7 ms·

Everpix VC Feedback

115 points by jhull 13y ago

ivanplenty 13y ago
This morning I did a public write-up of the Everpix business model to see why it failed: http://research.ivanplenty.com/2014-economics-everpix-shutdown-decision http://research.ivanplenty.com/2014-economics-everpix-shutdo... (Submitted to HN a few hours ago as https://news.ycombinator.com/item?id=7052593 https://news.ycombinator.com/item?id=7052593) tl;dr Everpix sold its product at a marginal loss and closed its doors after the financing ran out. Since the marginal costs always exceeded the marginal revenue we now know that Everpix should have shut its doors immediately as it never could be a viable business in either the short or long runs. There doesn't appear to be a what-if cost structure change that it could have made realistically to stay in business. Shutting down was the right decision for the business, and this evidence suggests it should have shut down a long time ago.
- jmduke 13y ago
  This is a great writeup. I think comparing average revenue to average cost would be better served as a stacked area graph rather than superimposing them, since your method makes it look like average costs actually shrinks to a very small amount (when its just that the gap between the two figures is shrinking.)
- not_that_noob 13y ago
  Excellent high-quality analysis. Not having a solid grasp of marginal costs is unfortunately quite a common affliction of many startups. I would go so far as to say having a good grasp is a source of strategic advantage. That is to say, if you can deliver the same service at significantly less that your competition, then you increase the chances of owning the market. Ask Walmart. And I completely agree with your analysis of personnel costs. It was bloated. In this day and age, with fractional cost labor, it was unforgivable.
- barrkel 13y ago
  a business should supply a product if the marginal revenue is greater than the marginal cost This isn't right. The return on capital must exceed the cost of capital, at the very least the market rate of interest. Otherwise you're not taking into account opportunity cost. I have another issue with your analysis. It's quite blinkered, focused on immediate profits with the zeal of an accountant. Solutions to the photo problem have potential for being strategic, and I don't think it's been figured out yet. A better focus on cost structure could have extended the lifetime of the company, but it likely would have grown too slowly for "$B". I think the founders tried hard to generate growth metrics, betting that the growth would convince investors they could hockey-stick. But they didn't get quite enough growth, and their burn rate was too high to put on the brakes[1] - and likely they weren't interested in putting on the brakes. So I don't think your analysis is particularly relevant in the end. It deals mostly with cash-flow level tactics, whereas this was a strategic play. Don't get me wrong, I think you're a decent analyst. But I expect people use you for your specific focus, not for the big picture. I think you would have predicted YouTube to be a failure, for example. [1] I'm relying on the burn rate being in a vehicle of some sort for this not to be a mixed metaphor...
  - Pxtl 13y ago
    I think you're missing his point. He's focusing purely on the cost that increment per-user - that is, the costs that are directly associated with each user. The fixed costs are allowed to be obscenely high. Growth will overcome that. If you build an obscenely expensive server farm and spend $Xmillion developing software, you can get that back if you get X paying customers eventually. However, if each user you get means you have to fork over another $12/mo to Amazon when the user only is paying you $10? There's no way to make that work. More users would actually cost you more. Maybe there's way they could've torn out their infrastructure and rebuilt it as self-hosted. Maybe there were some optimizations they were missing that could've cut those cloud-based costs. But on the surface? Every dollar the user handed them got handed right off to Amazon, and Amazon's prices go up as you get more users.
    - deleted 13y ago
      [deleted]
- swisspol 13y ago
  It's a very interesting analysis, but you're applying brick-and-mortar / bootstrap business logic to a an early stage VC backed consumer business where 101 economics don't fully apply. Not a single investor, VC or advisor cared about that "marginal loss" (which is "easily" fixable through infrastructure). If that was the case, the vast majority of consumer startups wouldn't be around in the valley (let's not even talk about the ones having zero revenues resulting in an infinite marginal loss). I provided some extra context and counter-points here: https://news.ycombinator.com/item?id=7053473 https://news.ycombinator.com/item?id=7053473.
  - ivanplenty 13y ago
    I really appreciate that you released the underlying data. It is one of the best gifts you could give to the community. I think you and I would greatly enjoy chatting at a bar about this crazy startup world. We just have different opinions and philosophies about building businesses: For me it's important to sell products at a marginal profit generally. I don't think whether the business is VC-backed or bootstrapped makes one difference: I look at both of those are tools to finance fixed costs, not to subsidize ongoing variable operations. The underlying economic principles are the same to me. But, that's this man's humble opinion. I'm not sure I buy that the "marginal loss" [was] "easily" fixable through infrastructure [changes]. If it were easy you would have done it that way from the beginning or sooner in 2013. I buy that the infrastructure changes required more investment or planning, but in general in software "easy" things are the things you've already done. Otherwise we'd be experts at planning and estimating :) Best of luck in the next venture, and again thank you so much for releasing the data!
- mesozoic 13y ago
  You sound exactly like my economics professor. :D I like your report too.
- dcohenp 13y ago
  This was addressed by one of the founders here [1]. Basically, his argument was that their cost structure was not fixed, and if they could have gone on for a bit longer then they would have been able to turn it into a marginal profit. If true, then maybe they just couldn't pull it off fast enough. [1] https://news.ycombinator.com/item?id=7043555 https://news.ycombinator.com/item?id=7043555
- deleted 13y ago
  [deleted]
tlb 13y ago
This seems to show the system working. Everpix was a reasonable idea with good execution, but nobody could see how it would be eventually profitable. That it didn't get funded is evidence that we're not in a bubble.
- sandis 13y ago
  Unlike.. say, Snapchat?
  - jfarmer 13y ago
    And you're familiar with the economics of Snapchat, how, exactly? Among other things, I'd expect Snapchat's marginal costs to be much lower than Everpix's. <opinion rel="armchair">Just looking at the two products, I think Snapchat's #1 business priority should be getting as big as possible as fast as possible, whereas I think Everpix's #1 business priority should've been to make the unit economics work.</opinion>
    - sandis 13y ago
      While I'm absolutely certain that Snapchat's marginal costs are much lower than Everpix's, Everpix had real revenue. If we're talking about bubbles, surely that has to count for something - a product people actually are willing to pay for?
      - robryan 13y ago
        That revenue may have worked against them. It puts some tighter bounds on what they would need to get to subscriber wise and the kind of conversion rate to paid accounts that could realistically be obtained. Companies that haven't started monetizing can be more hand wavy about the potential revenue and growth.
      - argonaut 13y ago
        You can sell a widget for $10 when it costs you $20 to make. Million of people will buy it because it's such a great value. You will have tens of million in revenue!
wellboy 13y ago
Idea: Make a post-mortem startup website, where recently deceased startups can open-source their documents to the whole startup community. Pivot for everpix maybe? This somehow has the same vibe as the becoming of Mattermark to me.
WhitneyLand 13y ago
Why not build such a service on top of a cloud storage provider platform? Their own servers would run their code, searching/indexing, and thumbnails up to 1080p which are very small. A user's cloud account would only be used for the originals and to generate search indexes/thumbnails as needed.
- viach 13y ago
  Good point, just thought the same thing (example: http://www.kickstarter.com/projects/jmathai/openphoto-a-photo-service-for-your-s3-or-dropbox-a http://www.kickstarter.com/projects/jmathai/openphoto-a-phot...).
deleted 13y ago
[deleted]
andyl 13y ago
"You guys are awesome and we wish you all the best." Fundraising is such a giant waste of time. (I've been there)
danabramov 13y ago
Thank you for releasing this and making such a valuable tribute to the community. If more companies did that, hopefully we wouldn't make the very same mistakes over and over again. By the way, what other startups have published such detailed postmortems, if any?
esharef 13y ago
Thanks so much for making this public. You're putting yourself out there for our benefit and so that we can all learn (and not feel quite as shitty when we get similar emails). Thanks.
bayesianhorse 13y ago
The founders ran out of Ketracel-White to give to their troops...
shopinterest 13y ago
I swear all VC's must have these email responses in Macros already. Everyone who passes on investing, even with great but not insane traction, replies to you in the exact same way. Word-by-word. The masters reply with enough wiggle room to come back if you do become hot eventually.

115 points by jhull 13y ago

This morning I did a public write-up of the Everpix business model to see why it failed: http://research.ivanplenty.com/2014-economics-everpix-shutdown-decision http://research.ivanplenty.com/2014-economics-everpix-shutdo... (Submitted to HN a few hours ago as https://news.ycombinator.com/item?id=7052593 https://news.ycombinator.com/item?id=7052593) tl;dr Everpix sold its product at a marginal loss and closed its doors after the financing ran out. Since the marginal costs always exceeded the marginal revenue we now know that Everpix should have shut its doors immediately as it never could be a viable business in either the short or long runs. There doesn't appear to be a what-if cost structure change that it could have made realistically to stay in business. Shutting down was the right decision for the business, and this evidence suggests it should have shut down a long time ago.

jmduke 13y ago
This is a great writeup. I think comparing average revenue to average cost would be better served as a stacked area graph rather than superimposing them, since your method makes it look like average costs actually shrinks to a very small amount (when its just that the gap between the two figures is shrinking.)
not_that_noob 13y ago
Excellent high-quality analysis. Not having a solid grasp of marginal costs is unfortunately quite a common affliction of many startups. I would go so far as to say having a good grasp is a source of strategic advantage. That is to say, if you can deliver the same service at significantly less that your competition, then you increase the chances of owning the market. Ask Walmart. And I completely agree with your analysis of personnel costs. It was bloated. In this day and age, with fractional cost labor, it was unforgivable.
barrkel 13y ago
a business should supply a product if the marginal revenue is greater than the marginal cost This isn't right. The return on capital must exceed the cost of capital, at the very least the market rate of interest. Otherwise you're not taking into account opportunity cost. I have another issue with your analysis. It's quite blinkered, focused on immediate profits with the zeal of an accountant. Solutions to the photo problem have potential for being strategic, and I don't think it's been figured out yet. A better focus on cost structure could have extended the lifetime of the company, but it likely would have grown too slowly for "$B". I think the founders tried hard to generate growth metrics, betting that the growth would convince investors they could hockey-stick. But they didn't get quite enough growth, and their burn rate was too high to put on the brakes[1] - and likely they weren't interested in putting on the brakes. So I don't think your analysis is particularly relevant in the end. It deals mostly with cash-flow level tactics, whereas this was a strategic play. Don't get me wrong, I think you're a decent analyst. But I expect people use you for your specific focus, not for the big picture. I think you would have predicted YouTube to be a failure, for example. [1] I'm relying on the burn rate being in a vehicle of some sort for this not to be a mixed metaphor...
- Pxtl 13y ago
  I think you're missing his point. He's focusing purely on the cost that increment per-user - that is, the costs that are directly associated with each user. The fixed costs are allowed to be obscenely high. Growth will overcome that. If you build an obscenely expensive server farm and spend $Xmillion developing software, you can get that back if you get X paying customers eventually. However, if each user you get means you have to fork over another $12/mo to Amazon when the user only is paying you $10? There's no way to make that work. More users would actually cost you more. Maybe there's way they could've torn out their infrastructure and rebuilt it as self-hosted. Maybe there were some optimizations they were missing that could've cut those cloud-based costs. But on the surface? Every dollar the user handed them got handed right off to Amazon, and Amazon's prices go up as you get more users.
  - deleted 13y ago
    [deleted]
swisspol 13y ago
It's a very interesting analysis, but you're applying brick-and-mortar / bootstrap business logic to a an early stage VC backed consumer business where 101 economics don't fully apply. Not a single investor, VC or advisor cared about that "marginal loss" (which is "easily" fixable through infrastructure). If that was the case, the vast majority of consumer startups wouldn't be around in the valley (let's not even talk about the ones having zero revenues resulting in an infinite marginal loss). I provided some extra context and counter-points here: https://news.ycombinator.com/item?id=7053473 https://news.ycombinator.com/item?id=7053473.
- ivanplenty 13y ago
  I really appreciate that you released the underlying data. It is one of the best gifts you could give to the community. I think you and I would greatly enjoy chatting at a bar about this crazy startup world. We just have different opinions and philosophies about building businesses: For me it's important to sell products at a marginal profit generally. I don't think whether the business is VC-backed or bootstrapped makes one difference: I look at both of those are tools to finance fixed costs, not to subsidize ongoing variable operations. The underlying economic principles are the same to me. But, that's this man's humble opinion. I'm not sure I buy that the "marginal loss" [was] "easily" fixable through infrastructure [changes]. If it were easy you would have done it that way from the beginning or sooner in 2013. I buy that the infrastructure changes required more investment or planning, but in general in software "easy" things are the things you've already done. Otherwise we'd be experts at planning and estimating :) Best of luck in the next venture, and again thank you so much for releasing the data!
mesozoic 13y ago
You sound exactly like my economics professor. :D I like your report too.
dcohenp 13y ago
This was addressed by one of the founders here [1]. Basically, his argument was that their cost structure was not fixed, and if they could have gone on for a bit longer then they would have been able to turn it into a marginal profit. If true, then maybe they just couldn't pull it off fast enough. [1] https://news.ycombinator.com/item?id=7043555 https://news.ycombinator.com/item?id=7043555
deleted 13y ago
[deleted]

tlb 13y ago

This seems to show the system working. Everpix was a reasonable idea with good execution, but nobody could see how it would be eventually profitable. That it didn't get funded is evidence that we're not in a bubble.

sandis 13y ago
Unlike.. say, Snapchat?
- jfarmer 13y ago
  And you're familiar with the economics of Snapchat, how, exactly? Among other things, I'd expect Snapchat's marginal costs to be much lower than Everpix's. <opinion rel="armchair">Just looking at the two products, I think Snapchat's #1 business priority should be getting as big as possible as fast as possible, whereas I think Everpix's #1 business priority should've been to make the unit economics work.</opinion>
  - sandis 13y ago
    While I'm absolutely certain that Snapchat's marginal costs are much lower than Everpix's, Everpix had real revenue. If we're talking about bubbles, surely that has to count for something - a product people actually are willing to pay for?
    - robryan 13y ago
      That revenue may have worked against them. It puts some tighter bounds on what they would need to get to subscriber wise and the kind of conversion rate to paid accounts that could realistically be obtained. Companies that haven't started monetizing can be more hand wavy about the potential revenue and growth.
    - argonaut 13y ago
      You can sell a widget for $10 when it costs you $20 to make. Million of people will buy it because it's such a great value. You will have tens of million in revenue!

wellboy 13y ago

Idea: Make a post-mortem startup website, where recently deceased startups can open-source their documents to the whole startup community. Pivot for everpix maybe? This somehow has the same vibe as the becoming of Mattermark to me.

WhitneyLand 13y ago

Why not build such a service on top of a cloud storage provider platform? Their own servers would run their code, searching/indexing, and thumbnails up to 1080p which are very small. A user's cloud account would only be used for the originals and to generate search indexes/thumbnails as needed.

viach 13y ago
Good point, just thought the same thing (example: http://www.kickstarter.com/projects/jmathai/openphoto-a-photo-service-for-your-s3-or-dropbox-a http://www.kickstarter.com/projects/jmathai/openphoto-a-phot...).

deleted 13y ago

[deleted]

andyl 13y ago

"You guys are awesome and we wish you all the best." Fundraising is such a giant waste of time. (I've been there)

danabramov 13y ago

Thank you for releasing this and making such a valuable tribute to the community. If more companies did that, hopefully we wouldn't make the very same mistakes over and over again. By the way, what other startups have published such detailed postmortems, if any?

esharef 13y ago

Thanks so much for making this public. You're putting yourself out there for our benefit and so that we can all learn (and not feel quite as shitty when we get similar emails). Thanks.

bayesianhorse 13y ago

The founders ran out of Ketracel-White to give to their troops...

shopinterest 13y ago

I swear all VC's must have these email responses in Macros already. Everyone who passes on investing, even with great but not insane traction, replies to you in the exact same way. Word-by-word. The masters reply with enough wiggle room to come back if you do become hot eventually.