A few weeks ago I had a chance to spend some time with David Richins of Collaborative Vision Media. He has started a new educational video series at The Lunch is Free and asked me to share some thoughts on my experience and suggestions for startups. I think it turned out pretty well. Thanks to David for the opportunity!

You should learn more about the MVC Test here, and follow me on Twitter here.

+Bob Gilbreath

I absolutely love to tell people about my first new product failure. In 1999 I was part of the team at Procter & Gamble that launched what former CEO A.G. Lafley called, the worst new product in the company’s history: Fit Fruit & Vegetable Wash. I didn’t know at the time that sharing stories of failure would become a rite of passage in digital startup circles. And today I’m launching a “Startup Fail Blog Wiki” to collect these stories in once place–and I’m taking the opportunity to share my own stories of failure.

Fit Fruit & Vegetable Wash was a great new product idea–a “soap” made with all-natural ingredients that removed dirt and pesticides from produce. It was a promising idea for an entirely new product category from the group that launched successes like Febreze and Swiffer.  But we made many, many mistakes in getting it to market–especially by forcing it through the “big bang” launch model that works less well on products that require more education. Most people who worked on the brand quietly disguised it in their resumes, but I’ve always carried it as a badge of honor. While I was just an assistant brand manager on the product, I took it personally. I was embarrassed to let the company down, and was pained at the years of wasted time by dozens of teammates. After its failure, I became obsessed with cracking the code on new product success–and I was fortunate to win in later launching new products like Mr. Clean Magic Eraser. Failure taught me important lessons, and I could never have been successful without these struggles. (Note: Fit is still around with an entrepreneurial owner and gradually growing–while using the same packaging and claims I developed in 1999–give it a try!)

But the purpose of this blog post is to share the story of a digital startup that I led, launched–and folded. I hope my story is a lesson for others.

Flash forward to a few years ago and I was co-owner of a global digital advertising agency. Our core business was to develop digital strategy and creative projects, but a few of us yearned to use our knowledge and skills to create a startup within the company that would allow us to differentiate the agency and create a new, scalable business. We created a mostly informal group of strategists, creatives and developers who played with technology and business ideas. The first idea we hatched was a service that would add a meaningful advertising-based business model on top of Twitter. We created a working prototype way back on Spring 2009 and considered launching it. But we pulled back for two reasons: (1) We were worried about building a business on top of the Twitter API at a time when the company was starting flex its muscle; and (2) we came up with another idea that we liked even better…

Our new idea sprung from some technology that our team developed around image recognition. We had followed the success of apps like Red Laser which rose to the top of the charts with a simple UPC scanning tool that could send users to a  basic search results page. While interesting, we felt there was more promise in image recognition. Some products lack UPC codes, and the ability to search a database using colors and characters seemed within our reach. We knew that image search would be aided by the rise of tools like Google Goggles, and we foresaw that QR codes would be too complicated for most people to understand and to embrace.

In addition to noting the promise of image recognition, we saw the opportunity to create a startup with a “meaningful marketing” model baked-in. You see, I had just published my book, The Next Evolution of Marketing: Connect with my Customers by Marketing with Meaning. It was our agency’s manifesto, describing our belief that the future of marketing is not about finding new ways to interrupt people with impressions, but rather to create marketing that people choose to engage with, and advertising that itself improves customers’ lives. Naturally, we believed that any startup we created should embody our brand purpose.

We were also frustrated in working with startups that pushed our clients to buy more banner ad space in order to pump up their revenues and valuations. We longed for a startup that provided a service for consumers, yet allowed marketers to engage and make it even better–something like Google Adwords, in which paid search can help people find that they need, and give companies a pay-for-performance marketing channel.

One day, while in a meeting to discuss how to use our team’s technology, the pieces fell together and inspiration struck. We realized that consumers frequently have a need to look up information about the products they buy and use everyday–say, when they are checking ingredients in a store, searching for a new product coupon, or looking for dosing instructions for a cough medicine at 2am. Much of our insight came from our work with dozens of consumer packaged goods brands in our agency portfolio. We knew that millions of people visited our brands’ websites each year to find such info, and we saw that about 10% of these sites’  traffic (and growing quickly) was sourced from mobile browsers. But searching for information via mobile phone is difficult; no one wants to type in a URL on a tiny screen or wade through mobile Google results. We decided to create an app that would use package/image recognition to deliver them to a mobile-friendly page of helpful brand information.

While our vision was grand, we got some great early feedback from a friendly VC investor. He cautioned us against “boiling the ocean” with too many features and functions. He challenged us to start with one valuable benefit that had never been seen before. After many white board sessions we decided to focus on the ability to find a particular product on sale near you. People often plan shopping trips based on a handful of everyday products like Tide detergent and Coca-Cola 2-liters, and the only option was to wade through dozens of weekly newspaper circulars. We also found a terrific third-party source of this data, which had not been tapped in a mobile app before. The image search was still a bit buggy, so we also included a UPC scan and keyword search.

After about a year of working on the project at nights, weekends and during slow periods we launched our app–Phogo– in November 2010. However, just a few months after we finally launched on iTunes, we hit a barrier that we couldn’t overcome. We existing agency business merged with 3 others to create a new, global agency network. It was the right thing for our +$100 million digital agency–but took our eyes even further away from Phogo. While we used to be able to carve out a little time for skunkworks projects–I was suddenly flying around the world and helping to create a new agency brand and strategy organization. Our team got together and decided to pull the plug on our own.  Here’s a few of our lessons and learnings:

What Worked

• Focused User Benefit – Users quickly understood the benefit of Phogo and were very positive about the chance to find their favorite brands on sale near them. The advice about not “boiling the ocean” was spot-on. The app worked reliably and brought great results on the most frequently-purchased products.
• Meaningful Marketing Model – I met with dozens of the largest CPG companies in the world before we launched in order to rally support and seek test & learn dollars. Nearly every major brand understood the value of reaching their consumers with Phogo at the two main moments of truth, purchase and use. They loved our pay-for-performance pricing model, and the fact that we could get them up and learning within minutes. I was invited to share Phogo alongside the biggest startup names at mobile innovation events for Coca-Cola and Frito-Lay.
• Team Passion – My team jumped into Phogo with very little prodding and zero incentive. I couldn’t offer an ownership share or any guarantee that they’d get special hours set aside for the project. But some of our best people across all skill areas were fighting for the chance to work on Phogo.

What Didn’t Work

• Slow to Release – One of the most-repeated mistakes in startups is being slow to ship, and we fell victim to this one big-time. Part of the issue was that we all had “day jobs” at the firm with weekly billable hour and monthly revenue targets to hit. But we also didn’t stick to self-imposed deadlines, and we didn’t know how much delays could really cost us.
• Shiny Feature Obsession – The biggest reason for our slow release was our focus on making image recognition work. We were in love with the cool-factor of the tool, which we thought would help us attract users and beat the competition–and we knew that this is what the future of search would be. But it was incredibly complex technology, and, frankly, was not key to the basic product benefit. A UPC code or even word search worked just fine for 95% of use situations.
• Developer Turnover – Back in 2009-2010 there was a shortage of good mobile developers, and our best people were pulled into the most important projects. We lost the development leader of our app to a startup as he was half-way into programming the app, and then his replacement headed to Silicon Valley soon after. The code was re-worked too many times and we got tired of fighting for resources.
• Waiting for Brands – Back when Phogo was still an idea, I believed that we could sell an investment partnership to big brands–and use those funds to help pay for our development. Mobile is a huge priority for traditional marketers to figure out, and we offered something much better than more banner ads. I was able to get meetings with most of the biggest CPG companies, and they liked what they saw. But the politics around investing in a startup are enormous, and since Phogo was still in development there was nothing for them to buy. We should have focused on shipping our app and selling to brands once we had user traction.
• Corporate Distraction – At the end of the day, the innovator’s dilemma hit us in the face. We had a holding company holding us to hit our monthly revenue forecasts–and Phogo was a known “cost” with an unknown upside. It was difficult for my fellow executives and I to put our employees’ jobs and profit-sharing at risk for an unproven startup idea. This is a struggle for all advertising agencies in particular; unlike the P&G’s of the world, they have no baked-in R&D budget. In fact, because of the realities of accounting, our holding company could easily invest in external startups with its available cash, but any internal investment hits the bottom line as an additional expense. That’s one of the reasons we were able to sell our digital agency to this holding company to begin with!

Advice for Aspiring Intrapreneurs

• Go Whole-Assed – One of my personal beliefs is that you should “go whole-assed or no-assed but never half-assed.” It’s usually a mistake to juggle multiple jobs and distractions at once, and better to chose something to focus on–or kill it outright. For intrapreneurship to work, company executives must dedicate resources, set timelines, assign staff, and closely watch progress together. Otherwise, admit from the beginning that you can’t do it internally–perhaps instead allowing a handful of passionate employees to take the idea outside the company while retaining a share of ownership.
• Get Outside the Office – We constantly talked about getting out of our existing office space and setting up our own physical location. We knew that the day-to-day of our day-jobs would pull constantly, and since our project team came from people scattered across four floors it was hard for us to collaborate. I think we could have worked much faster by co-locating offsite and living a little more of the ramen lifestyle.
• Make the Jump – To be honest, I believe it has never been harder to successfully launch a new product within a large, existing company. Going firms are under intense pressure to invest less and focus on their current businesses. Bureaucracy is choking what little innovation makes it through. Meanwhile, it has never been easier to launch a business and find seed funding. And if you’re too risk-averse to jump into your own startup (or don’t have a killer idea yet), I would recommend that you join a startup that is off the ground and beginning to ramp up. Salaries and benefits will be lighter than the Fortune 500, but your learning curve will go vertical, and you’ll get the confidence to make a go someday.

Knowing what I know now, I would still go through the experience of trying to make Phogo happen within my company. It was an amazing opportunity to learn, create and partner with some really smart co-workers. The effort also gave me confidence in my ability to strike out into the startup world. I decided to leave my job shortly after our companies were integrated and my ownership earn-out was complete. I quickly signed on to join the VC side of the table with CincyTech–while also launching this startup, the Minimum Viable Concept Test. Every day I get to help startups learn and succeed–while building out my own new business in parallel. It’s an incredible opportunity and I can’t wait to wake up every day.

If you found this story compelling, why not click over to my new “Startup Fail Blog Wiki” where I am pulling together similar stories of lessons from founders. The odds of success are long, but the more stories we share, the greater chance we have to increase the odds of success.

(And you should learn more about the MVC Test here, and follow me on Twitter here.)

+Bob Gilbreath