Agloco is long gone now. And if you’re not familiar with it, Agloco was a web start-up whose premise was to pay people to surf the web.
There was a massive amount of buzz surrounding the company when it jumped onto the scene. I was never very interested in it, but there is some value in looking at WHY it didn’t work, and luckily I have a system for evaluating business problems we can use …
The Business Autopsy Tools
I talk a lot about what I call the business chain; which is doing the right things in the right order to build a successful business. The chain goes like this:
People => Plan => Sales => Capital => Purchasing … in that order.
The really cool thing about it is, if you start at the end and work your way backwards through the chain, you’ve got a very systematic way to pinpoint the problem areas in a business. You can use this in your own business.
And to show you an example, let’s pull out the reverse business chain and open up Agloco with it.
Scalpel, Please …
Agloco’s idea was to develop a toolbar that users would run while surfing the web. The toolbar would track their surfing and display relevant ads from deals that Agloco would cut with big web retailers. The toolbar development proved to be more difficult than expected; they even outsourced the programming to Asia in an attempt to cut costs. In the end, they simply ran out of money before they could really get this whole thing up and running properly.
So maybe their start-up costs were too high and that’s the end of it. Let’s dig a little deeper.
Okay, so we know two things here. The first is, Agloco wasn’t producing any income from operations during all this R&D. Maybe a smaller idea, quickly implemented could have brought in some income and helped fund the grander idea.
How quickly you can get to positive cash flow is a very important thing in business. But some ideas are big in nature and require a lot of capital.
Clearly they needed more investment capital than they got. So why didn’t they get it?
Branding is important. Right away, I can’t say the damn name without naturally pronouncing it as A-L-G instead of A-G-L. But maybe that’s just me.
Anyway, whether you’re selling products and services to customers or a business idea to investors, you’ve got to “sell it”. The Agloco team couldn’t sell it; at least not enough to raise the needed capital.
We have to cut in a little deeper.
Looking at their business model, the idea was to pay people for surfing the web with shares in the company. Or points that translated into shares or something like that. On a global scale, this sounds like a securities rules nightmare right off the bat. And most people really don’t understand stocks.
Not the way they understand cash.
And paying to surf in cash was the original idea of a company called All Advantage. But they went out of business because they were paying out more than they were earning. I’m sure that’s why Dave Pidwell and Ray Everett-Church of Agloco (both, previously with All Advantage) thought it was a better idea to pay out in shares. It’s a much more fluid and scalable idea.
But it’s difficult to sell if people can’t attach a concrete dollar amount to it. I think it’s pretty clear that serious investors couldn’t wrap their heads around how to sell this. So they didn’t invest in it.
But let’s be thorough with this autopsy …
I have to give credit to both Pidwell and Everett-Church for capitalizing on previous success. They took a great idea like All Advantage (that almost worked) and rolled it into this new venture. Using success and experience to leverage more success is the best recipe out there for creating a winner.
Of course, bringing in 8 Stanford MBA’s right out of the starting gate sounds messy. On the surface, having the best people possible to negotiate deals is a good thing. But that looks a little like too many cooks in the kitchen. It also looks expensive.
Cause of Death …
A lot of complications here. But if you break the business chain and do things in the wrong order, failure is pretty much inevitable, so the final verdict is this:
Agloco suffered from a complication of putting purchasing before sales, caused by putting plan before people. In other words, they didn’t have the technical people they needed to put a feasible plan together. And that led to spiraling development costs that were higher than any investment capital they could raise.
The business chain is very powerful. And reversing it is a great way to diagnose your business problems to see if anything is out of whack or happening in the wrong order. And of course, you really want to make that diagnosis before it’s too late.