Monitor110: A Post Mortem

Turning Failure into Learning

Writing a post mortem is hard, particularly when the result is failure: a failed deal; a failed investment; a failed concept. That said, without a post mortem, without deep reflection, honesty and introspection, how can we get better and do better the next time? Quite simply, we can't. My involvement with Monitor110, as an investor, Board member and leader, was one of the most interesting and informative experiences of my life. I learned about areas I never dreamed of. I worked with a terrific group of young, exceptionally bright people who believed in the vision. Ultimately, we failed. But why did we fail, and what could we have done differently?  Some of the stuff is pure 20:20 hindsight. These observations aren't worth much. But the interpersonal dynamics, the issues of organizational structure, the need to change strategy in light of new information, the relationship with key investors, all of these are very instructive. I will endeavor to be as honest and candid as possible.

Let me say that I deeply respect everybody involved with Monitor110 from the original founder, Jeff Stewart, to our investors, employees and customers. Everyone tried very hard to make things work, and this post is not an indictment of anyone. There are no "bad actors" in this story. But a confluence of factors made success an uphill struggle.

The Seven Deadly Sins

While we certainly made more than seven mistakes during the nearly four-year life of Monitor110, I think these top the list.

1. The lack of a single, "the buck stops here" leader until too late in the game
2. No separation between the technology organization and the product organization
3. Too much PR, too early
4. Too much money
5. Not close enough to the customer
6. Slow to adapt to market reality
7. Disagreement on strategy both within the Company and with the Board

A Little Background

I was initially approached in early 2005 by Jeff Stewart, who had the original idea for Monitor110. It was a compelling idea. The thesis: more and better information is being put out on the Internet every day, information that can be valuable to Institutional investors who are constantly looking for an edge. And these investors were not very sophisticated about how to best access this information; Monitor110 would use technology to help them get that edge. Jeff and a few guys had hacked together a version 1.0 of the system, which was based on a boolean matching engine with rules corresponding to each company and investment theme. It was fast. It worked ok. We spent some time working with PubSub, who had built a scalable matching engine but was not focused on the financial services industry.

By mid-2005 the system worked, but spam was becoming more prevalent and caused the matching results to deteriorate, e.g., too much junk clogging the output. Around the same time we started to dig into natural language processing and the statistical processing of text, thinking that this might be a better way to address the spam issue and to get more targeted, relevant results. This prompted us to not push version 1.0, instead wanting to see if we could come up with a more powerful release using NLP to mark the kick-off. In retrospect, this was a big mistake. Mistake #5, to be precise. We should have gotten it out there, been kicked in the head by tough customers, and iterated like crazy to address their needs. Woulda, shoulda, coulda. Didn't.

An Unusual Leadership Structure

The idea was that Jeff was the technology guy and I was the business guy. Jeff focused on technology and product and I focused on fund raising, HR, controls and client access (given my Wall Street and hedge fund rolodex). On paper, made sense. Jeff was a successful three-time entrepreneur, I was an experienced senior Wall Street executive. The problem was, however, that when it came time to make hard decisions the two-headed structure really didn't work. It was a technology company working to solve a complex problem, and ultimately technology dominated the discussion. Ultimately, we ended up building something that the business side was not happy with, which made selling it difficult. An indication of Mistake #2. Neither Jeff nor I had the power, real or perceived, to simply change direction. The Board was supportive of this management structure. This was also a mistake. Mistake #1.

A Real Product versus a Science Project

We talked about "release early/release often," but were scared of looking like idiots in front of major Wall Street and hedge fund clients. Is it better to wait a bit before releasing to have a more compelling product or to begin getting feedback on a less impressive offering? We chose #1; in retrospect I think we should have chosen #2. By choosing to wait we lost our intimacy with the customer (Mistake #5 again), falling into the classic (as a "green" entrepreneur I didn't know this, but as a seasoned four-year venture investor I know this now) trap of pursuing a "science project," not building a commercially salable product. Dumb. Another problem: technology and product management were effectively bundled together, with the same decision-makers for both. This was another crucial error, #2 again. Instead of having product management as the advocate for the customer and the product evangelist, we had technology running the show in a vacuum. Huge mistake. This allowed us to perpetuate the science project for much, much longer than we should have. There were no checks-and-balances built into the system. This was a recipe for failure. I intuitively knew it then but as an inexperienced entrepreneur didn't feel empowered to act. Really, really stupid. After 20 years of making consistently good business decisions why didn't I throw a fit and and be more assertive in communicating my concerns? No good answer here.

And these bad behaviors were reinforced by an unplanned event that sharply impacted our psyche: being on the front page of the Financial Times. It is hard to call it a mistake since we didn't seek to get such exposure, but I put it down as Mistake #3. To be honest, this single fact was a very meaningful factor in our failure. It raised the level of expectations so high that it made us reluctant to release anything that wasn't earth-shattering. It was also catalyst for us raising our last and largest round of capital. So the net effect was that it enabled to raise all this money that kept us far from the customer. Truth be told, we were probably afraid of customers at this point because we didn't want to disappoint them or look bad. Oh, we'd build something they'd love. We just wouldn't show it to them until it was done. Ugh. Just so stupid.

Too Much Money

Too much money is like too much time; work expands to fill the time allotted, and ways to spend money multiply when abundant financial resources are available. By being simply too good at raising money, it enabled us to perpetuate poor organizational structure and suboptimal strategic decisions. Mistake #4. We weren't forced early on to be scrappy and revenue focused. We wanted to build something that was so good from the get-go that the market would simply eat it up. Problem was, with all that money we hid from the market while we were building, almost ensuring that we would come up with something that the market wouldn't accept. And then there were technology issues that came up along the way, very substantive issues, that because of so much money we simply didn't face into nearly fast enough. And this drove a wedge in the company between those that were more plugged into the market (and felt we weren't building the right thing or addressing the data issues the right way) and those who were building the product (and felt very convinced that what they were building was responsive to the market). I would almost argue that too much money enabled the other six mistakes to be made again and again and again. Seems counter-intuitive, right? It's not. And believe me, I am super sensitive to this issue now as an investor. If a company wants to raise significantly more money than I think they need to get to revenue, I push back. Hard.

Investor Expectations versus Market Reality

We raised money based on a vision of a scalable web portal, a tool that would eventually be the web-enabled side of Bloomberg. We never believed we'd replace Bloomberg, Reuters or Thomson for market data and mainstream news, but that we'd eventually become a necessary part of the Institutional investor research mosaic. We were positioned as a technology company, not as an alternative research provider or a services business. And it was the deep belief in Monitor110 as a pure technology company that created a rift between the business side of the company and powerful members of the Board. Mistakes #6 and #7, as you'll soon see.

We did an angel round in the latter part of 2005 followed by an institutional round early in 2006, enough money, we thought, to help us build the new version 1.0 of the product. We then did another institutional round in Q3 2006 to further execute against this vision, because the money was offered to us on a pre-emptive basis and around six months earlier than we were planning to do a raise. The new release would be whizzy, fast, comprehensive and use all that neat technology to analyze unstructured data in real time, and to score each data element by reputation and relevance. Easy to filter, discover and analyze. Super cool, right? Sure. Problem was, we started out trying to analyze most of the dynamic web (probably up to 100 million sources by now) in real-time, and using technology (NLP, pattern matching, etc.) to do the filtering, indexing and categorization. This was no mean engineering feat. We had a very, very large and complex back-end. And even with this, the quality of the data coming through to the end-user was just not that good. Too much spam, still. Duplicate posts. Sometimes mis-categorized. Difficulty applying our reputation algorithms. Not good.

Those closer to the customer wanted to effectively chuck this approach and to build up a high-value corpus of data from the bottom up, using our deep knowledge of the source universe to assemble a body of data from publishers of high reputation. Really more akin to a "Bloomberg for the Web" than the original product, as the sources would be of high-quality and indexed correctly. They also wanted to build a research capability, where a desk could generate customized reports for clients leveraging our technology and data. But making this fundamental change to our approach towards data and the business model resulted in a fight. Almost a jihad, where certain parts of the company were vehemently in favor of changing our approach while others said "improvement to the current system is right around the corner." This could only happen because of Mistakes #1 and #2, where nobody could pound the table and say "this is the way we're going to do it and here's why," nor could the business side simply say "this is what our clients want. This is why we should do it." We were one big, passionate, driven, dysfunctional family. This argument played out over months and months, and cost us an enormous amount of money. Eventually we did change our approach to data, but it was a fight that spiritually damaged the company and morale and had a financial impact that substantially depleted our coffers.

And in Conclusion

The good news for me personally is that I now invest in a way that actively seeks to avoid the seven deadly sins listed above, and the performance of my portfolio companies bears this out. But I simply wasn't smart enough or experienced enough to see all of these mistakes or to feel empowered to do something about them until it was too late. I would like to thank all of our investors for having the confidence in us to pursue the Monitor110 vision, and I'm sorry that we weren't financially successful. I'd also like to thank the people with whom I worked during my tenure at Monitor110. Not a bad apple in the lot. Smart, hard-working, highly motivated professionals. They will invariably do extremely well in their post-Monitor110 lives.

The market for alternative information and tools is very, very challenging, and the current market environment isn't making it any easier. But there are clear needs out there that should and will be addressed. I will write a post on the alternative information market at a later time. Thanks for listening.

Comments

[United Voices]

This is a wonderful gift to small entrepreneurs like me too. Thanks for this wonderful article.

[Aruni Gunasegaram]

Great post. Hindsight is always 20/20 or shall we say 20/15. Honestly there's no way to 100% gaurantee if you had avoided all of those mistakes that things would have worked out well.

I look back on my first venture and wonder why I didn't speak up louder when things didn't feel/smell/taste right but when it's your first time, you are young, etc. you tend to defer to the gray hair in the room. Plus usually you are pretty tired/exhausted when you realize it's too late and the energy needed to try to make it right was left on the doorstep 6 months to a year back somewhere. It's also about the time when you realize the assumptions you started with about the business, the market, yourself are pretty different from what you discover.

What a journey! Thanks for sharing.

[Lewis Gersh]

Great post, thanks for sharing. Anyone who has made it their profession to found and/or invest in start-ups must deal with failures; unfortunately, many people involved in a failed venture are not diversified across other deals that succeed, making it harder for them to step back and learn objectively. Hopefully a post like this can assist everyone - from employees to investors, and their families - to understand the value in the experience.

And I could not agree more with your points - we actually have many of them baked into our charter for investments, starting with capital efficiency as A#1.

[Daniel James]

As an interesting footnote: I believe Xigo.com made a similar-sized crater pursuing the same business plan in the dot.com days... and perhaps for some of the same reasons.

[David S. Rose]

Roger, you and Jeff are both class acts, and the concept for Monitor 110 was a perfectly solid one (as are all the ones in our portfolios :-)

While it's always sad (even 'apocalyptic', if you happen to be the one involved) to go through an event like this, you've done a great service to everyone else with the post mortem. Indeed, it is posts like yours, and Eran Hammer-Lahav's (http://www.hueniverse.com/hueniverse/2008/04/the-last-announ.html) and Nate Westheimer's (http://innonate.com/2008/06/19/bricabox-goodbye-world/) that show New York's Silicon Alley is truly emerging as a complete tech/business ecosystem in the same way that the Valley did. These shared learning experiences are what will enable the follow-on companies (into which you and Jeff and I are already investing) to succeed...by standing on the shoulders of giants. Thank you.

[J. Shirley]

Hi Roger,

Came here from Rick Segal's blog (http://ricksegal.typepad.com) and would like to second his comments about not slinging mud.

It's fantastic to read about failure in a constructive way that doesn't focus on other people.

I believe success is at least 50% learning what not to do. Thanks for sharing your experience to help that, I know it can't be easy to experience failure, and then write about it in such an introspective manner.

-Jay

[Michael Sharon]

Great post, Roger. Thanks for sharing your valuable, hard-earned lessons so candidly.

IMHO - #5 is the real killer, because if you have a great product that is seeing traction and success with customers, many of the other mistakes / issues can be resolved / mitigated, but if you don't have customers, there is less incentive for the team to deal with the other issues.

[Sam Flemming]

Roger, you are a class act and the frankness and depth of this analysis prove it. I am happy I have gotten to know you and the rest of the Monitor110 team all the success in the future.

[Daniel Weinreb]

Thanks for writing this up! I wish we all had more post-mortems. There's so much to learn. My first startup company, Symbolics, was successful for its first five-or-so years, and had a successful IPO,but after that fell victim to some of the same problems. We in engineering had too much power to decide what to develop, and while what we made was great, it often wasn't aligned with what the rest of the company thought we were doing. We were also slow to adapt to market reality: the computing infrastructure changed around us, but we kept believing our own story even though it was obsolete. More at my blog: http://dlweinreb.wordpress.com/2007/11/16/why-did-symbolics-fail/

[p-air]

While I can sympathize w/how difficult all of this must have been for you, it must also be cleansing to get your thoughts out like this, and I, like many others here, really appreciate that you took the time to do this. I'm hopeful to avoid some of these pitfalls in my new venture, but am even more glad to be reminded that those are still very real and must be headed actively.

Glad that things seem to be going well for you since this event and I wish you continued success Roger.

[Alan Levy]

Great post Roger!! I consider you a more valuable board member after reading it.

Alan Levy
Founder
BlogTalkRadio

[Kevin Burton]

Yeah.... sad to hear about this.

I considered writing up my thoughts after leaving Rojo. We ended up selling it to Six Apart but there are always a few things learned in the process.

Anyway, my post on the subject is here:

http://feedblog.org/2008/07/19/monitor110-spinn3r-spam-and-blog-analysis-post-mortem/

Too bad we couldn't work together with Spinn3r.

Onward!

[Nate Westheimer]

Wonderful gift to other entrepreneurs. Only thing I can say is "thanks" and "I know how you feel."

[Alex Ramsey]

It's refreshing to observe a candid investor. Once upon a time, I was a 20-something entrepreneur struggling to pull it all together. That experience laid the groundwork for a profound understanding of the entrepreneurial universe. A little bit like being pregnant, it's difficult to truly understand the e challenges until you've been there. Most investors, frankly, haven't. The issues you discuss are not new, but few people want to consider them. The exciting rush of creating a new business is intoxicating.... Wisdom is hard earned, which is why, you, will be much wiser in the future and will see patterns you never noticed before.
Sorry you had to go through all that.
Alex Ramsey

[Bjorn Tipling]

This post is a big contrast to the memo put up on the site which spoke of a successful product providing a great service but ran out of funding. Why can't people just say nothing if they can't say the truth.

[Darren Kelly]

Thanks for writing this post Roger. I was out there in the market selling the same vision to customers for Collective Intellect, so I'd add one more thing - I was extremely surprised how many sophisticated investors demanded that we "show them the signal" before they were happy. My thought was "if I found the perfect signal, I wouldn't be selling it to you" - there was this weird expectation that new information players were held to a higher bar than the traditional sources such as Bloomberg, etc. Institutional investors are a tough market.

Also, starting a company in NYC is expensive - while it is easy to attract great people there, every step of the way costs you 4x what you expect.

Good luck on the next one.
-DK

[Mike Myatt]

Hi Roger:

I enjoyed the candor of this post. I actually believe most people will never understand how fine a line truly exists between success and failure.

A thought you might find of interest is that success can itself be a precursor for failure. If you want to read more on this I authored a post not too long ago entitled "Success as a Risk Factor" which can be read here: http://www.n2growth.com/blog/?p=150

Thanks Roger and best wishes for continued success.

[John Doe]

I agree, open source ...

[Jed Christiansen]

Roger,

Thank you for such a clearly written post-mortem on Monitor110. I heard about you/Monitor110 from Furqan ages ago and have enjoyed reading this blog. It's really educational for those of us looking to start our own companies. The company was a great concept, and I'm sorry to hear that it didn't happen.

[PB]

Great Post:

Saw the post from a link on Feld Thoughts. You've articulated well a couple of issues on my existing company. We too have the 'science project' and two-headed structure to contend with. We're struggling with those issues along with the complexity of trying to introduce a transformational solution to an entrenched industry structure - in my case the energy trading / marketing industry.

I'm in the midst of trying to determine my next step in my company and do appreciate your insight. As a former energy risk manager and trader I understand dispassionate self-evaluation is a critical but valuable skill. Your willingness to share your thought-process openly is even more rare (and laudable) skill.

I just wanted to say thanks for the insight

[Thomas]

As someone who has started a failed instiutional investor start-up and advised a second wildly-successful one, I agree that it's not about the technology and all about the information. The most sophisticated technology the second start-up uses is excel and pdf.
Also, don't discount how hard it is to sell to this segment of the market. Institutional investors are smart and cheap. Sometimes too smart for their own good. They may have big budgets, but getting into them is very, very difficult.

[Eric Willis]

Thanks for sharing this...

[Josh Kulick]

Roger-

Thank you for your reflections and insight. I close each night by asking myself what I've accomplished for the day. I close each less than positive experience by asking myself what I've learned. I appreciate your candidness in sharing what you've learned over the past 4 years.

When I joined Monitor110 I viewed it as a bridge between working for someone else and starting my own business. I have been a lifelong amateur entrepreneur, but I wanted to learn more - about everything - before I took the plunge to completely give up the regular paycheck. As much as I knew that the end goal for me was working for myself, I felt that I lacked the maturity to go at it full tilt.

I left M110 with my head high, my confidence increased substantially, and my mind in high gear.

I thank you for bringing together a group of fantastic people who challenged and engaged me at work, and became friends outside of the office. I thank you for the amazing access that I had to you, Jeff and Mr. R.P. I thank you for the growth that I sustained at M110 which has allowed me to finally start that business of my own and do some pretty amazing things.

While I understand that some might simply see this as investment that didn't pan out, I can't help but see this as an experience that gave many wonderful individuals the chutzpah necessary to create something amazing of their own. And who knows... maybe one of those will be your next investment.

[Furious]

I beg to differ on your opinion that it would have been better for you to push out the v1 product to your customers even though you knew that the product was not producing the desired end results.

In the financial industry where reliability and accuracy of information is paramount, if your product produce poor results with duplicacy/spam in them, you will instantly lose the trust of your customers and even if you managed to resolve the spam/duplicacy issue in the future, your customers is less likely to give you another look following the initial bad impression.

So in conclusion, based on the circumstances, you made the right choice in not releasing the buggy v1 product to the customers. You would still have ended in failure eventually if you have released it.

The problem was that you couldn't resolve the spam/duplicacy problem fast enough and the other issues are really immaterial.

[Nicolas V]

Hey Roger,

This post mortem is a very nice piece, thanks a lot for your courage to write it.

"After 20 years of making consistently good business decisions why didn't I throw a fit and and be more assertive in communicating my concerns?"
I think it's the nature of tech, compared to say finance: there's a lot more uncertainty, risk is harder to apprehend - The next rev of your technology *could* have worked, in which case you'd be congratulating yourself for being so smart and not changing course.

A friend of mine wrote an article in the HBR where he explains that early stage company makes the mistake of being success-seeking. They should be *truth-seeking*. I think it summarizes the key lessons here.
Take care,

Nicolas