Author Archives: Semil Shah

Iterations: The Improbable, Captivating Pivot From Orchestra To Mailbox

mailbox

Editor’s Note: Semil Shah is a contributor to TechCrunch. You can follow him on Twitter at @semil.

On Friday, Dropbox’s acquisition of Mailbox marked the first time the tech community lit up in amazement and awe of a consumer transaction since Facebook acquired Instagram back in April 2012. The attention is well-deserved. For a variety of reasons beyond the high ticket price of the deal, the acquisition of Mailbox contains many interesting sub-stories that captured the tech community’s interest:

One, Mailbox only raised money once in the summer of 2011. When the funding was announced in November 2011, the company was known as “Orchestra.” At the time, raising $5m pre-product and right off the bat for an A round would seem high, and perhaps the quality of the team afforded the company the chance to raise enough money to have more than one shot on goal, which goes against some conventional wisdom that startups should stay lean and not raise too much dough upfront. I don’t know the specifics, but probably safe to assume their $5m cost them about 20% of their company.

Two, Mailbox was an incredibly well-executed pivot. The Orchestra team calculated that its product wasn’t going to breakout and be a mainstream hit. This is a really hard call to make because its often easy and logical to think in terms of sunk costs. In transforming from one product to an entirely different one, the Orchestra team quickly readjusted and started from scratch to build Mailbox, taking their initial learnings but essentially starting a new company from within their core.

Three, Mailbox was iOS-first. Even though Orchestra worked on iOS and web — and worth noting that Orchestra’s design and cross-platform sync technology was also quite remarkable itself — Mailbox was released on Apple’s platform and ginned up significant buzz to get acquired without expanding to other platforms first. Instagram waited a while before building for Android, which was released a little while before they were acquired and drove a huge increase in their overall install base. While Android is picking up steam (or in some eyes, surpassed iOS), value at the application layer still resides with iOS.

Four, Mailbox added extra buzz to their recent reinvention and re-launch by creating a brilliant marketing hack to get around the ornery distribution hurdles posed by the iOS App Store. Mailbox’s infamous “Reservation System” allowed consumers to download the app from the store but wait in line until their number was called up. This gimmick also became the subject of chatter around many pre-launch mobile startups (see: Tempo) trying to concoct their own special velvet-rope tricks.

Five, Dropbox’s move in this transaction also shines a light on the acquirer’s potential strategy. After raising $250M cash in the fall of 2011 at a very high valuation, Dropbox is on a tricky journey to transform from a commodity service into something more. Skeptics, for instance, wonder if Dropbox can make this turn, as the size of their valuation may have taken some exits off the table. I’d recommend two bloggers here: One, TechCrunch’s Ingrid Lunden penned a smart piece on the direction Dropbox is headed in, and a few months ago, analyzed its earlier purchase of SnapJoy; and two, Spark Capital’s Andrew Parker wrote an insightful post looking back on the history of file systems and where Dropbox could be headed.

Six, while Mailbox received accolades for its user interaction elements of “swiping away” and “snoozing” email, much of the inspiration for those gestures might have been sparked by Clear, the colorful iOS to-do list app. While many may credit Mailbox with inventing these gestures, the phrase “good artists borrow, great artists steal” may be fitting in this case, and the team should get credit for recognizing a great gesture and bringing it to a product category (mobile email) that desperately needed a new client.

And, finally, seven…this all went down so quickly. Just as it seemed Instagram launched, exploded, grew fast, and then sold two days after closing a $50m Series B, the story of Mailbox can be told in months, not years. Orchestra’s founder penned an op-ed in August 2012 analyzing why email is still a problem. In what seemed like a very long Beta test, influential tech users had access to the product and were publicly raving about it, indirectly generating buzz and demand for the app as 2012 ended. It was a great v1 product despite the fact it didn’t allow for search or always have consistent sync or push notifications. In early February 2013, Mailbox launched officially, but consumers had to wait in line, a tactic which became its own story. And, as we all know, on March 15, Mailbox was acquired by Dropbox for what many people believe is quite a healthy sum of cash and stock.

For these seven reasons, this story is captivating. We all may say that the product wasn’t that great, or that startups don’t seem to want to remain independent anymore and go big, or that startups are just meant to be flipped, but what Orchestra and Mailbox accomplished is nothing short of remarkable. Deciding to pivot is a really hard decision. Getting the team to buy into that is really hard. Throwing away all the previous bits of work can be demoralizing. I have seen a small handful startups with real funding and product used by millions try to pivot like this, and each one has failed so far. Actually creating a new brand and product that matters is close to impossible. Devising a product-marketing plan into the launch with a long beta and a reservation system was pure marketing genius. And, while many dreamed of what Mailbox could do for email on different platforms, the team decided to take a generous offer from Dropbox, one that would make all shareholders happy and, considering all the circumstances above, would turn coal into a diamond. That is why the story of Orchestra to Mailbox to Dropbox captures our attention. Building big, durable companies and going public is one pinnacle we see on magazine covers, but for many others, finding that one sweet exit — their own “Inbox Zero” —  is a dream come true.

Photo Credit: Digital Game Museum / Flickr Creative Commons

“In The Studio,” Morgenthaler’s Mark Goines Invests In Products For “Really Small Businesses”

Goines

Editor’s Note: Semil Shah is a contributor to TechCrunch. You can follow him on Twitter at @semil.

“In the Studio” this week welcomes a Silicon Valley veteran with decades of operational and investing experience under his belt, an active board member to many successful companies, and who holds a wealth of experience around financial services and tools for both individuals and businesses.

Mark Goines, a Partner at Morgenthaler Ventures, brings a true wealth of experience in financial products and services to founders. After executive stints at places like Charles Schwab and Intuit, Goines began angel investing to help the next generation of entrepreneurs in the space identify and attack new opportunities as the web grew and, more recently, as mobile platforms explode. After some angel investing success, Goines followed in line with a recent trend of prominent individual investors and operators to become an institutional VC on Sand Hill Road.

In this conversation, Goines and I discuss a range of topics related to B2B applications and the climate for founders in Silicon Valley. Specifically, Goines shares a thesis he’s developed around what he calls “RSBs,” or “really small businesses,” typically those which employ less than five people. RSBs are not served well by existing business tools, which are either too primitive or too sophisticated. Marketers can now identify and target these RSBs for next to nothing, creating opportunities to build verticalized or broad solutions for them.

Behind this thesis, more interestingly, are deep insights around a long-term trend that combines many forces: A global economy whose center is shifting; more business formation during recessionary periods; a national economy where certain jobs may not come back; attitudinal shifts away from wanting to working for larger corporations; less job security in the workplace; and the fact that individuals tend to be happier running their own businesses once they’re able to get through the initial bumps of the startup stage. For founders interested in this space, Goines advices to build horizontal or platform solutions and to resist the urge to customize in order to reach the greatest set of potential users.

Additionally, Goines shares his thoughts on how he perceives the Valley has changed over the past five years. While he notes things are great for founders overall, he does share some well-reasoned notes of caution for us all. First, there is an oversupply of early-stage capital, much of it institutionalizing, which will lead to less true angel investors, a decline that’s hard not to notice. Second, incubators and accelerators which help drive the rate of company formation even higher could help artificially inflate valuations, which could have serious consequences on what founders may be able to take home in such an acquisitive environment. It’s hard to ignore the insights of an experienced angel investor like Goines on these subjects, and especially so given his focus on the financial world and its products.