Please excuse me while my Afrikaans brain read this name the first time sounding like ‘shape’ … I’ll swiftly move on from this hoping I’m not the only one!
So join me as I continue digging in the startup cemetery on a Sunday eve. It’s a short one today.
In 2013 Shyp jumped onto the band-wagon of app-based business models like Uber and created an app for on-demand shipping. Customers could take a photo of the item to be shipped and drivers would pick up the item, package it, and ship it off.
A great idea in principle.
Shyp managed to get $62 million USD in funding and even a partnership with e-commerce platform Ebay. Not too shabby and a setup that many aspiring entrepreneurs would envy.
But the business model was flawed.
If you read up on this case you will find many explanations for the company’s downfall after 5 years of operations. These 4 themes came up time and again:
Failing to understand that the average Joe doesn’t ship items on a regular basis. Or from another perspective, overestimating the number of people who do ship regularly. Either way you look at it, they didn’t understand their target audience and actually targeted the wrong audience from the beginning.
Just think about it. When last did you courier an item anywhere?
And the time before that? My guess is every now and then.
If you are not running an e-commerce store for example, you probably don’t need shipping or courier services regularly. But they did have a buffer in place from the beginning to counter any possible losses (this is now aside from the fact they underestimated their losses.) Let’s look at it in more detail.
The buffer was based on assumptions. Well, this is my assumption as well so clearly we are all working on assumptions here!
But what they did was to charge a fixed fee of $5 for every package, regardless of the size. Now it is always easier to assess things in hindsight and wonder how they didn’t see the picture as clearly as we do, but that is why hindsight is always 20/20 right?
From where I am sitting, my first thought was about PUDO and how easy it is to use the locker system with the different sizes and different pricing tiers. Clearly, Shyp thought about it differently and that cost them. Because customers were not exactly thrilled to be paying the same fee for every package. If you shipped a big item I am sure it felt like a score, but if you shipped a small item, the shipping could potentially cost you more than the value of the item itself.
That’s why I assumed they worked on assumptions because I can’t imagine that potential customers would have agreed that it was a good idea if they had been asked. But I might be wrong here. After all, it’s just an assumption.
But when they realised that they overestimated the number of individuals shipping items regularly, they got greedy.
Their service offering was to collect the package as is and then take it to a warehouse to package and ship so that customers didn’t have to think or worry about finding a package and wrapping it up for shipping.
So they charged an additional $3 for the packaging of the item.
Now, as an individual customer you not only had to pay a flat fee of $5 but also an additional packaging fee, regardless of the size of your package. And if there is one thing people don’t like, it is a one-size-fits all approach.
It became clear that customers cared more about adjusted pricing according to the size of the package and less about finding a package themselves. And this is something I think PUDO does really well. They also don’t care about the packaging as long as the waybill number and address are on the package. Making a shipping package pretty is only relevant to businesses, not individuals.
And that is why they started focusing on small businesses that shipped items regularly. Finally, it started making sense but at this time the mistakes of the past had cost them too much. Although they had a good thing going eventually, they were unable sustain it as they ran out of money, even after they realised their packaging mistake and adjusted their pricing according to the size of the packages.
In the words of the then-CEO of Shyp Kevin Gibbon, they grew at all costs and that is the biggest mistake they made.
By scaling at this rapid pace, they incurred massive expenses for packaging costs, renting of warehouses and hiring drivers while having to keep costs low for customers. And at some point, the revenue could no longer make up for the losses and the business closed their doors in 2018.
When startups become desperate for growth to prove their success to investors or to keep shareholders happy, they often go into a mode of ‘growing at all costs’. Throwing money at the problem and investing everything possible to show growth.
But there is a big risk to this approach.
Actually two big risks.
You know how the saying goes to never quit on a bad day?
Well, the same goes for business.
Take an example from social media. Let’s say your business hinges on the number of followers you have on your Instagram account and you only have 500 followers but you need 5000 to keep your investors happy at the upcoming board meeting.
What do you do?
Obviously you are planning some campaign to drive engagement and sign-ups. You might become desperate and decide to ‘keep growing at all costs’ and throw money at the problem. Hire an expensive agency to create an expensive marketing video and push it out onto social media with the typical like, follow and tag a friend to win a very enticing MSC cruise for two people for a whole week to the Portugese Islands from Cape Town Harbour.
Sure, by the end of the month you may have your 5000 followers but are they valuable customers? Are they engaged customers? Are they potential customers at all? Most probably not. The only reason they followed your page was to win the getaway, they may have absolutely zero interest in your business and in reality you have not grown your business, you just inflated the numbers.
Perhaps a couple of your new followers do convert so I am not saying it doesn’t work at all but desperation is never a good start.
What should you do instead?
I can’t tell you, it’s your business but what I can tell you is to just take a moment and contemplate your options before acting impulsively.
You could still have a MSC Cruise giveaway but instead of like, tag and follow you can ask your existing customers to tag themselves using or wearing your product to stand a chance to win. Immediately they have to engage with your product before they can enter and instead of spending money on an expensive ad, they are helping you with your marketing by posting on their socials. Not a foolproof exercise by any means but you get the idea.
One day of delay is not going to tank your business to take the time and think about your actions when you are feeling desperate. One act of desperation could however tank your business.
Growing at all costs is simply not worth it. Rather grow slower but keep the momentum. and its high time that not only aspiring entrepreneurs understand this but investors too as they are increasingly becoming more impatient to see an ROI for the money they spent but expecting unicorn status within a couple of months. That is just not a realistic perspective.
I found this interesting piece of research on mobile apps and the biggest reasons for failure, I’d say it’s spot on if you look at Shyp’s failed model.
