Startup ChipIn Restarts

The team goes back to the drawing board after its initial launch fails

February, 2007

Carnet Williams loves analogies. He’s got one to describe nearly every ChipIn event, from the momentous to the mundane. There’s the one about how starting a business is like making stew (“You sort of know what you want to cook, but until you get the ingredients in and get a taste, you won’t know exactly what you’re cooking”). And the one about how entrepreneurs are like surfers (“You need to try out a few different spots before you find the best break”).

But in detailing the startup’s latest – and to date, largest – setback, he skips the analogies and gets straight to the point: “Our original concept for ChipIn failed, plain and simple.”

From our initial conversations with ChipIn, in late 2005, Williams, along with ChipIn co-founders Olin Lagon, Kevin Hughes and Song Choi, agreed on total disclosure to Hawaii Business about both their successes and failures. Everyone agreed it was essential if we were to provide readers – and more importantly – other entrepreneurs, with an honest, behind-the-scenes look at a high-tech startup. After all, most, if not all, entrepreneurs see far more failures than successes over the course of their careers. ChipIn certainly isn’t the first to have to go back to the drawing board after its initial concept bombed.

THE HARDEST THING THEY’VE EVER HAD TO DO

To refresh your memory, ChipIn initially launched in May of last year as an online money collection service. The service enabled users to organize money collection for gifts, lunch, etc.; invite others to “chip in” for the event; and collect and distribute the money. ChipIn would earn revenues by processing transactions, partnering with retail sites and selling ads on its Web site and on email communications with clients.

It was a simple idea, doomed to fail by the one thing that paralyzes thousands of businesses annually: Spam.

“Believe it or not, when people talk about the cost of Spam to business, it runs the gamut. And we got hit hard,” explains Williams. “Spam affected us tremendously because a lot of the emails that we were sending out never got to the users – they were picked up by Spam filters. Less than half the emails sent out, inviting people to chip in to events, were ever even opened.”

In other words, very few people were chipping in. And those who were chipping in found the system too cumbersome; not at all smooth and effortless, like the ChipIn team originally envisioned. “We found that we spent too much time sitting in a room thinking about our project. We built way too many features in it,” says Williams, this time with an analogy. “It’s sort of like why they sell cars that have very basic features, and require buyers to add their own features on. We kind of came out with every single feature you could think of and people complained that it was very complicated to use.”

But ChipIn didn’t rely solely on its unfavorable user reviews for feedback. The company meticulously measured every aspect of its business, from the number of events started to the average contribution size. Across the board, the numbers weren’t adding up. “We were literally tracking things like how many people clicked on emails, how many people converted into event organizers, how many of those events were successful. We had numbers on everything,” says Williams. “And those metrics, which were very objective numbers, allowed us to step away, as much as we loved the system, and realize that it wasn’t working. Because no matter how much you feel like it should be working, if the numbers say it isn’t working, it isn’t working.”

Many entrepreneurs fall victim to the very thing that lit their entrepreneurial fires in the first place – passion. Williams says he’s seen startup after startup fail because its owners were unwilling to recognize that the product they put their heart and soul into simply didn’t work. ChipIn wasn’t going to be that kind of company.

“This is one of the toughest lessons for entrepreneurs, and it’s something that’s extremely difficult to do unless you’ve already gone through it: You have to be agile. You have to know and accept failure. We absolutely failed,” he says. “We thought we had it right. But we realized it wasn’t going to be a profitable and sustainable business. And the hardest thing we could ever do – the hardest thing we’ve done to date – was to turn it off.”

WILD FOR THE WIDGET

Sometime in the beginning of October last year, the team pulled the plug on ChipIn version 1. They can’t recall the exact date, but agree it was a sad, sad day. Not only did they yank version 1 from the site, they stopped production on version 2, which its engineers had been furiously working on for months. And so, five short months after its launch – about the time the company should have been hitting its stride – it had literally nothing to show for their hard work. Its Web site, chipin.com, remained empty and inactive for six painstaking weeks while the team rethought its business model. The process cost both time and money.

But it didn’t break their drive. Seasoned entrepreneurs with more than 20 combined startups under their belts, the ChipIn partners quickly went back to the drawing board to build version 3. Since they knew precisely what didn’t work, they honed in on the things that did. Their “widget,” a little flash application that tracks the progress and details of an event, became the crux of ChipIn version 3.

“We found that a lot of our institutional and nonprofit clients already had very robust payment collection systems, so they weren’t interested in ChipIn for money collection, which is what we had originally set out to do,” says Williams. “But they were interested in our ability to track the collection of money.”

What they devised was a new and improved widget that not only tracks the flow of money, but increases the reach of any organization or group fundraising online. Here’s an example: Traditionally, nonprofits rely heavily on their Web sites to attract potential donors. This method is limited to the people who actually stop by the site. With ChipIn’s widget, which can be easily embedded into any number of things, from blogs to emails, the potential for new donors is limitless. Let’s say John Donor has been donating to the Hawaii Community Foundation (HCF) for years. He’s now able to embed the widget, which provides all sorts of information about HCF (like its mission, its fundraising goal, etc.) directly onto his Web site, as well as all of his outgoing emails. Jane Donor, who’s never heard of HCF, but is friends with John, clicks on the widget, and now she’s a donor. Jane embeds the widget into her emails and, well, you get the picture.

“The neat thing about it is, our system tracks all of the widgets attached to any particular event,” explains Williams. “So it creates a very dynamic information stream for the client.” ChipIn, in other words, is able to go back to HCF and tell it precisely how many widgets are out there, where those widgets are and how much each widget has raised. Clearly, it’s a valuable tool for large organizations looking to recognize or step up communication with their biggest donors. But ChipIn has its sights on a much larger market.

They created a dynamic widget with lots of features for large institutional clients, and a scaled down version for individual or personal use (again, lunches, gifts, etc.). Since its revenue is tied directly to the volume of dollars it tracks for clients, they’re out to get their widgets in as many locations as possible. Says Williams: “To us, working with the institutions gives us a two-prong business approach. If we work with a large nonprofit and they reach 10,000 users, we’re always going to try and convert those users into personal users of the ChipIn system, so we get very low-cost user acquisition. At least, that’s our plan.”

If for whatever reason, things don’t go according to plan, the team has proven they’ve got the patience and fortitude to do it all over again. “The growth of any company is an evolution. Where you end up is always different from where you start,” says ChipIn investor and attorney Greg Kim. “If entrepreneurs aren’t able to identify that as they go, the company’s success is in jeopardy. ChipIn realized they weren’t going to attract the audience they wanted, so they adjusted, and as an investor, I viewed it as a blessing. I felt better about it because their prospects felt better.”

Clearly, ChipIn feels better about the prospects also, although tempered by failure the first time around. The guys are a little more hesitant to declare triumph just yet. They’re just keeping a watchful eye on the numbers and keeping their fingers crossed. “We’re looking at our numbers now, and to say that we’re going to be definitely successful is still unknown. But as of today, the numbers are looking much better than the first go ’round,” says Williams. “If you look at the broadness of our initial idea, you can see how we’ve really narrowed it down into the concept it is today. An analogy for that would be, when you start a business, it’s like a funnel. You start with all these ideas and possibilities, but as you move forward, depending on the market, on revenues, on your resources and staff, that funnel gets narrower and narrower. We’ve just narrowed our business a little. And we’re going to continue to do that until we get it right.”

 

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