Last week, on-demand shipping startup Shyp Co-Founder and CEO Kevin Gibbon announced that the company is shutting down operations and laying off all employees. This comes after a five-year journey in which it had raised $62 million and had a valuation of $250 million.
San Francisco-based Shyp was founded in 2013 by Kevin Gibbon, Jack Smith, and Joshua Scott to make shipping hassle-free. Customers could just click photos of the items to be shipped through Shyp’s app, and Shyp would pick up the items within 20 minutes, pack them, and deliver them to the specified address through a cost-effective carrier. It charged a flat fee of $5 for pickup and $15 for customised packaging.
Investors and consumers lapped up the idea. Shyp raised $2.1 million in a seed round in September 2013 and followed it up with a $10 million Series A in July 2014.
After the initial spurt of growth, things slowed down. But instead of focusing on the more predictable market of small businesses, Shyp focused on expanding to new markets and working harder to penetrate the consumer market. And to fund its unsustainable business model, it had to raise more funding. It raised $50 million at a valuation of $250 million in April 2015.
Shyp finally woke up to its true potential in early 2016 when it partnered with eBay. Soon, online sellers and small businesses accounted for over 50% of its revenue. There was improvement in unit profitability and revenue per transaction increased by 150%.
Further, in the summer of 2017, Shyp narrowed its focus to just business customers in San Francisco, which was its largest and most profitable market. It suspended operations in all other markets – Chicago, Los Angeles, and New York. By December of 2017, it was effectively breaking even. But it was too late.
Its earlier mistakes had proved to be too costly and left it with little leeway to pursue this new sustainable direction. In a LinkedIn blog, Kevin says that his early mistakes ended up being prohibitive to Shyp’s survival.
But investors are also to blame for Shyp’s sinking. Investors poured in huge amounts of money where a sustainable business model was not yet in place. The funding came too soon. Investors were looking for the next Uber, they were not looking for a profitable, sustainable business.
This is what destroyed Shyp and what it could have been. Capital efficiency and a sharp focus on fundamentals and unit economics is very critical for a business to succeed.
The founders have now learnt an expensive lesson. They will most likely do the next company with less funding and an acute focus on unit economics.
This segment is a part in the series : Death By Overfunding