Outbox announced in a blog posting today that they were shutting down the Outbox service and pivoting to something new and (hopefully) better. Their messages to customers contains a hint of the quality of these entrepreneurs, and a peek into the kind of strategic business thinking and attention to metrics that every startup should aspire to.
Dear loyal customers and Outbox supporters:
We announce today that we are ending the mail service, shutting down the Outbox brand, and focusing our team and resources on a totally new product. On our blog we explain what this means for our current, loyal customers.
This is bittersweet for our team, since we have poured so much into creating our product and serving our customers. Yet this announcement marks the end of a chapter for us—not the end of the story.
Over the past two years, we have been humbled by the support of our investors and customers, who each took a leap of faith to join us in this exceptionally audacious venture. We have also been humbled by the incredible personal and financial sacrifices our team members have made along the way.
We set out to redefine a long cherished but broken medium of communication: postal mail. We did so during a tumultuous period in the history of the United States Postal Service (USPS), which has experienced declining mail volume and staggering deficits for the past five years.
As former staffers on Capitol Hill, we share a passion for tackling huge public problems, but aim to do so with private solutions. We knew that the USPS would not be able to work out its own problems so, perhaps naively, we hoped to partner with USPS to provide an alternative to the physical delivery of postal mail to a subset of users, hoping this would spur further innovation and cost savings.
Although an early test with the USPS that let users redirect their mail to us showed signs of success and operational simplicity, an interview by CNBC triggered a request from the Postmaster General himself to meet in Washington, DC. In one of the most surreal moments of our lives (listen to it in an NPR interview), we had our very own Mr. Smith Goes to Washington encounter where the senior leadership of USPS made it clear that they would never participate in any project that would limit junk mail and that they were immediately shutting down our partnership. This 30-minute meeting was the end of our business model.
The Reimagining of Outbox
After countless hours applying Clay Christensen’s business model theories to our situation, we came to view our failed partnership with USPS as a David and Goliath moment: we believed our seeming disadvantage would become our greatest strength. Turning our original vision on its head, we reimagined our service as not merely playing in someone else’s value channel, but as a new type of last-mile delivery channel all together: one subsidized by our users in return for collecting and electronically delivering their postal mail. If we could simply break even on the mail business, we would have built a valuable last mile network able to be monetized in many ways.
To pull this off, we built a world-class team of engineers, designers, marketers, and operations specialists in Austin and San Francisco. Funding our efforts were some of the most celebrated investors of our generation: Mike Maples at Floodgate and Peter Thiel and Brian Singerman at Founders Fund, as well as a groundswell of investors via AngelList. Together, we made a product that was as beautiful as it was complex, and overcame nearly every obstacle in our path.
We created our own dynamic logistics software, developed a legal framework to open users’ mail, built industrial-grade scanning machines for 1/100th of the market price, developed specialized OCR to allow customers to unsubscribe from postal mail, built and attached to our cars 5-foot mailbox flags that withstand 70 mph winds, laser cut wood blocks to build mail slot solutions, and created a novel system of key decoding via photograph that inspired the creation of one startup all on its own. All this was simply the backend of our service, and our iPhone and other apps won awards for their design and elegance.
In the end, we serviced a little over 2,000 individual customers, had 25,000 people waiting around the country on our waiting list, unsubscribed our customers from over 1 million senders of mail, scanned over 1.5 million pages, and delivered over 250,000 requested mail packages. We also recycled approximately 30 tons of paper, enough to cover 86 football fields.
Outbox was buzzing. It seemed as though everyone knew something about our little company, had seen one of our red-flagged mailbox cars, or had stumbled upon a news story about us. CNN praised us, Jay Leno mocked us, and Pee Wee Herman called us “the future.” We tested our anecdotal suspicions with a nationwide survey, and found that Outbox had an unaided brand awareness of 10.1 percent – even though we serviced a mere 2,000 customers in two relatively small markets.
Numbers Don’t Lie
After raising $5m in June of last year, we set out to onboard the 4,000 individuals we had amassed on our central-San Francisco waitlist. We projected converting a large percentage of these individuals, and planned to scale our marketing efforts at a projected cost of $20 per acquisition.
However, after an extensive email marketing campaign to our waitlist, total yield from the waitlist was under 10 percent. And as we started marketing outside of this network, we had difficulty finding a repeatable and scalable acquisition channel. Across all of our efforts, our acquisition numbers were over $50 per lead.
As our marketing efforts lagged behind schedule, our density numbers remained consistently flat, causing us to spend about double our projected cost to service each customer. Even our most dense routes cost us approximately 20 percent more than our break-even target.
After several months of testing and refining, we reasonably concluded that we were executing well and collecting good data—it told us that there wasn’t enough demand to support the cost model. Our monthly operating deficits were too high, and even though we continued to get better at acquisition, each small success actually saw our cash curve decline further because our density remained flat. For longer than we would be willing to tolerate the more customers we acquired the more money we would lose. Despite the massive interest in our company, we learned that the product we built did not find fit in the market we targeted.
Finding serenity in knowing when to stop
For startups, it’s difficult to know when to throw in the towel. Indeed, the main strategy for most of the life of a startup is overcoming impossible odds, and we built a team that did that over and over again.
This final challenge—product market fit—is one we ran after with characteristic zeal. Amidst these struggles we were reminded of the serenity prayer written by one of our favorite authors, Reinhold Niebuhr:
Grant me the serenity to accept the things I cannot change,
The courage to change the things I can,
And wisdom to know the difference.
Facing situation after situation we kept the courage to change them; in these final few months, we were granted the serenity to know this situation is one we cannot change.
Not least of our accomplishments was the recruitment of an amazing operations team. Their tireless work ethic led to such stellar customer service that our users would, on occasion, pee their pants. The hardest reality in our transition is saying goodbye to our eighteen Unpostmen: they have been the frontlines of challenging logistics and extreme customer service. If you are hiring and looking for loyal, hard working operations experts, please email us here.
There are numerous small pivots we could make as an alternative to our mail service, and we have tested many other applications that could be layered on top of the logistic network we already created. Yet each of these tangential services has a tragic combination of being costly to pull off and, well, not a big idea.
While it saddens us that we are leaving so much behind in terms of what we built and developed for mail, we are equally excited to begin a new chapter in our company’s life. Our team has been working on a new product that has already shown signs of success, and we believe it has the opportunity to be massively disruptive. We can’t wait to tell you more about it—but for now we’re in stealth mode.
Our many learnings have led us to tackle a problem in many ways similar: a giant, sleepy industry that serves every American, is generally hated, and is in need of radical new solutions that involve hardware, software, and logistics.
Forefront in our minds are the learnings from the wild adventure of Outbox:
- Giant, complex systems appear insurmountable, but aren’t—they were built by people just like you and me
- The main asset the government (and big companies) has is time—which is the resource of which startups have the least.
- You may think government organizations are completely, insanely backwards; you are wrong—they are worse.
- If you can’t find a hardware solution to your needs, build it—it’s not that hard.
- Doing extraordinary things for customers is time consuming and hard—but very worthwhile.
- Life is too short to pursue anything other than what you are most passionate about.
For the last two years, we got out of bed every morning because of the chance to re-imagine a daily activity for every American. We’ve had many sleepless nights these last few months, but are excited to be turning our complete attention to a new, equally compelling reason to wake up each morning.
Will & Evan, Outbox Cofounders