Everyone talks about the importance of being able to iterate, but how do you cope, keep investors on-board and stop staff leaving when you’ve spent the best part of a million pounds and your product’s a failure? Chris Goodfellow finds out more about Flubit’s story and how its founder built a multi-million-pound retail channel.
Bertie Stephens wanted to launch a new business because his successful film and video agency wasn’t able to scale. And he had big plans.
“A couple of things started niggling in the back of my mind,” says Stephens, recalling his frustration with the venture. “As much as this sounds dreamy, I wanted to create a billion-dollar business rather than a million-dollar business, and I guessed a film and media company couldn’t get to that stage.”
But like a lot of startups, the idea for Flubit started as a side project.
Stephens thought the ecommerce industry wasn’t efficient enough and wanted to raise several thousand pounds to investigate his new proposition.
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A personal recommendation led to a meeting with an angel investor and an informal dinner table chat a promise of £50,000. At that point, it was clear he would need to work on the startup full time and the first iteration of Flubit launched in early 2012.
However, building the product wasn’t as easy as that first meeting. As weeks and then months went by it became clear the new platform wasn't seen as a viable channel by merchants and couldn't be scaled. Worse still, customers weren’t interested.
The crunch point came when a shoe seller called the company and said it had taken all day to update the listings for for 40 pairs of shoes, calling the process “horrendous”.
“We built a product that didn’t work in the market,” says Stephens. “We just didn’t get how the merchants would use us. My belief in the market, my pure naivety, was that merchants would update everything manually.”
At that point, they had raised and spent around £750,000.
The turning point
“It was incredibly tough. You’re sat there with something that isn’t working, you’ve spent quite a lot of money getting it to work, you have a load of investors, and you’ve got something that as far as they are concerned doesn’t work and will not work,” says Stephens.
The key to ensuring investors remained on-board was to create a narrative around the product’s development, according to Stephens, who adds if you ever turn around and admit “oh, crap it’s not working” the investment will dry up and people will start to leave you.
“We learnt very quickly you had to generate the story both to your employees and your investors of ‘yes it hasn’t worked, but here’s why it will work’,” he says.
The story allowed the business to raise another millions pounds to build a new version.
In hindsight the team took two months too long to realise there was a problem, laments Stephens. They continued when they knew it wasn’t working because that was their business plan, their vision and that’s what the investors had been sold on.
Building a new platform
The website was closed down, the team spent eight months rebuilding and the new product was launched in 2013. The first two weeks were slow, but the team could see the experience was working for merchants and shoppers.
They started to increase marketing and today, just over two years later, Flubit has 22m products listed and claims to be one of the largest online marketplaces in the country. Its turnover was £15m last year and it’s expected to grow by 200% year on year.
The new system works by providing customers with bespoke offers they can’t get elsewhere. They search for products on retail channels like Amazon and then paste the URL into Flubit’s homepage. It then connects to retailers to get a cheaper, time-limited offer.
How are they able to compete on price in a market dominated by behemoths like Amazon and eBay?
The key is avoid the cost of sale associated with getting a customer direct or selling through these platforms, and preventing other sites know what they are doing. If Flubit published its prices, competitors would scrape the information and adjust accordingly. They’re allowing retailers to capture what would have been a lost sale for a small commission.
“Amazon always takes the first shout and lists something on their website with a price. If we don’t do that and act with the power of hindsight we can win,” says Stephens, citing the example of a PS4 console that was sold for £258, rather than the public price of £279, as we talked on the phone.
Part of the reason customer acquisition is so high for online businesses is because Amazon are distorting the market by paying over odds for marketing, he adds.
“You’re talking about a 10-15% margin to win a customer for an order, particularly as many people come to your website they will then go and price compare,” says Stephens. “Secondly, if I sell on Amazon I might be charged 15%.”
Flubit asks merchants to list their unit without these costs and normally takes about half the margin and prevents a lost sale. It has a 30% conversion rate and 60% customers retention.
As a startup, it’s crucial they maintain this differentiator and don’t attempt to imitate existing online retailers that dominate the market, says Stephens.
“Amazon is Amazon, the majority of the UK audience buy from them. As a young company trying to compete with that is going to be tough,” he says. “You’ve seen people like Play.com trying to compete and they haven’t been able to make a dent. If you’re going to build something that just mimics what they do, what is your USP? What is your differentiator?”
Hiring and firing
The team has doubled to 70 people over the last year.
“The growth is hard because you have to bring on people and you have to retain them and make them learn about the company. One of the hardest thing in the scaling process is keeping everyone up to date,” says Stephens, adding they now have 10 different departments.”
The solutions include a weekly round-up email from the founder, and meetings with drinks and food.
The difficult part’s been letting people go.
“It’s very obvious who’s pulling their weight and who isn’t when there’s ten of you, when you have 70 it’s more difficult. Then retention gets harder,” says Stephens. “Something we learnt really early on is if someone’s not performing well or they’re not the right character then you have to part ways quickly.”
This included a good friend that had joined the team as marketing manager. Luckily that was amicable says Stephens, but the process has been a brutal one.
The on-boarding cost can be big too, particularly if the hire has come in from an agency.
To avoid these costs the company has invested in employee engagement to the tune of “something like half a million pounds a year”. This includes giving cash back for dinners had with friends, football tournaments, table tennis and offering every employee a stock option.
“The last thing we want is IPO-ing or a major competitors trying to buy us and it’s all very well, but what’s going to happen to us? The idea is they have skin in the game. if we do really well everyone’s going to benefit financially,” says Stephens.
The initial part Flubit’s seed round totalled £3.5m and has it’s raised another £5m since then. They’re now raising what they’ve dubbing their Series A, with a target of around £7.5m it’s expected to close in the coming weeks.
The strategy has been to go with high-net-worth individuals, which Stephen’s says has been effective because of the commitment, expertise and contacts they’ve been able to bring to the table, including sitting in on meetings. He adds Flubit now has 25-30 investors.
A few months ago, the team also launched affiliate selling programme beflubit, which allows sites to list and sell discounted, branded products from different merchants.
The new move sticks true to Stephen’s ethos about the need to be able to adapt to succeed.
“You have to keep trying new things. A load of them won’t work, which we’ve had, some of them will. The moment you stop iterating, the moment you think we’ve done our thing, now let’s keep growing, that’s the big mistake,” he says.
Journalist and editor with nine years' experience covering small businesses and entrepreneurship (ChrisGoodfellow.net). Follow his personal twitter account @CPGoodfellow and his events business @Box2Media. He has written for a wide range of publications in the UK, Ireland and Canada, including The Financial Times, The Guardian, The Independent and Vice magazine.