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- When companies fail...
When companies fail...
Failed companies can also add value.
In 2020, Fairbridge invested in Boon Supply, a platform offering fundraising services for schools, teams, and community causes. We saw a unique opportunity to back an outstanding founder on a mission to revolutionize product offering and operational efficiency of a stale industry that was selling old magazines and cookies on a pen and paper ordering system. Last year, we shut down the business. What went wrong?
The philosophy
Companies aiming to introduce innovation that disrupts incumbents have three key obligations: (i) to work with underserved consumers in a market of choice to deeply understand their pain, and to educate them on a proposed panacea (ii) to ensure that the gains of this work translates into compelling products/services that optimize customer value and company profits, and (iii) manage risk and liquidity. Companies that don’t excel at all three will not accrue the benefits of their endeavor. However, this does not mean that value hasn’t been created; it might have accrued to society, or to competitors with better execution, or is not properly organized for beneficial use.
Why did we invest?
The opportunity to invest in Boon Supply was very clear to us. We saw a compelling large market, we knew the exact levers to pull for value creation, and we picked the best team.
Compelling thesis: Advancing sustainable consumer options in a large catalytic market gave us the ability to do good (sustainability and community resilience) and do well (high volume of transactions) at scale.
Excellent team: Lily Kanter, the CEO was a repeat founder. Lily was co-Founder of Serena and Lily and easily one of the best merchandisers in the world. We had conviction in her ability to disrupt an archaic market.
Favorable market: School and community fundraising represents significant segments within the broader fundraising industry. Charitable giving in the US totals ~$500B, with ~14% allocated to education and ~14% to human services, which includes community initiatives.
What went wrong?
Framing; buyer vs. the customer: The company was positioned to appeal to Gen Z’s awareness of important matters such as climate change and it’s impact on society. We leaned heavily on this messaging. However, the actual buyers, the parents, turned out to be skeptics, often misconstruing sustainability with liberal political agenda.
Distribution: Our technology was meant to add a digitial dimension to the traditional door-to-door combat distribution model, improving efficiency that would drive volume. The adoption of technology was more complicated and took longer than we anticipated.
The pandemic: The extended shutdown of schools during the pandemic was the final nail in the coffin for the business.
What did we learn?
The right Founders matter: In addition to being an excellent operator, Lily demonstrated extreme resilience and cheer in a difficult market and circumstances. She tried all options to steer the ship, including replacing herself as CEO. And at the end she successfully navigated the complex winding down of the business.
Socially critical must also be economically viable: What we knew to be socially critical turned out to be diffifult to monetize. Sustainable merchandise was increasingly harder to source with scale and commanded much lower margins. This compromised our profit sharing model.
Sustainability is difficult: Sustainable consumption is inevitable, but will require patience, persistence, and more capital to build the rails! Lego has done a great job to publicly and honestly share it’s challenges.
The takeaway
Venture capital advances innovation through the creation of new markets or the rethinking of inefficient existing ones. However, only a few companies succeed in accruing the benefits of their innovation to themselves. To improve global return on investment, companies that fail should thoroughly document and broadly dissemminate their lessons for the benefit of future innovators. Unsuccessful ventures should be wound down with order and dignity. This is the true definition of failing forward.
I wanted to wish you and your loved ones a wonderful Thanksgiving with lots of pie 💚!!!