for us in the first 1–2 years. However, we overlooked the fact that starting a business is difficult, especially if you’re trying to establish a new category from scratch.
After the third year, the creek dried up, and we were left with a catch-and-release situation. We were neither in the pre-revenue stage nor in the early growth stage. Now, I realized that we were in the valley of death and stuck in a vicious cycle. To keep things moving, it’s critical to raise the funds from internal and external sources. Further, the investors not only bring the required liquidity but also knowledge, network, and experience. If you are building a venture, then plan your fundraising appropriately.
8. Keep your acquirer interest warm
We were excited when we received an email from Sr. VP from HomeAway Inc. (Now VRBO) to meet us at the beginning of 2013. I was very confident that we would get the required expansion funding and association with a big brand. Our struggle of the last 4 years will not go in vain. The following factors, on the other hand, proved to be our death knell.:
- To save money, we reduced and eventually eliminated all of our major expenses in the areas of products, marketing, and content. We are relieved to be so close to external funding that we no longer have to put up any of our own money.
- I just learned how critical it is to maintain a warm level of interest in and involvement with a huge corporation. Large corporations have their own agendas, therefore it was up to us to make sure the transaction was done. We failed to keep the relationship warm as we did not know how to manage that relationship. HomeAway executives invited us to visit their US office and meet the global team. However, because we were on a tight budget, we lacked the confidence to spend money on a trip.
- HomeAway provided us with a questionnaire as part of the due diligence process. To save money, we performed everything ourselves without the assistance of consulting or law firms. We sent a word document rather than presenting the facts in a professional manner.
9. Burnout is real
The road to entrepreneurship is a lonely one. You failed to find support in your own inner circle and feel isolated. I had a similar experience during my startup journey. When I build my first startup, the ecosystem was very small in India. There was no support for the entrepreneurs.
It is critical to create or join a network of other entrepreneurs or individuals who share your goals and objectives. It’s critical to discuss your struggles with others and get input in order to overcome some of the obstacles.
10. Don’t go crazy and wipe out everything
While closing down the venture, one should be careful to see what can be assets and what are liabilities. The Other Home platform was not a big success but our travel blog was very popular. We spent lots of money to build the content and hired some of the best writers. Somehow, I lost the motivation to keep it alive. Maybe I was upset and wanted to close that chapter. However, I feel that was not the right decision and the blog could have been a self-sustaining proposition. The biggest lesson is that try to collect good items even from the burnt house.
My experience with The Other Home was relived thanks to this post. I am hoping that what I’ve learned will be useful to other entrepreneurs who want to make the world a better place.
Please feel free to reach out if you are facing any challenge in your entrepreneurial journey…
