Sramana: How much money did you put in to start up Moonfruit?
Wendy Tan White: We seeded the company with our own money. I put in $50,000 to start with.
Joe White: We basically worked for equity to a point of around $200,000. The first investment we received was from Bain, which put in $500,000.
Sramana: What was your customer acquisition strategy?
Wendy Tan White: The difficulty then was that not a lot of people were online, and there was not a lot of online advertising. We did a lot of offline advertising. We did print and some TV as well. We even raised some funds from LVMH during that period.
Joe White: This was at the height of the dot-com boom.
Sramana: I remember the era very well. I ran an e-commerce fashion company in 1999, and we also talked to LVMH.
Wendy Tan White: I know they invested in quite a few companies. Customer acquisition was completely different then. We relied on print and PR. We ended up getting 400,000 users at the time, but there was no business model. We offered the service free with the idea that we would generate money through ad revenues. It was a bad business model.
Joe White: What is fascinating is that at the time that was conventional wisdom. Even the investors encouraged us to make money. The focus was on scale and numbers; worry about the business model later. Even better, sell the company before you had to think too hard about the business model.
Sramana: This is how confusion between business model and exit strategy develops.
Wendy Tan White: Exactly. Looking back it seems silly, but at the time it was conventional wisdom. We built a strong brand in the UK. Macromedia invested in us some as well. Then the dot-com crash hit. We were able to purchase our shares from investors at a fraction of the investment cost.
Sramana: How much money had you raised by then?
Joe White: We had raised £8.5 million. We bought the business back for an undisclosed sum that was much smaller. We were able to keep the users.
Wendy Tan White: The flip side of that is that we went from 60 people down to two, Eirik and me. Joe went off to McKinsey.
Joe White: Upon leaving Cambridge I had offers to join McKinsey and others, and I decided to try the startup environment for a while. When the company reduced, I felt it would make sense for me to get more experience in a real-world job. That was helpful when it came time to come out of McKinsey. When the business stabilized it was working on a subscription basis and it was growing. I came out of McKinsey to push that growth. That is when Wendy took some time out to have our two children.
Sramana: After you bought the business back and Joe had gone off to McKinsey, you were left with you two and Eirik. What did you do next?
Wendy Tan White: We scratched our heads for a bit. We told the customer base that the only way we could keep the service going is if they would be willing to pay for it. We had 5,000 paying users out of 400,000 registered users.
Sramana: That is right on target for free to premium conversion rates; 1% to 2% is standard, 4% is the maximum.
Wendy Tan White: Which is realistic. We charged $5 a month. It was enough to get us going again, and we went into bootstrapping mode. Over the years we built up to a team of 10 and we used a lot of freelancers. We got smarter about controlling our costs. We did not grow too fast. We built a real business.