This week, a Quora thread asked about business ideas that sounded great and seemed to have everything going for them, but which for some reason ended up failing once people tried to make them happen.
At other times the opposite has happened, as with the “Pet Rock“, an astonishingly absurd idea that turned out to be a surprise hit with buyers.
Robert Maynard, the creator of DotSAFE, decided to tell his story and share some of the lessons he learned after an unexpected failure: he thought he was building a very profitable business, when in fact it ended up wiping out all his capital.
(Read: The 20 best new business ideas for 2015)
“When the internet arrived, I saw the story of a girl who made a friend online who turned out to be a paedophile and a murderer. I had the skills, the team and the money to build a business that would protect young people from the dangers lurking on the web.
So I decided to create a service to protect children and give parents peace of mind that their kids were safer. Everyone thought it was a great idea.
But before writing a single line of code or hiring a single person, I decided to run focus groups in five cities to see whether users would really welcome my business idea.
(Read: 15 questions to evaluate a business idea)
We found acceptance and interest in 100% of the people we met. How could I lose with that business? So I decided to put the team together and invest the capital needed to make my idea happen. Luckily, the money was all mine.
Once we had the product, we went to market in a big way. We pitched it to the major store chains. Then we went to Toys “R” Us, and they thought it was a great idea. They told us they needed 500,000 kits to meet the demand they expected across their national network.
These kits cost around 4 dollars each, so given the success we were expecting, we decided to invest heavily in infrastructure, to the tune of roughly 2 million dollars.
In the end, the total investment in the idea came to 5 million. To my surprise, when the kits reached the stores, we sold exactly… 39, nationwide.
It was a failure on a grand scale.
Parents say they will do anything to protect their children, but when you inconvenience them too (DotSAFE wouldn’t let them browse porn sites either), or when it comes to spending money on their 7- to 17-year-olds, they get a little stingy.
Even the very people who had wanted a piece of my company stopped taking my calls when I ran into trouble.
(Read: How to validate your business idea in under 5 minutes with a pen and a napkin)
Lessons I learned
1. Don’t make strategic decisions based on focus groups. You can test advertising concepts, but not business concepts. In the end, what counts is the fundamentals, market acceptance and reality.
2. Don’t invest more money than you can afford to lose. You can’t afford to lose 85% of your net worth, as I did.
3. Take the money when it’s offered. You never know when the market is going to turn.
4. Don’t go all in. With a product, run small market tests before betting everything on the idea. Five million may not be much money in the business world, but for me it was a lot to lose.”
In the end, DotSAFE caught 13 predators in its first week of being installed, so you could say the product was good. But in 2001, when it first came to market, Robert Maynard was left reeling and bankrupt, and his company was worth practically nothing.
Further reading
Featured image: Laura Northrup, CC BY 2.0, via Flickr.
