July 5, 2019

Purplebricks $5m US retreat shows startups need to slow down

Is it time for startups to slow down?

Kitty Knowles

4 min read

Purplebricks leaves US.

Facebook’s motto is “to move fast and break things”. At the same time, startups are constantly told to “think globally”. But is it time to slow down?

Lately, expectations of rapid expansion have been proving unhelpful, if not company-killing. 

Britain’s online estate agent Purplebricks this week said it would pull out of the US to focus on its hometurf.

It had splashed the cash on marketing when it entered America in 2017, just three years after its initial launch. However since then, it has failed to pull in profits to match (in fact, the company's operating losses nearly doubled in the last financial year). 


This news from Purplebricks is part of a wider global retreat. In May it announced plans to quit Australia (where it’s been operating since 2016). Founder and former CEO Michael Bruce even threw in the towel after the startup admitted it had lowered standards as it had grown.

Such setbacks don’t just reduce a company’s global foothold — they come with a hefty bill. Purplebricks' new CEO Vic Darvey cited exit costs of around €4.4m ($5m).

Failing fast is better than failing slow?

Obviously, startups shouldn’t act at a snail's pace.

And there are many reasons that the ‘act fast, fail fast’ mentality holds strong. Of course, founders shouldn’t fear failure, or see it as a black mark against their name. 

The ability to act nimbly to seize and try out new opportunities is a huge advantage to small businesses as they take on bulky incumbents, even when those opportunities don’t always pan out. 

But some companies feel that they have to promise the world to investors and “blitscale” to success. Is there a better way?

Take the UK-founded lending platform Funding Circle, which is also going through painful expansion woes. 

The British fintech — touted as “fast-growing” to investors when it IPOed last year  — halved its revenue growth projection to 20% this week. 

Sami Desai, Funding Circle’s founder and chief executive, said its shifting targets followed “reduced demand” for its services and blamed an unstable economy. Maybe this is true. 

But some said they promised too much. 

“One of the worst crimes a company can commit is failing to deliver on promises set out at its IPO,” AJ Bell investment director Russ Mould told finance publication CityAM.  

“Going too fast presents significant execution risks and scope for major disappointments. Funding Circle should have learned its lesson by now, given how it hasn’t been awash with good news since being a listed company.”


Go slow with your customers

Going too fast means startups make mistakes. It means they misunderstand their target markets and their customers. 

"Getting a product into customers' hands fast is critical to the success of any startup,” Will Herman, co-author of The Startup Playbook: Founder-to-Founder Advice from Two Startup Veterans, told Entrepreneur

But he also raises a counter-argument: “If you try to do it insanely fast, you're going to make so many mistakes that, ultimately, you'll slow yourself down."

"If you don't know who your customer is […] you end up spending a lot of time and a lot of money on people that probably aren't going to buy your solution."

The way Chinese rental bike platform Ofo entered Europe is this in action. 

When it took on the UK, it was famously unprepared for the realities of life here. It didn’t understand its new market, or how best to enter it, and when it airdropped its yellow bikes unannounced they didn’t end up just ditched on streets, but dumped in park ponds and found up trees. 

Ofo finally pulled out of London this year, having already withdrawn from Norwich, Sheffield and Oxford to focus on the capital. But it was too little too late, and the company now sits on the brink of bankruptcy. 

Can we learn from past mistakes?

The reality is that some sectors are starting to take note.

Writing for Sifted, doctor-turned-entrepreneur Jing Ouyang, pointed to numerous companies in the public sector who are taking time to forge meaningful partnerships that will, eventually, give them the biggest impact.

But elsewhere, founders are still racing towards funding before they’ve nailed a functioning profitable business model (just look at the fintech sector). 

This approach might pay off for one or two players, but Cristina Alba-Ochoa, CEO at OakNorth, one Europe’s a rare profitable fintech unicorn, flatly warned us of the “clueless fintech people” pouring money into this particular breed of founder. 

For startups, is cannot be all about speed. Or even about being first. 

The most critical task has to be to build your bedrock, diligently. Don’t race to new markets, or towards money without knowing your customer, your value, and your business fit.

Go slow when its important. It will give you the ability to move fast when it really counts.