22/11/2022
Imagine, you need to ship something to the opposite part of the country and you don’t want to look for a box, wait in a queue or go to the post office.
You want someone to pick up the package from your house and deliver it to the desired destination.
This is what the Shyp startup was doing, and people were really appreciating it, but something went wrong.
In this post, we explore their story. How they reached success, where did it go wrong, and what things founders should keep in mind while growing a startup.
---
💡 The idea.
After Uber's rise, different companies tried to replicate its success in other niches.
Shyp was one of them. It was founded in 2013 in San Francisco as an on-demand service provider for shipping.
Their app allowed users to take a photo of the item for shipping. Then, for a $5 fee, Shyp would pick it up in 20 minutes to pack and deliver to a shipping company.
Users no longer had to worry about finding a box and packing material, or drive to a shipping store or post office to send their package.
---
🥳 Early success and big plans.
Shyp had a great start. Customers loved it and investors wanted to invest in it.
Their app was well-designed. The couriers were personable and often arrived even more swiftly than the promised 20 minutes. People who received shipments admired the quality of Shyp’s custom packaging, which it produced using its own box-cutting machines.
In 2013, Shyp gained a lot of appreciation for the services it provided from people in San Francisco. Due to this initial explosive growth, it even got compared to Uber and called the “Uber of shipping”.
The business began to grow significantly primarily as it focused on supply chain issues that many companies overlooked. Soon Shyp raised $62 million with $250 million in valuations.
The concept was strong enough that the company expanded its services into New York, Los Angeles and Chicago, and introduced new initiatives like its partnership with eBay and a new feature, address-less shipping.
The company had enough resources to become one of the first on-demand startups to turn its contractors into employees. A transition increased its costs but also gave a higher level of quality control.
Shyp started calling itself “the new global standard in shipping” and launched an ambitious ad campaign to ramp up its customer base.
---
🙁 Why and how Shyp failed.
While everyone was excited with Shyp's success, there were some fundamental problems with their operating model.
01. Introducing a price for packaging.
A fixed price for pickup and packaging proved a challenge given the wide variance in the size of the packages that people were sending.
Shyp charged a $5 pickup fee, including coming to home, packaging, and delivering. Moreover, all items were not created equal. Shipping shoes versus shipping TV didn’t have a lot of financial sense.
To be more profitable, the company introduced packaging and shipping fees that could vary based upon the size of the item. It started from $3 for a small item and $75 for an extra-large item.
While probably prudent for the company, it likely diminished the value of the service in the eyes of customers.
02. Overestimation of potential customers.
At the beginning of their journey, Shyp had vastly overestimated the number of individuals that would regularly ship items anywhere.
They found out that shipping things is an unusual and frequently intermittent practice, unlike basic utilities like taxi rides and food delivery, which most people now use at least once a week.
To compensate for this, Shyp began to recruit small businesses that ship regularly to join their shipping movement, even providing volume discounts.
Still, they decided to keep the popular but unprofitable parts of their business running, with small teams of their own behind them. The company’s CEO Kevin Gibbon admitted that letting the unprofitable parts run was one of his biggest mistakes.
03. Focus on expansion rather than sustainability.
One of the main reasons for Shyp’s fail was the focus on expansion rather than sustainability. They keep on expanding geographically without thinking it through, which eats up lots of their funds.
In 2018, Gibbon admitted that instead of planning the right demographic, innovative features, and growth tactics, he focused only on the engineering and development part. He stated that the Shyp app fell into the trap of growth.
He also said that "growth, at all costs, is a dangerous trap that many startups fall into, mine included.”
In order to survive, Shyp downsized itself and ended operations in all markets except its largest and most profitable, San Francisco. They fired many of their employees, focused entirely on business customers, and shut off all the parts of the business which weren’t generating revenue.
These moves worked temporarily, as the company started operating at a profit. But due to their earlier mistakes, the company had been left with too little cash flow and insufficient resources to continue pursuing in the new direction. Finally, on March 27, 2018, Shyp shut down its operations.
---
🤓 Lessons to learn.
Shyp’s story illustrates the difficulty of establishing a business with a solid foundation.
It shows that software development should go alongside with the proper planning and prudent growth, even when entering a promising niche.
Trying too much too fast, without thought as to sustainability or cost, is a high-risk proposition that few can afford to make.
Too much focus on ideas and technological solutions can lead to a lack of clarity about what the market is and what can be reasonably expected and achieved.
Follow us to get more stories on technology startups and businesspeople!
