Shyp, the on-demand shipping company, recently announced its ceasing its operations. For a company who has received $62.1M in total funding, how does the company shut down in four and half years? For all pitfalls, there’s surely a lesson or two to learn from, which I’ll do my best to breakdown.
Shyp Business Offering
Shyp handles consumer shipping for a fixed rate of $5, inclusive of courier services, meaning Shyp will come to your door to and drop off your package at the nearest delivery service – a middleman offering with built-in logistics for the lazy. Already, this model doesn’t sound like a healthy business margin, but they had a strong following and apparently impressive growth given that they were once valued at $250M in 2015.
Not all growth is equal or constant. It’s easy to get overly optimistic about current success, and assume similar or more aggressive growth in your financial models. For Shyp, their early success seemed to be built on a niche market, which is good in the early days, but doesn’t mean it always scales to expansion. For example, Shyp’s B2C fixed pricing model didn’t make economic sense for a low margin business dependent upon high transaction / less bulky shipping volumes. As Shyp started pivoting the company to variable and add-on pricing, demand didn’t meet expectations. Now, with no sustainable business model, Shyp pivoted once more to focus more on the B2B business. By this time, money had run out.
In my experience, VCs are no longer pouring money at the growth at all costs business model. Tech had the dot com bust in the late 90s, early 2000s. I think the 2008 – 10 bust was based on the freemium model, where investors main metric were total number of users, regardless if they weren’t paying customers. Many tech companies went bust went they couldn’t convert free user to paid. In my opinion, Shyp got caught in the growth trap, bloating their OPEX to acquire customers at all costs, ignoring the unit economics, and no proven business model.
With that said, during the early days of startups, winning business is all that matters, and pivots are quite common and sometimes necessary. In order to not get caught in in the growth trap, below are some metrics that could have kept Shyp afloat.
Price sensitivity Analyses
I would do some market testing to find the optimal price a customer is willing to pay above Shyp’s current fixed $5 rate, so that there is enough value to the customer to outsource opposed to driving themselves to their local delivery service.
In Shyp’s short tenure, I would want to know the average fulfillment cycle per customer. I can’t image a consumer shipping multiple packages a week or month.
I would also model expected churn from Shyp’s new variable pricing model. Certainly, there is a price that would turn customers off to outsourcing their shipping.
Customer Acquisition Strategy – It goes without saying that investing into your Sales and Marketing should generate some ROI in the future, but some metrics that should be tracked is when the ROI should kick-in and how much investment is appropriate. Tracking the evolution of your customer cycle should start when marketing dollars are spent, through the sales funnel, and to finally to conversion. Essentially, how long is your cash tied up until you start earning cashflow. Given Shyp’s business model was on-demand and an early stage startup rather than SaaS, it’s difficult to measure the lifetime value of their customers, but applying logic models to understanding their Customer Lifetime Value is essential to determining your customer acquisition strategy.
Guidance Metrics - Setting guidance numbers help the board and leadership team determine if the investments are working, allowing the company to revise the business model accordingly. Whatever the guidance metrics are such as new / upsell bookings (or sales), churn, revenue, cash-burn, net income, EBITDA, etc. should all be measured by actuals to plan at a monthly or quarterly cadence to steer the company to financial health.
Cash Runway – Although cash-burn is used as a metric, I am calling cash-burn out separately because financial metrics can be somewhat of a lagging indicator, where cash isn’t. All the sales and investment projections drive cash-flows. For startups such as Shyp, cash is everything to keep the business going. The formula to calculate cash runway is your current cash position over cash-burn rate. The result gives you the number of months the business has left in cash. When applying the cash-burn in the denominator, be sure to normalize the burn number that makes most sense of the current state of the business. For example, monthly cash-burn can experience many peaks and troughs due to factors such as one-time investments, upfront customer payments, hiring, etc.