Lessons From Failure: Borrowing Tools From Your Neighbors

Adam Berk had a vision of creating an online library where neighbors could borrow tools and electronics from one another. Why buy a fancy camera you only needed to use once for a big trip? Why invest the money in physical tools for a home remodeling project if you are never going to need them again? Adam and his best friend Dave spent 5 years creating this utopian community, neighborrow, powered by a new form of currency. Their business model was to eventually white label the product and sell it to large apartment buildings and others who wanted to facilitate a borrowing community. But they never achieved their vision. Adam learned a few lessons in the process and he’s here to share the full story:

Diana: What was your business background?

Adam: I graduated from Emory, became a prop trader at E-trade, and started investing on my own. In a very short amount of time, I had made a good amount of money betting on the right startups that found scalable growth. I thought I understood what made companies successful and that I could replicate it.

Diana: How did you come up with your big idea?

Adam: I was living in an apartment building in New York and had just come back from a big overseas trip. I wished I had more lenses for my camera for the trip, but I rarely used the camera outside of traveling. The rest of the time it just sat in my apartment. The building had 500 units, and there were 10 more buildings just like mine within walking distance. I was sure that someone in close proximity to me either had additional lenses that I could borrow or wanted to borrow the camera when I wasn’t using it. And there were probably a dozen other tools or gadgets in my apartment that would create the same level of value for my “neighbors”.

Diana: How did you vet the idea?

Adam: In the worst possible way! I had a best friend since childhood, Dave, and I trusted him implicitly.  Still do. He was in his first year of business school at the time. I always went to him whenever I had a business idea and, up until that point, he had shot down every single one. But this time was different.  He really liked the concept and said he wanted to be involved. That was all the validation I needed.

Diana: And you got started right away?

Adam: Yes. I spoke to a few more friends, but I had already made up my mind. I hired a kid off Craigslist to build it, spent my entire budget on a designer from Russia, and started chasing PR. We spent two years – designing, coding, and building the site. We spent thousands of dollars on totally unnecessary features for the site and business documents we would never use. Terms and conditions – $3,000. Integrating a shipment feature on the site – $6,000. It all seemed necessary at the time.

Diana: How did you finance your living expenses during those first two years?

Adam: I lived off my savings at first and eventually turned to credit cards to finance my living expenses. I was so sure it would all come back very soon.

Diana: Ok, so what happened with the business when you launched the site?

Adam: We were incredible at getting PR. It was an easy concept to cover and the media really liked it. We had stories in the Wall Street Journal, USA Today, National Geographic, the Today Show, CNBC, and every local news channel in NYC. The stories sent volumes of people to our site and many of them registered to use the service. Thousands of them. They would even write me letters about how I was changing the world.

I thought we were killing it, but in reality, no one was actually using it, not even the people who were sending me fan mail. They would sign up, and even list some of their inventory, but that was the wrong metric. No one was borrowing. We thought that this was because we didn’t have critical mass, so we kept tying to build users. We looked everywhere we could think of, schools, cities, states, etc. to build our user base, but nothings seemed to affect the borrowing rate.

Diana: So what was the disconnect?

Adam: It turned out that people didn’t really want to borrow anything. They didn’t mind buying things and just letting them sit unused. Plus, we weren’t solving a real problem. We weren’t top of mind. Most of the people who signed up never came back. They just forgot about us.

Diana: How long did it take to figure out that it wasn’t working?

Adam: Can you believe it took 5 years to figure it out? We can’t! I was just so convinced from all the publicity and the signups that I thought we could redesign the platform in this way or that way to get people to start using it. I thought that we could finance the high-end design with angel/VC funds. I was convinced that this was a great idea, the world needed it, the press loved it, and even my most critical friend loved it. But none of those factors can create a successful business. Only customers can create a successful business. We spent time setting up investment meetings and pitching when we should have been talking to our users. The investment meetings didn’t go well.

Diana: Can you point to a specific moment around year 5 where you finally accepted that it wasn’t going to work?

Adam: I can. Dave and I used to have huddles outside of the nearest subway stop from our last meeting to strategize about the company. We often spent 3 hours standing outside the Union Square stop theorizing about the one thing that would make this work. He used one of these sessions to stage an intervention. He had just read Steve Blank’s book and taken me to a meetup where Steve was the guest speaker. At his talk, Steve said “Stop arguing with your cofounders and test what you’re arguing about, you will quickly know who’s right or not.

So at this one huddle where I was trying to explain that we needed to buy insurance on our goods and what changes we needed to make to the website, Dave issued me a simple challenge. He bet I couldn’t get even one transaction completed in a month. Just one instance of a legitimate transaction that would create value for both sides – someone borrowing something from someone in close proximity. And I could even manually perform the transaction, meaning I could facilitate the transaction rather than have them go through the site. I laughed at what a waste of time that would be, but Dave insisted. Needless to say, I failed to get that one transaction, even though I tried my best and fully understood the implications of failure.

Diana: Wow. That must have been difficult to accept. In retrospect, what were the biggest blind spots in your original plan, or mistaken assumptions, that kept you treading water for so long?

Adam: I’ve got a couple.

1. I gave myself a lot of different justifications of why people weren’t borrowing: the design, features that were missing, lack of insurance, etc. But I just couldn’t see what was plainly in front of me, the users we were signing up just weren’t interested in borrowing. Period. And there was nothing I could do to convince them.
2. I thought I had to build something before I could really test anything. I felt like we needed economies of scale in order to make the company work. But we didn’t. We didn’t need anything to rent one drill to one person. We didn’t even need a website.
3. I didn’t understand the importance of distribution to a product’s success. It’s not enough just to be a “great product”, you have to be very thoughtful about how you can grow your startup and acquire paying users.
4. I wish we had done a better job of capitalizing on all of the traffic we received from the media stories. We didn’t test anything with those visitors and therefore just squandered all of the opportunities.
5. I wish that Dave and I had had a conversation about our motivations for starting a business early on. I wanted to solve what I perceived as a problem and was probably more interested in a social enterprise and Dave wanted a company that could go public. We were spending a lot of time both going in very different directions.
6. It took me a long time to figure out that all of my business plans, pitch decks and projections were complete BS. They were just guesses that never materialized.

Today, Adam is the founder of an online wedding photography company that started making money just by releasing a landing page- people were willing to pay for the IDEA of the value proposition long before there was even a product for them to use. He also serves as the Director of Entrepreneurial Science at Lean Startup Machine. Adam uses his experiences with both a successful and an unsuccessful startup to travel the globe and teach entrepreneurs about Lean methodologies. He has helped over 100 teams of entrepreneurs in Istanbul, Silicon Valley, NYC, Seattle, Vancouver, Montreal, and at The University of Florida, Microsoft, AOL, NewsInternational, etc.

You can find Adam on Twitter @AdamBerk