Entrepreneur

How my company failed in only three months (and still was a success)

Above: Sometimes entrepreneurs just can't jump the hurdle.

Earlier this year, I started a new business venture with a partner. We were going to solve a major problem, travel costs for small and medium-sized companies. After investing three months of our time and about $2,000, we decided to stop actively pursuing the opportunity. The reason? Several of our core assumptions turned out to be wrong.

If you can test the assumptions on which your business is based in the first six months of operation, then its been a successful period of time, even if it means deciding to close the business.

“Travel Carrots” was the name of our SME focused travel venture. It started based on a conversation that I had with a friend. He was a consultant in the IT industry and frequently traveled as a result. My friend was responsible for booking his own travel and often stayed in very expensive hotels. He wished that he could book a cheaper hotel and keep the savings. At the same time, he considered the expensive hotels as a perk of his job.

Our business was trying to solve the following problem: The interests of the business traveler (earning extra miles or points and staying at finer hotels) often conflict with the financial interests of their company. Travel Carrots was going to solve this problem by offering business travelers a reward (a carrot) for booking cheaper flights and hotels. Basically, Travel Carrots was going to give a benchmark price for flights and hotels. If the traveler booked under the benchmark, their company would share a portion of the savings with the employee.

While the idea made perfect sense to my business partner and I, we wanted to see if the idea would make sense to other business people. If you cannot explain your idea in less than two minutes, you’re probably going to have a tough time selling the idea. We made a short video about what our product did and showed the video to other small business people. This is when we discovered one of our most basic assumptions was flawed!

We assumed that managers and owners would be glad to share the savings on travel costs with their employees. Instead, we got the following responses:

- My employees should be looking out for my bottom line without me having to pay them to save money.
– I think my employees will game the system and this will end up costing instead of saving me money.
– I don’t want to encourage employees to take off-hour flights or stay at lower quality hotels, as it might impact their work performance.

Although the idea of sharing savings with employees was universally disliked, there seemed to be widespread interest in reducing travel spending. We simplified the idea. “Travel Carrots” would provide travel recommendations to employees. Employees would input the details of an upcoming trip and we would send them back specific hotel and flight recommendations based on their company’s travel policy.

Again, we went out to the market for feedback. At this point, we had actually worked out both the logistical process of providing the travel recommendations and our business model. We asked potential clients, “Would you be willing to try this product?” instead of “What do you think of this idea?” Also, we chose these potential clients with more scrutiny. We targeted executives that managed 10 to 30 employees that frequently traveled. While some of the companies agreed to try “Travel Carrots,” we generally got a tepid response.

The responses included:

- I don’t really have a problem with hotel costs. If its over ‘X’ dollar amount, we don’t reimburse.
– Travel Carrots doesn’t solve my biggest problem with airfare costs. I want something which will help employees book their flights earlier, so the company doesn’t have to pay last minute rates.
– I personally, or have an administrator, book all travel plans and pay for it on a company card. Your solution would mean having to create a more robust reimbursement process.

While the reasons that everyone gave for not liking the product varied, the key was nobody (in our core customer demographic) really liked the product in concept or practice. My partner and I had hoped that we would be able to provide a simple “thin” solution that would help companies save on travel. Given the amount of resources that we were willing to devote to the project and what we now understood the market to want, we decided not to move forward.

While we were disappointed with the result, we did not waste a tremendous amount of resources (time and money) to test our key assumptions. If a company can test its key assumptions in the first six months, then the management team has been successful. The truth is most companies will fail, even those with great managers. Being able to tell when a “great idea” does hold up is the first major test and success metric for an entrepreneur.

Marc Prosser is the cofounder of Marc Waring Ventures and the publisher of Fit Small Business and Learn Bonds. Formerly, he served as the Chief Marketing Officer of Forex Capital Markets (NYSE:FXCM).


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