34% of startups fail due to lack of product-market fit. Learn how to avoid it for only $15!
A big resource for entrepreneurs and startup owners, in which we have collected and analyzed why +100 big companies have failed. Learn from mistakes, and avoid being part of the 90% of businesses that fail.
On-demand shipping startup
The world of on-demand startups has been a lucrative one since the founding and subsequent rise of Uber a decade ago. Shyp wanted to do exactly that with an on-demand shipping service in mind. More precisely, Shyp wanted to provide a service that would allow you to take a photo of whatever you want to be shipped, and then upon uploading it on the accompanying mobile app, have a courier pick it up and deliver it to the company headquarters where employees would then box the item using their own high-end custom-packaging and ship it via a FedEx, UPS, or other similar delivery services.
Started in the summer of 2013, Shyp had everything that San Francisco-based venture capitalists were looking for. For starters, they operated on an app-based business model that was the epitome of recent on-demand service models that were scaling to take the whole world by storm and independent couriers that were personable and incentivized to often arrive before their 20-minute promised time—unsurprisingly a hit with customers. This attracted the likes of Tim Ferris, Naval Ravikant, Slow Ventures, and Kleiner Perkins among many others to participate in the company’s hefty raise of $62 million during their operations. Later on, Shyp also was able to partner with the e-commerce giant E-bay. So what happened that led to their shutdown barely 5 years into existence?
To begin with, Shyp had vastly overestimated the number of individuals that would regularly ship their items anywhere, let alone pay a flat $5 fee for something simple as a courier picking up and packing your items, regardless of its size. On top of this flaw, they also started charging an extra $3 packaging fee for the marked-up shipping cost. Unlike essential services like cab rides and food delivery that most people would now use at least on a weekly basis, shipping items is a rare and often sporadic activity. To account for this, Shyp started to get small businesses (that ship on a regular basis) into becoming part of their shipping revolution and even started offering volume discounts. This still did not stop the company from shutting down by early 2018.
In a personal LinkedIn article in 2018, company CEO Kevin Gibbon admits he didn’t listen. “At the time,” he wrote, “I approached everything as an engineer. Rather than change direction, I tasked the team with expanding geographically and dreaming up innovative features and growth tactics to further penetrate the consumer market.” He also said that "growth, at all costs, is a dangerous trap that many startups fall into, mine included.” In the case of Shyp, the costs that came with packaging materials, renting out physical warehouses and hiring drivers while doing their best to keep prices low to attract customers, made for finer margins and greater demand for using up the startup capital than other ventures.
Shyp’s story clearly illustrates the difficulty in establishing a solid business model from the get-go and the need for rigorous planning and foresight. This applies even when entering a business where success might seem assured (as in the case of on-demand startups for Shyp). Getting too wrapped up in an idea and the technological solutions that can be brought to bear can prevent a clear view of what the market is, what customers are willing to pay, and hence the kind of goals that can be achieved. Lastly, ignoring advisors can often prove fatal to the founder. In hindsight.
Shyp had an almost magical proposition and a year before closing, they were partially successful in downsizing their company. They were trying their best to stick to their new goals and targets as regarding the customer base, areas of operation and number of employees being hired; however, the initial mistakes were far too big and cost of on-demand shipping spiraled out of control.
Shyp could have probably taken lessons from a somewhat similar on-demand startup called Trove that is making moving a breeze for families. Instead of having their own drivers and movers, the San Fransisco based company that serves customers within a 40-mile radius of the city outsources that service to individual moving companies and pairs them with families and individuals that want to move to a new address. The customers are charged a fee based on the square footage of space that they are using and even though the company was recently acquired by Nextdoor, they continue to provide exceptional service in their expertise.
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