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

[Brett]

Roger,

I really can't indicate what a service you have done for entrepreneurs by writing this post. As a student of entrepreneurship (I am working on a Fulbright grant trying to understand entrepreneurial decision making), it is appalling how many ventures fail and how few thoughtful post mortems we have to learn from.

As of today i just added a post mortem of my friend's venture backed startup to my blog. I hope that you and readers of your article find it equally illustrative.

http://timetogetstarted.wordpress.com/2009/05/12/guest-post-a-post-mortem/

Be well,
Brett

[Mike Fitton]

A fascinating, frank and honest insight which now that you have highlighted the pitfalls for the unwary, begs the question:

"if a new and innovative, fully developed NLP technology were capable of achieveing all you set out to achieve with Monitor 110, would you go again?"

[Antti]

Hello Roger,

Thanks for your insightful lessons about the story of Monitor110. Being an entrepreneur myself in a very similar field (social media monitoring), we've learned a hard way that if the product is not ready, one should in many cases just sell services to close the technological gap until the product is mature enough to sell by itself. Of course not always the software can be replaced by services, but if it's possible the services give you a close contact with customers, you'll start to build the customer base, you'll receive valuable customer feedback and you'll start to get some revenues as well.

Easier said than done, however, in practice.

Best,

Antti

[Chris Amato]

Roger,

Any guidance on the future of Monitor 110's assets? I'm involved with an aggregation company in the human capital information field. The company tracks over 100,000 employers online hiring activity and we have developed a very promissing trending tool that would dove tail nicely into the various components of Monitor 110 to ultimatly show a company's future health and performance. Open source would be ok, but we may have something worth coupling to M110's data. Just curious to liquidation plans. Great post and good luck in the future.

[venky chinnathambi]

Wow... what an amazing and down-to-the-earth article!!! Remember, it takes lot of guts to admit your mistakes and learn from it - I admire Roger for that.

[Bug]

Hi Rog – I read your blog this weekend, and am very sorry about the death of Monitor 110. I admire you for taking the risk, and even more so for your ability to be honest with yourself and learn from the experience. May the future bring you more opportunities for growth and the inevitable success that will come from your unique combination of brains, insight and tenacity to achieve new and great things. Love, Bug

[mike simonsen]

Marvelous analysis as usual Roger. Though it sure seems to me that most if not all the problems on your list stem from #4 - too much money.

[Chris]

Roger,

Thank you for the many wonderful insights. It was a real pleasure doing work for you and Jeff, and I am sad to see the doors close on such a great company. Keep us in mind when you start your next big thing!

"Only if you reach the boundary will the boundary recede before you. And if you don't, if you confine your efforts, the boundary will shrink to accommodate itself to your efforts, and you can only expand your capacities by working to the very limit." - Hugh Nibley

[Jim Robinson 4]

Great piece; would be valuable if others wrote post-mortems, and I appreciated yours very much. Certainly instructive for all of us. At one time or another I have made every one of these mistakes, and, like a moth to a flame, will know doubt make one or two again. All of us occasionally feel the need to re-check a hot stove, sometimes even expecting a different result. Still, if I had to pick the worst offenders, they would be 1 & 4. Clarity in leadership - or a lack thereof - is a bit like porn... we all know it when we see it, but it can be a challenge to take a stand. The beguiling nature of too much money, on the other hand, can make it so very hard to resist, until it's too late.

All the best in your future endeavors; the scars you bear today will save others tomorrow....

[Adam Nelson]

The problem with sin #4 is that it's hard to convince people that you're serious if you ONLY need $1M to get started. There's a sense in which asking for a small amount simply turns off investors who are afraid of being part of a second rate product,

Nonetheless, I agree that generally, investments cannot outstrip the realistic revenue potential in the near term (i.e. 2-3 years).

[Tom O'Brien]

Hi Roger:

Thanks so much for this candid post-mortem. Being in a VERY similar business (MotiveQuest) I have already forwarded it to the rest of our exec team and board members.

Personally I am going through the list of 7 deadly sins and comparing our experience.

You are going to be a much tougher investor - and helpful board member following this experience.

Thanks for sharing.

TO'B

[David Binetti]

An absolutely exceptional article. For those moved by this story, I would highly recommend reading "The Four Steps to the Epiphany" by Steve Blank. It is, by several orders of magnitude, the best how-to manual for entrepreneurs that I have ever read. It explains why many of these seven sins happen over and over and over again, and offers a roadmap on how to avoid them.

You can find it on Amazon.

[Stefan]

Hi Roger

Thank you very much for sharing your lessons learned.

I can only say I agree with everything you write.

I will for sure keep your blog around for reference.

[Brian Starke]

As one of the first employees of Monitor110, I was very glad to read this candid look back from your perspective. Right now it's easy to point out what we did wrong with the benefit of hindsight, of course, but more importantly it's even more valuable to remember what we learned as we move on to our next dangerous mission.

I'd do it all again in a heartbeat (maybe using Python this time though) and it was truly my pleasure to be part of Monitor110. I'm quoting Jason Calcanis' newsletter about our demise by reiterating that you miss 100% of the time if you never take a shot.

Rock on,

Brian

[tito]

What a great post! Might not be cash, but you obviously earned a tremendous return on this venture.

Bankable stuff - thanks for bravely sharing your experience.

[Al Thompson]

Hi Roger.

I am fascinated by your candor in assessing the problems which caused the demise of Monitor 110. It's a quality not often seen and especially so in the financial services industry.

I met you and your team in the early days when you demoed the product concept for us at ExGen. At the time I believed your future was limitless. You were on the threshhold of introducing a revolutionary research technique to the investment community, and we were all pulling for you. It's sad that it never lived up to its promise.

As technology started to change the face of our business I spent lots of time with the technology folks and learned a very valuable lesson. You need to get version 1.0 to the market. How's that for overstating the obvious....but is it really?

Invariably when we started to put the wraps on V1.0 the systems analysts would approach the product side with a list of changes that, if they had a little more time, would really enhance the product. And they were right. But not in V1.0. Incorporating them created a cycle that never ended. The inevitable result...there was no V1.0. Now this is not meant as a criticism of the analysts but of the business side. Every analyst I ever worked with who wanted to improve the product before release was well intentioned and had only our best interests at heart. But rather than putting the changes into V1.0.1....well you know where this is going.

Anyone who supports a new product understands that the first few iterations are likely to be less than perfect and will surely not resemble the final product. But to make it better customers need to see it, touch it and sometimes kick it.

Again thanks for your candor. I wish you good luck in all your future endeavors.

[Victor Cheng]

Roger,

Thanks so much for airing your lessons learned publicly. I'm sure many of us will benefit from it.

There is one thing you didn't mention that I think is worth pointing out. It's not a mistake, but rather a realistic condition that every entrepreneur needs to be very, very aware of.

Everything you mentioned refers to logical mistakes--as in logically, we should have done this instead of that.

I've found in my own startup career and certainly in working with many others, there's an enormous emotional component to running a startup. It's this emotional roller coaster ride that I'd argue cause the sharpest businesses thinkers in the world to lose objectivity.

I have my own running list of post-mortem's (now running 3 pages in Microsoft Word) and all of them are like duh... why didn't I just do that.

For me, underlying all of the lessons learned was an emotional undercurrent--fear, pride, risk of public humiliation, letting your family/investors down, proving your critics right, etc... the list goes on and on.

I find this emotional aspect rarely discussed but it's always a major factor in startups and suspect it may have played a roll in the logical mistakes you listed above.

I mention it here because I believe your post will get passed around quite a bit.

The solution by the way is to have someone outside the company who has no financial stake in the company serve as an outside advisor / sounding board to the CEO.

Often you need someone to slap you upside the head and say, that's stupid. Having been on both sides of this relationship, sometimes just having to explain yourself to someone who you know will slap you upside the head for saying something stupid is enough to realize you're doing something stupid even before you finish attempting to justify it.

[JP Adams]

Thanks for sharing. Media forgets these stories often but they are critical for entrepreneurs to know.

Roll again.

[Ray YIp]

It's a very honest and insightful post. I'll keep all the points, particularly #2 and #5, in mind as we continue to work on our product and business. Thanks for your sharing.

[David]

Roger, thanks a lot for this very very insightful post that is of highest value for other entrepreneurs.
David

[Fabian Siegel]

Thank you for posting this. It is extremely valuable to be reminded to these deadly sins especially when starting an new company.

Regarding #2 - this can work if there is a strong sales organization that constantly relays what the market wants.

[brian halligan]

I was sorry to hear Monitor110 didn't make it.

You are a prince for writing this really insightful article.

Brian.

[Greg Battle]

Roger-

The teeth in your post fit my wounds exactly.

I spent a lot of time and money in the pursuit of relevancy and every issue you wrote about rings true. Assessing how to combine algorithmic and behavioral methods to determine niche-specific popularity and timeliness is daunting and elusive. Though it has the rigor of science, the results have the aesthetics and subjectivity of art, and therein lies the problem. Predictive models can and will blow up in massive and embarrassing ways, so pruning the outliers goes from being an afterthought to being the core of the problem. In fact, all of your sins except for #4 are directly connected to the real challenge of determining and selling your product's predictive capacity to external and internal stakeholders.

My journey down this path began after meeting Roger through this blog and interviewing at Monitor110 in 2006. I never did receive a product demo but I did have 4 hours of intense grilling on what I thought their product would or could do. Wisely, they never confirmed or denied my suspicions, but their insightful push-back triggered plenty of synapses that resulted in my co-founding a startup. For that inspiration alone, I thank Roger, Jeff and the Monitor110 team.

Despite all this, I'm quite bullish on the alternative information space though not necessarily in the alternative investment arena unless it were public and free. Information yearns to be free. I look forward to hearing more of and learning more from Roger's insights on this in the future.

"Success is going from failure to failure without loss of enthusiasm." - Winston Churchill

[ppearlman]

thanks a lot for this post roger. as a fund manager who utilizes similar principles relating to the flow of information bit on an anecdotal level, i followed what Monitor110 was doing with great interest and a good feel for the high demand of the task..

as a person, and more importantly still, your candor here serves as a model for all of us in how we interact w our customers, colleagues, friends and loved ones...

[Shreemani]

Great article. Thanks for sharing this...