At Raindance we often spoke to each other using strange coded slang. Words like jinky, minty-fresh and shandango where thrown around a lot. Tango Blue was a special code for "something's wrong – time to act fast!" Similar to Eject! Eject! Eject! using fighter pilot talk – but less alarming to those who don't know what it means – like "Code Blue" in a hospital.
Real Time example: Frantic CEO calls VP of Ops on the phone, "Network is down!" VP of Ops responds, "Can't talk Tango Blue!" and hangs up. CEO shuts up and waits for everyone to figure out what is wrong.
Business Issue: We just dropped a 2000 way call with the CEO of Qwest – it's Tango Blue time.
By the end of February, we had a Tango Blue situation at Zenie Bottle. This is the story.
The decision:
By late February, Steve and I concluded that this idea of selling physical objects linked to a social mash-up wasn't going fly high enough to attract another round of investment. How'd we come to that conclusion? For us it was simple math – we had about three months of cash (another three if Steve and I decided to double down) and we felt we would not be able to clear a hurdle high enough to get financing. What was the hurdle? We determined we would need to show significant traction in the sales of bottles and/or meaningful web site activity with a growing rate of new user adoption. When we started, the hurdle was lower – launch of product and web site coupled with some early data of market adoption. What happened to move the 3 foot hurdle up to 16'11" – large amounts of VC activity in the social network and mash-up space. The deals in the social space that are being funded are no longer just ideas, they are fleshed out concepts that have achieved meaningful user adoption (tens, or hundreds of thousands maybe a million plus users). A cool idea is no longer good enough. We weren't going to get there in three or even six months.
The feedback:
For some close observers and employees the decision came as a shock. It felt like we were giving up even before we really tried. Most seed deals (which ours was) raise enough cash to last 10 to 18 months. So throwing in the towel when we still had 40% of our available time to get the business going seemed a little premature – especially since we decided to pull the plug just two months after our official launch. But I believe the job of an entrepreneur is to play fortune teller and try to see the future. We looked at our initial round of feedback and concluded that we couldn't affect enough change within the available time. While we hoped for a home run at launch, we knew that it would take some tweaking to get the concept right. The problem was the initial feedback did not give us any direction on how to tweak the experience. All the feedback was directionally different – which meant we had nothing right or some things right but for different markets/age groups. The bottles resonated with young kids and new age women that like to collect things. The web site resonated with young teens just getting into social networking. The web site mildly resonated with some late teens but only if it were more social and open. The invitation only mechanism worked well for retail and with parents wanting a protected web experience, but fell flat with the older market. Everyone wanted a free bottle but very few folks actually paid for them. Glass was seen by some as cool but as dangerous by others. Some thought the bottles were too big. The older people wanted the bottle to do something other than look nice – a few were happy with the bottle as a beautiful collectable. Any change we made would take time and not mitigate the market risk. So yes, we barely got going but after two miles into the 1000 mile trip, we lost the road.
We're lost now what:
Once we made the decision, we took immediate action. When I say immediate I mean within the next ten minutes. Steve and I walked out of the conference room and immediately sat down with the employees and walked them through the decision process. We then took stock of what we had. Great people, some cash, physical infrastructure, office space, a cool web site for sharing photos, 22,642 bottles and a fun story element that never launched. One way to wind down (not the preferable) is to simply run out of cash, liquidate whatever assets are remaining, let go of all the people and tell the investors that it didn't work. That didn't feel very minty-fresh to us. We determined that we had to find a deal for each of the various elements of the business if we were going to preserve any hope of returning some money to our investors.
Tango Blue:
I guess we were lucky. We found deals for everything we had of value. Employees were all found jobs that paid them the same or more at other local companies. We determined that we'd be able to return a portion of the cash to investors. We sold the web technology to a local company in exchange for equity (deal still in the works but should close). We exchanged our hardware for equity in another early startup. We assigned our lease to yet another local company and we have a web story element that will continue with very little cash investment. So for an investment in the Zenie Bottle our investors will get some of their money back and have equity in two other companies plus there is still the wild card that the web series takes off. And the bottles – well one of our investors took them at his expense to use as gifts (he has a lot of friends!). All these deals would have been impossible if Boulder wasn't such a tight knit entrepreneurial community. I'm grateful for all the friends that were able to extract value from our assets. Thank you.
The lesson:
I always say it isn't the idea – it's the execution. Now I think the idea has more value – don't get me wrong the execution is still the key determinant of success – but a wacky, whimsical idea can have the best execution and still flop. Looking back, the Zenie Bottle idea was a big risk – there was no data to suggest how the market would embrace this concept. We did focus groups and test runs of the web site but nothing seemed to indicate that we were missing something. I could be heard in the weeks preceding our decision ranting, "We're gonna be rich!" The market can be cruel – for every Lava Lamp, Rubik's cube, Pet Rock, and Webkinz – there are 100 Zenie Bottles. If it hit – it would have been great.
Along the way, I made several mistakes. We started very frugal but as we approached launch we ramped up expenses – when we hit a two-month delay we burned a lot of cash waiting. We ramped in anticipation of success when we should have ramped after we hit our mark. I over complicated the idea – mixed too many metaphors and layered in too many experiential elements. The simple idea just wasn't challenging enough for me – the complex idea was too much for the market. Simple works – I should have sought my challenges in the marketing and refining of the product. I underestimated how much cash it would take to build this idea by a factor of 5. If we had the runway to take 24 months to try several concepts we might have found an idea that resonated in the market – but when our idea didn't hit we did not have enough time to reformulate the business.
The one thing we did get right was to face the facts and act quickly. In the end, our investors may make some money – the two companies we did deals with have great promise. While I'm personally humbled by this experience - I at least can take some consolation that we called Tango Blue before it was too late.
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