I built a postcard sending product called babygrams over the last few months:<p><a href="http://babygra.ms" rel="nofollow">http://babygra.ms</a><p>After 5-10 iterations over 6 months, 500 or so paying customers, almost 100 4+ star reviews, and a decent amount of data, I concluded the business model doesn't work. Citing vanity metrics like number of downloads and even revenue (as was done here) is a nice way to obscure this fact.<p>The catch is that to get people to send postcards you need to give them one for free otherwise nobody converts. (This makes sense since they otherwise don't know what they're buying.) You also need to let them pay in bulk for credits or else it is a completely lost cause. The problem is for every person who ultimately becomes a customer, you have too many people who send a free one and forget about you, which costs you real money. The margin on your paid customers needs to make up this sunk cost, which leaves little room for real profit.<p>The numbers just don't work, and no amount of additional product tweaks or marketing pushes really seem that they can move the proper needle (free-to-paid customer conversion rate) enough (to me) for the model to make sense. It took a lot of work to get to the point to validate this so it's not surprising there are a lot of dead in the water apps in this space that get no traction at all. Essentially you have a low profit-per-sale product that has a fixed customer acquisition cost, and the margins are so tiny that you're threading a needle. Unlike other apps, where the customer acquisition cost can in theory drop to zero.<p>So I'm not surprised to see that Postcards on the Run is bleeding cash. I looked at their app in the beginning and I can't even imagine how they're getting any orders since the app is so poorly designed. Asking for more money for marketing purposes is hilarious since that will just likely scale up the rate at which they are losing money. I also would not be surprised if Postagram is bleeding tons of cash also. Their app is spectacularly designed but it's an unprofitable model. They have a high volume app for which they are almost certainly losing money on most of those users. ("We lose money on every sale, but we'll make it up on volume.") I'm also fairly certain all of these companies are using the same printing company, so I have a sense what their margins are and I had the same. (There's also not much flexibility there since US postal service costs are known entities.)<p>I could be wrong though and they may have cracked it somehow. I know they have tried partnering with advertisers to subsidize the free cards (which could work, in theory) but I can't imagine an advertiser paying the amount needed per card to offset things properly. The fact they actually recently did this tells me they realize the free cards are killing them, otherwise why plaster ads all over their product (the design and quality of which they obviously put a lot of care into.) They also give away 5 free cards which to me is absolute madness since I failed to make things work even when giving away a single free card.<p>Obviously sinking 5-10k of your own money into an experiment like this for 6 months seems much more attractive to me than burning through a few million VC dollars and spending a few years of your life on an idea that is likely doomed. (And then having to go on Shark Tank for more money?) This is why it's important to bootstrap and validate the main hypothesis with an MVP and a few iterations before going big. I am able to keep this app running cheaply for friends and family, learned a lot and improved my design skills, and can focus on something that has more promise being confident I know what the opportunity cost is.
Most of these inventory-financing deals for physical products seem like they would be much better dealt with via loans, unless the equity stake is really more of a quid-pro-quo for whatever connections the sharks have.
Zynga's not a great example because startups got a foothold and are now doing well why Zynga flounders. Kabam, Kixeye, etc. Zynga's audience was 100% casual users, and they've been unable to use any cross-promotional muscle to get into the mid to hard-core segment. Also there aren't real economies of scale and there is no third party distribution problem.
Interesting. I've seen a few seasons of this and the international versions, and found it odd how different valuation works compared to with valley VCs.