TL;DR: This is a blog on one of many failed business ideas. It is from an IoT startup called Lumos
Lumos failed, here is the postmortem
Lumos (Think Harry Potter) was an IoT startup billed as “Smart switches that don’t need switching“. It failed in December 2014 within 5 months of launch having raised only a little angel investment. Their fail blog is quite nice in it’s naivety and honesty, it was cool they said: “we were not the right team to build a hardware company.”
Lumos switches are internet connect electrical switches and wall plugs that come with embedded sensors to detect ambient conditions in a room.
The key features of Lumos smart-switches are:
1. Self learning and swarm Intelligence among switches that minimizes user intervention
2. Provide Detailed consumption analytics of every appliance.
3. Wireless network connectivity removes the need for hardwiring and a wi-fi gateway.
4. Embedded Sensors that measure ambient conditions along with electrical conditions to ensure rapid decision making for switches.
The Dunning–Kruger effect
“The Dunning–Kruger effect is a cognitive bias wherein unskilled individuals suffer from illusory superiority, mistakenly assessing their ability to be much higher than is accurate.”
Why Lumos failed, in their words
Technical reasons for failure
- Lack of focus: Weren’t able to deliver any good enough solutions
- Hardware is hard: Building a startup is hard, but building a hardware startup is 10x harder. Pebble, with all its Kickstarter success, is still in troubled waters.
Execution reasons for failure
- Weren’t solving a real problem: What they were doing didn’t add value “the incremental value that our product was offering was quite low“
- Tried to do too much: Didn’t do one thing well
- Didn’t understand the customer: No segmented customer focus, be it luxury or lower end of the market and inability to explain value proposition to customers. “We were pitching power savings as well as luxury. This made the product and the pitch very complicated.”
Founder reasons for failure
- Founder inexperience: They lacked a lot of knowledge of how to build a startup and what was important
- Did not think the idea through: They list out a number of failures
We did not understand the market and competition well enough. We also did not figure out the persona of our customer. And whether that customer was looking for the value that we were providing.
We did not question whether we would be able to provide that value in that first place.(Machine Learning cannot read the human mind. Not yet!).
It is always possible to validate or disvalidate a lot of assumptions about the product, market and competition without building the full-fledged product.
One way we could have done it was by selling existing products to our potential customers.
- Lack of industry knowledge: Had they been experts in IoT, they would know how to price hardware and the difficulties in building it
- Lack of hardware knowledge: “We had underestimated the work that goes into making a market-ready hardware product. We had overestimated the demand and utility of our product.“
Hardware products sell at 4x–5x the component costs. How did we not know this?!
We were wildly wrong about the price at which we thought our product would sell. And when all this realization came together, shit got real.
Key lessons to learn
- Build something you know and love or work in the industry: Work on something where you are either an expert or a top user. If not, become an expert/top user. They ironically mention Homejoy “Homejoy founder Adora Cheung herself worked as a professional cleaner to understand the business.”
- Understand your Hinge breaking assumptions: “Make a thorough list of hinge-breaking assumptions for your market, product and competition. Hinge breaking assumptions are those that can make or break your company.
Rank them according to the probability of the assumption being wrong and subsequent risk to a company. Start validating from the top while building as less as possible.”
- Realise sunk costs are just that and do what needs to be done: Similar to inheriting technical debt, sometimes it is better to start again.
- Keep open dialogue with cofounders: Lumos were afraid to face the elephant in the room and to talk about the tough questions such as about the vision and their commitment. “It helps to be transparent about your doubts with co-founders in the long run“
It is absolutely necessary for founders to be committed to the vision of the company. However, there are multiple ways to achieve a vision. Don’t fall in love with one way. Accept the possibility that you might have to start things over from scratch.
Build a culture of transparency in your company. Encourage dissent among cofounders and deal with it objectively.
- Pick one problem and solve it: “As a startup, you are constrained in resources. So it is always better to identify and solve one problem very well instead of solving n problems in a so-so way.”
Nest solved the heating problem. Dropcam and Canary solved the security problem. Try to be a drug for your customer instead of being a vitamin.
- Hardware startups are hard to raise for: The bar for VC is high in terms of traction(~$1M on Kickstarter/Indiegogo last I heard)
- Building a prototype is easy compared to everything else: The real challenge comes in product design, production engineering, manufacturing, distribution and marketing/sales. Product validation and iteration cycles are also long
- You need to have manufacturing contacts in China: Managing cash flows is hard because you have to pay your vendors months before you get paid from your customers
- Watch out for the retail chasm of death
What did you think about this blog on failed business ideas?
More reading on failed business ideas
You can read the original fail blog here