INSUBCONTINENT EXCLUSIVE:
Doughbies should have been a bakery, not a venture-backed startup
Founded in the frothy days of 2013 and funded with $670,000 by investors, including 500 Startups, Doughbies built a same-day cookie delivery
But it was never destined to be capable of delivering the returns required by the VC model that depends on massive successes to cover the
majority of bets that fail
The startup became the butt of jokes about how anything could get funding.This weekend, Doughbies announced it was shutting down immediately
Surprisingly, it didn&t run out of money
Doughbies was profitable, with 36 percent gross margins and 12 percent net profit, co-founder and CEO Daniel Conway told TechCrunch
&The reason we were able to succeed, at this level and thus far, is because we focused on unit economics and customer feedback (NPS scoring)
That it.&Many other startups in the on-demand space missed that memo and vaporized
Shyp mailed stuff for you and Washio dry cleaned your clothes, until they both died sudden deaths
Food delivery has become a particularly crowded cemetery, with Sprig, Maple, Juicero and more biting the dust
Asked his advice for others in the space, Conway said to &Make sure your business makes sense — that you&re making money, and make sure
your customers are happy.&Doughbies certainly did that latter
They made one of the most consistently delicious chocolate chip cookies in the Bay Area
I had them cater our engagement party
At roughly $3 per cookie plus $5 for delivery, it was pricey compared to baking at home, but not outrageous given SF restaurant rates
From its launch at 500 Startups Demo Day with an &Oprah& moment where investors looked beneath their seats to find Doughbies waiting for
them, it cared a lot about the experience.But did it make sense for a bakery to have an app and deliver on-demand Probably not
There was just no way to maintain a healthy Doughbies habit
You were either gunning for the graveyard yourself by ordering every week, or like most people you just bought a few for special occasions
Startups like Uber succeed by getting people to routinely drop $30 per day, not twice a year
And with the push for nutritious and efficient offices, it was surely hard for enterprise customers to justify keeping cookies
stocked.Flanked by Instacart and Uber Eats, there weren&t many ripe adjacent markets for Doughbies to conquer
It was stuck delivering baked goods to customers who were deterred from growing their cart size by a sense of gluttony.Without stellar
growth or massive sales volumes, there aren&t a lot of exciting challenges to face for people like Conway and his co-founder Mariam Khan
&Ultimately we shut down because our team is ready to move on to something new,& Conway says.The startup just emailed customers explaining
that&We&re currently working on finding a new home forDoughbies, but we can&t make any promises at this time.& Perhaps a grocery store or
broader food company will want its logistics technology or customer base
But delivery is a brutal market to break into, dominated by those like Uber who&ve built economies of scale through massive fleets of
drivers to maximize routing efficiency.In the end, Doughbies was a lifestyle business
A few co-founders with a dream can earn a respectable living doing what they care about
But they have to do it lean, without the advantage of deep-pocketed investors.As soon as a company takes venture funding, it under pressure
to deliver adequate returns
Not 2X or 5X, but 10X, 100X, even 1,000X what they raise
That can lead to investors breathing down their neck, encouraging big risks that could tank the business just for a shot at those
outcomes.Two years ago we saw a correction hit the ecosystem, writing down the value of many startups, and we continue to see the ripple
effect as companies funded before hit the end of their runway.After the correction comes The ConclusionDesperate for cash, founders can
accept dirty funding terms that screw over not just themselves, but their early employees and investors
FanDuel raised more than $416 million at a peak valuation of $1.3 billion
But when it sold for $465 million, the founders and employees received zero as the returns all flowed to the late-stage investors who&d
secured non-standard liquidation preferences
After nearly 10 years of hard work, the original team got nothing.Not every business is a startup
Not every startup is a rocket ship
It takes more than just building a great product to succeed
It can require suddenly cutting costs to become profitable before you run out of funding
Or cutting ambitions and taking less cash at a lower valuation so you can realistically hit milestones
Or accepting a low-ball acquisition offer because it better than nothing
Or not raising in the first place, and building up revenues the old-fashioned way so even modest growth is an accomplishment.Investors are
often rightfully blamed for inflating the bubble, pushing up raises and valuations to lure startups to take their money instead of someone
But when it comes to deciding what could be a fast-growing business, sometimes its the founders who need the adjustment.
