Whilst carsharing is on the rise, Toogethr can’t find a path to revenue
On 31 December 2014, the Toogethr carpool and rideshare service will be closed down. We regret this decision. To help you understand why we are doing so, this blog post will provide you key insights. As not everyone is interested in the full story, let us start by thanking anyone who has put their energy, believe, time, money or interest in Toogethr. It surely was one of the best rides we ever had.
In the time between our first sparks and ideas early 2011 and now, we as founders have learned massively. The aim of this post is to share with you our highs, lows, and most importantly key learnings. We feel obliged to do so, allowing you to better understand what the contributing factors are and hopefully preventing you from making similar mistakes. We deliberately tried not to be complete, allowing us to focus on the most important insights.
TOOGETHR, THE SERVICE
Toogethr is a leading carpool and rideshare service primarily in the Netherlands. A single service that is addressing both the occasional ride to a city or an event, as well as daily commutes. We always focused on the experience of the end-user (e.g. car drivers and people looking how to get from A to B), allowing him/her to save money, getting conveniently from A to B, helping/meeting others.
Our internal mantra was: “AirBnB for the road”, referring specifically to the great user experience, the challenge of building a marketplaces, getting traction, disrupting the current mobility market status-quo and the community-driven approach.
As founders we never ran startups nor businesses before. We were experienced in working at other companies (both small and large) for quite a few years as well as being freelancers. We don’t have MBA’s or attended business schools. We brought to the table an extensive skill-set including software development, marketing, and design. Experience combined with being committed full-time (no side business providing some monthly income) and eager to make a difference. We started small and eventually hired additional people with specific skills (such as iOS development, partner management and UX design) to complement our skills.
We quickly proved to be comfortable in new territories such as PR, community management and finance. We daily read a wide variety of blog posts (definitely not just the major tech news), books on entrepreneurship, financing and structuring investments. We engaged with many others to flatten the learning curve. For instance we have an advisory board of 6 seasoned professionals. We even had pre-mediating meetings once every 6 weeks to reflect on our cooperation as founders. We continuously asked our users for feedback. We were confident we had all the required knowledge or access to it at hand. And we certainly believed that lack of knowledge was not one of the contributing factors leading to this post.
Most importantly, we never had real fights or major issues with co-workers. We happily disagreed with each other from time to time, leading to exchange of thoughts and new directions for learning. But we could always put aside our ego’s and put our customer and the business first. We never used our control rights as a shareholder or director. Many startups are not that lucky, and even fail because of this.
WHAT WAS AWESOME?
Sounds pretty go so far! There are even more factors we recognize as being worth mentioning:
On the marketing side:
* Strong PR attention. Major media is always looking for news that touches upon innovation, consumer cost reduction, or social improvements in combination with a story to tell. We managed to ‘secure’ attractive placements such as DWDD (the #1 daily TV show), de Telegraaf and VPRO Tegenlicht. Don’t underestimate the importance of good old media such as TV and newspapers. Despite our services was immature, our technical infrastructure could handle the peaks with a charm.
* Partnerships with major festivals: Many event organizers are looking for ways to reduce their carbon footprint and are willing to integrate with and promote a reliable rideshare service. We pleasantly worked together with large-scale events such as Mysteryland, Pinkpop, Solar, and Oerol. Their fan base is large and open to meet others. Do not underestimate the strength of the communities behind these events.
On the finance side:
* Low cost. We managed to keep our burn-rate low. Forget about expensive cloud services providers such as AWS or Google App Engine (used to be). Save on office rent (we paid €275 for a space to host 7 persons in downtown Amsterdam), work with an in-house team of skilled employees and freelancers (instead of development companies billing you monthly), and save on salaries and management fees (people with high salary expectations are not fit to work in startups anyhow). Important learning: do the bookkeeping yourself and have an accountant who is on the ball. This enforces you to know your burn-rate and cash flow at every second of the day - your most important financial metric.
* Investments and subsidies. Everyone seems to look for VCs, whereas you need to start with some money from friends or family. Once these initial sources dry up, go after the ‘free’ money. This will cost you substantially more time, but the conditions are great. We secured subsidies from AgentschapNL, Stichting DOEN, ESA-BIC, in addition to using the Dutch WBSO tax credit. Learning: forget about ‘subsidy consultants’ at this stage. They take a cut of around 10% and their added value is limited, unless you apply for complex subsidies such as the Dutch Innovatiebox.
On the technology side:
* Product based on web technologies. Most of us have been exposed to the ongoing debate when building apps: should we go the native way or use HTML5 with a wrapper. Knowing that we could never ever build the ‘right’ app from start and did not have all the necessary skills in house, nor the budget, we decided to start off with web technologies. When you learn as you go, you need to be able to change your service rapidly. Our decision to build everything using web technology helped us to do so. Of course, you don’t have the best user-interface, but that is not possible anyhow when your initial job is learning from your initial users.
* In-house team with all the necessary skills. Some startups are founded by developers, others are founded by business-oriented folks. Anyhow, we could not imagine the one without the other. The longer you postpone to complement your team with ’the other’ side, the more difficult in gets. In our case we chose to start with all skills in-house. Tip: don’t follow others here blindly. Maybe for your startup, you can start off with a simple Wordpress website and no in-house developers or designers. Choose the team that best helps you getting to your first major milestone.
On the management side:
* Understand your key metrics: We assume all startups get this one straight from the beginning. If you don’t measure your (online) performance, nor ask user feedback, in combination with not having some kind of KPI, how the hell can you measure progress? Don’t go overboard with complex dashboards. Our advice here: if you can’t live with 1 or 2 KPIs, revisit your strategy.
* Cooperation between founders. We never had any discussion about ‘who is the CEO’. What a waste of time! All the founders are ‘CEO’ from day one onwards. Until some day an investor walks in and starts asking. Despite that not all founders have equal share of equity, they should all have the same management fee, bear the same responsibility, show the same drive and never ever bash each other. Your co-founder is never ever perfect. Nor are you. Tip: Reflect continuously about your own performance in relation to your hubbies and vice versa. Don’t expect other people to change, but that does not mean you should not give them constructive feedback. Running a startup also means to learn about your own attitude, your way of working and how to improve yourself to become a ‘better’ person.
As soon as we launched, we noticed that we had more traffic then we forecasted. We even had more drivers offering rides (the supply side, where we focused our marketing efforts on) than potential passengers. That made us happy. What frustrated us, that even when offer and ride request matched, the actual success percentage was only a fraction of what we hoped for. There were many reasons why even perfect matches did not end up in a joint ride. The most painful one: the largest parts of our users were not happy with our fee based-model. Many preferred to offer rides for free, or settle a fee in car or get ‘paid’ with a cup of coffee. We did not even write a fee-based payment down as an assumption to be tested (confirm Lean Startup). We took this one for granted. Ouch!
We started to execute several tests. We tried variations in terms of fee percentage, allowing or not allowing offering free rides, or mandatory minimum fees. This resulted in no significant improvement, eventually leading to an important pivot: the ‘no fee based business model’ that seemed to be the best, … except for us. The fact that we were not really adding much value once people had a match (in contrast to for instance Snappcar who arranges a car insurance during the rental period) was one thing we could not solve. So we decided to get rid off the fee, forcing ourselves to find a different business model. On the flip side, the number of joint rides grew.
Our pivot was more then just around the business model. As we could not find a business model in the consumer space, we subsequently targeted B2B. We thought that by offering ‘Carpool as a Service’ to companies, we could have a short cut to revenues, and at the same time target thousands of employees via their employer at zero cost. Many companies had a challenge when it comes to parking, accessibility and also promote an open culture. So, we built a working B2B product, drafted the terms, thought about privacy issues and started selling the product. Before we even announced the product, companies started to call us. Wow! Despite these early signs of interest, none of these companies eventually bought the product. The most important reason was a lack of priority and problem ownership on the customer side; in other words, companies did not want to acquire a service as a solution for a problem they did not want to own. Once again, we had many opportunities to give our product away as a free service, but we chose not to do so.
Once more we had to think hard about the next. We already had built a working prototype of a real-time rideshare product (comparable to UberPop and Lyft), but we were right to believe that the existing legal framework would cause a major issue. We took another direction: we started to look for cooperation with multi-modal route planners and mobility card providers, as we believed that travelers who were planning for a way to get to their destination easily would be agnostic with respect to the mode of operation. However, we discovered that both categories are still in their infancy and would not drive any business at all.
While scratching our heads on what to do next, the French rideshare startup Blablacar received a whopping $100M investment. We, of course, tried to raise an investment as well (already working on this even before we launched our service), and at certain times we were spending 3 full days a week talking to and meeting investors or wannabe investors (you know, the ones that have a lot of time, always have more questions, but never closed a deal in the last 3 years). We have met with investors not just in the Netherlands, but also in Belgium, Germany and the UK. We also joined startup competitions to get into the spotlight, most notably LeWeb.
It has become clear to us, that Dutch investors have a completely different view on investments then the praised VCs from the US. One investor even said to me: in the Netherlands, Blablacar would not have received funding. In some cases it was us not interested pursuing a deal, as quite often the conditions were horrible. One investor even asked us if he could join as director, and pay him an hourly fee.
In the end, we are happy not to have a VC deal. We have no debts, nor VCs that need to explain to their informal investors or funds that the investment sucked.
Tip: don’t think that it is easy to get funding before you have proven your business model and make some revenue. Even early-stage Dutch VCs don’t do them. Focus on driving revenues and low cost. That will bring you much further than some money and the extra pressure on your startup.
WHY ARE WE GIVING UP NOW?
Giving up for us is mainly related to not seeing a market that drives revenues. If people are happy about using your product, they should be paying for it, otherwise you are not really solving a hard problem for them. Despite the numerous people we have served, we are under the impression that their need is not that big, especially from the driver’s side. As founders we have significantly invested in Toogethr, mainly time but also cash. We can no longer justify further investments. It’s better for the world and us if we refocus our energy and use our wisdom to pursue other goals.
WHAT MAKES IT SO DIFFICULT?
There are a number of reasons what we believe makes carpooling (especially as a daily routine) really hard. The most important ones being:
* Carpooling requires behavioral change from both the driver and the passenger. A carpool ride to a festival is a whole lot different from having a frequent ride together. The benefits (such as cost reduction) simply do not outweigh the fear of being dependent on someone else. Furthermore, it is not on people’s radar; we don’t rely for our commutes on other people. Rather, we prefer, as human beings, to be in control or to be dependent on a public transport company with a clear schedule.
* Alternative transportation is nearly as good or better in the Netherlands. In countries surrounding us, students love to hitchhike. Since the introduction of the ‘OV Studentenkaart’ in the Netherlands in 1991 hardly no one is hitchhiking anymore, Furthermore we have a reliable and affordable transport system. Car drivers are buying new or second-hand cars, but not phasing out their car entirely, despite expensive fuel.
* Building multi-sided marketplaces is hard, especially difficult in a new market. Even more difficult when you can’t simply match offers and demand, due to the time-factor. On AirBnB, once an apartment is listed, it is available for the coming years. A single offered ride might no longer be available within a couple of hours. This makes it exponentially difficult to build critical mass
* Toogethr is a sharing economy startup. From research it seems to the majority of people support the principles of a peer-to-peer economy, however usage is still in it’s infancy. It will take time before there is enough ‘sharing’ volume, especially as it also requires a change of behavior.
WHAT HAVE WE LEARNED?
Perhaps we give you the impression now that we did not do anything ‘wrong’. That would be very stupid. From hindsight we should have avoided some pitfalls, such as:
* Fail faster next time. We should have failed much faster and should have been more realistic instead of following our believes that small changes could make a difference. The fact that your user base doesn’t grow exponentially is a very alarming signal.
* Think twice before building a 2-sided marketplace from scratch. Studies show that most marketplaces fail because of lack of (re) use. Even successful players such as AirBnB worked really hard to get it going, mainly by ‘stealing’ homeowners offering their house on Craigslist.
* Changing behavior is really hard. Even people, who are desperate to solve a problem, just don’t change overnight. Thinks about Newton’s law: mass remains at rest unless acted upon by an external force.
* Be careful of the corporate customer. It takes ages to get them on-board, and there is always one more person you have to meet before the deal will be inked
* Take investors on board once you have proven your business. Before so, do not waste much time with them.
WHAT WILL HAPPEN NOW?
We plan to flip the switch on the 31st of December, unless someone wants to continue the service in one or another form. So we hope that the Toogethr service will remain in service. We are open to ideas, suggestions and discussion (mail us at email@example.com).
At your service,
Bart, Martin, Yuri