There is nothing foolish about all of this. The developer saw an opportunity based on the platform's free access, and built a business on it. Wise decision. Then the platform is no longer free, so the original business case no longer exists, and they decide to shut down. Another wise decision.
They gave too much away for free in order to get a large user base. They needed a large number of users to impress VC's and get the next tranche of money. Then the investors apply pressure to keep the growth going which means they have to keep the freebies flowing. Now your on a treadmill that only ends in selling out for a big exit. It worked, they sold to Facebook and the founders/investors made out nicely.
The alternative strategy would be to price more realistically and bootstrap up with positive cash flow. Of course, this takes longer and maybe someone else will capture most of the market by using the previous strategy.
A free service still comes with a cost, the cost is the risk that they could pull the plug because they don't have enough money or your just no important to them.
Hence they constantly needed more VC money and to keep the investors happy a sell out to a big company was the only viable exit.
This meant they were focused on selling the company as the exit strategy for making money. If instead they had higher prices and gave less away for free they would have been a viable standalone company and so had no need to sell out.
Think how many startups lose huge amounts of money for years and years. I just don't understand how a company could close when they had a reliable, well-done, popular, software product. I seem to recall they charged some reasonable amount for it - it wasn't free - which must have covered expenses and then some.
I think it's a fairly common pattern by now, startup gets bought out, and then shut down a few years later. There is probably strategic reasons for doing things like this.. Even if it does screw over the customers of the startup.
It is an interesting approach to developing services. The company did not survive though, found this in a blog:
> Jan 12, M3O was developed as a VC funded company. There is no longer a path to towards a sustainable outcome or further funding. For this reason we’re not able to support the platform any longer.
So as an investor, you'd prefer that the company you invested in continued offering a loss-making service until they went into bankruptcy? Rather than allowing them to just shut it down and concentrate on more sustainable business offerings?
That strikes me as the kind of investor a company wouldn't want.
Great, you bootstrapped a company, and they used those funds to grow. And in return all you got was a shared hosting account that's lasted about 8 years. You should have gone with the options - that's where the real money for investors comes from.
And VCs know the vast majority of startups fail. Some spectacularly fail or succeed, some run out of funds, some pivot, some change direction, and some just grow into sustainable businesses. This is one of the latter.
Blame both founders for their lack of vision - in not seeing shared-hosting as a dead-end business model, which was clearly evident round abou 2006. But don't blame the business for making the right decision to close down a non-performing service.
They raised at least 2.2M in funding. Then they got acquired. Now it's over. I do think it's time we stop pretending that you can build a fully-fledged company on top of a developer tool or plugin.
Lots of companies like this are going to be struggling in the next 2 years.
My point is that if they wanted to build their own company they should remain committed to the product they built, and find a better support model for current customers/users than shutting down without notice.
I do not begrudge them making money at all. But one reason that they have "millions of dollars worth of Google stock" is because they offered a service that people adopted and paid for. I think they have more of an obligation to customers and users than the initial announcement indicated and I worry that not taking better care of customers in the transition makes it hard for other startups.
I don't care who founded them, they've just announced that they're closing citing a lack of a viable business model.
That would seem to suggest that they might have thought about revenue a little earlier in the process and I have a feeling that with hindsight Mitch Kapor might agree.
Seeing how they raised nearly $10M in venture capital and sold for under $4M, it's safe to guess they sold because they were running out of money. The alternative was going out of business - that's a pretty hard landing.
All of those platforms were VC funded, and when the VCs demanded their 10x returns they in turn started to squeeze their users and the whole thing collapsed.
How does "as users lost money, they just dropped off." followed by "filed for bankruptcy", mean "Smart? Definitely yes."?
I guess they did make money for a while, so it's wasn't terrible, but having a business model that makes your customers leave? I'll pass on calling that 'Smart'.
Fundraising might have fell through at last moment. Some major customer/partnership might've pulled the deal at the last moment. This all happens at startup level cashflow is tight. And all the investors thought there is no way this business with make sense based on the data they might have had on their hands. So they pulled the plug
If anything this suggests the opposite. They showed initial promise, raised seed funding, tried to grow, couldn't, so they gracefully wound down before they wasted any more investor money and employee time. This is exactly how things should work in a healthy economy.
Was my first thought to, no real explanation of why they are shutting down either. If something is a low friction consumer app, it is expected that many will evolve and pivot.
With something like a business tool though I want something that is going to be around for the long term and it would be a factor on further products she creates.
From experience I know a startup is hard and things don't always go to plan so I can sympathise there, just that when choosing tools for business stability is a factor.
Mostly I think it was that the market moved and they didn't have the capital to make the leap. Combined with a not-so-great product/market fit to begin with, this is fatal for a capital-intensive startup.
This is a very myopic startup view of the world. In both cases the customer is left behind.
Refresh.io: "We’ve decided that as of today we’ll no longer accept new users, and the Refresh app will be shut down on April 15"
Nebula: "It is with an extremely heavy heart that we announce that today, April 1, 2015, Nebula is ceasing operations."
On both cases there is no "expect great things from us!" message for the customers. Are you a Nebula or Refresh.io customer? Sorry, not anymore. You paid something? Awww, sorry.
You depended on Nebula? Too bad, their management team cannot plan a day ahead and warn customers that it's running low on resources and will close in the near future. A 1-day notice is what you get. A 3-month notice would be much better but I guess that wouldn't play well with their possible buyers (they would lose all their leverage in the negotiations).
You depended on Refresh.io? Too bad, got a few days to find a replacement. Their management team did not have the decency to keep the service up a bit longer.
Both situations are game overs. I don't understand what you mean with "A customer might understand the second case, while it'll definitely hold a grudge for the first one.". So a company is stupid enough to decide a day ago that it cannot keep running anymore and the customer might understand that? Like "oh darn! sorry for you guys.. don't worry about the money I already spent.. take some time off, you deserve it! what a cruel world".
There is no difference. In both cases the customer is screwed. If the founders got money or not does not matter a single bit (unless that, in case Refresh.io case, you didn't care much in the first place and can _hope_ that LinkedIn will, who knows, offer something similar).
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