In the start-up community, failure is a badge of honor. The Purple Heart highlights glorious stories of failure, lessons learned, and redemption. Aaron Price is the organizer of the Hoboken Technology Meetup, one of the partners in the Hoboken coworking space MissionFifty, and currently looking for a tech lead for his own start-up, makeMania.com, a do-it-yourself community site where crafty people find inspiration and supplies.
“Probably my most interesting failure was my first start-up,” Aaron Price, the fastidious director of the Hoboken Tech Meetup, told Betabeat over the phone. We were expecting him to tell us the story of how he used to sell Harley Davidson motorcycle parts on eBay, relying on a warehouse of high school students who cataloged each overstock part–a tale he had partially related over Blue Moons after the Meetup Monday night. But Mr. Price has founded several start-ups–his blog is called “Failway to Success“–and the story he wanted to tell was of DeliverU.com, born in 1999, when he was a 20-year old junior at the University of Maryland.
DeliverU.com started like all food delivery start-ups. “In college, my roommate and I wanted to order food online and couldn’t.” They bought DeliverU.com and started hosting a fax server so they could transmit orders to local restaurants. It was a smash hit on campus.
“We had a lot of success on a completely viral marketing effort,” he said. “But we were just very naive to the kinds of capital that it took to grow a business like that. We really didn’t think through what the business model would look like.”
Mr. Price and his partner were approached by angel investors, but they had been advised by “a bitter old entrepreneur” to never take outside investment. That was their first mistake.
“We could really have used the guidance as well as the capital,” Mr. Price said. The business was popular and the salesmen had honed their pitch–DeliverU expanded to Washington, D.C., partnered with Takeout Taxi and got dangerously close to closing national deals with Chipotle and Cosi. So what went wrong?
For one, the business was profitable, but margins were thin. “We made five percent of every order that went through. On a college campus, the average order is $12. That gives us a whopping $.60 cents for every order that goes through,” he said. “To make any money, you need a huge amount of volume. Customer acquisition costs could quickly eat away at those margins.”
And customer acquisition was mostly on DeliverU. The merchants had the wrong incentives, Mr. Price explained, because the cost of a DeliverU order was slightly higher than one they could take over the phone. That put the burden of marketing the service mostly on Mr. Price and his partner. “We were a B2B service. But then the restaurants were asking us to be a B2C marketing company and bring them this business. That was a major flaw in our model; there was not enough money to also market those restaurants,” he said.
The technology was also a challenge. Fax servers would go down and DeliverU had to maintain a backup system that was inefficient and tough to scale. When the Cosi and Chipotle deals fell through around the same time, the entrepreneurs got discouraged and decided it was time to move on. One of the partners took over the business and eventually shut it down.
“It was a failure in that I didn’t retire on DeliverU, but it was a success in that it’s definitely changed the way I approach any business ever since,” he said.
So what’s at DeliverU.com now? we asked.
“That’s a good question. Let’s find out,” he said. “It’s been a while.” Silence on the other end of the line, as Mr. Price navigates to his old domain. It’s a list of Google Ads; we assumed a squatter. “I think that I actually own the domain,” Mr. Price said. “But I just haven’t done anything with it in so long. I guess I could change it… I guess it doesn’t really matter, though.”