Anatomy of a startup failure: the Airborne story

It started with an ambitious idea to fix the bleeding music industry in an age of rampant piracy, and it ended with an email. Just after 5pm one Wednesday evening, South African tech entrepreneur and Airborne founder Justin Melville finished composing his letter of thanks and farewell and hit ‘send’ on the message informing his users that his startup was dead.

“We had a dream that one day we might help remake the music business,” he wrote in the email explaining the decision to shut down his startup to the people who had supported him.

“We attempted to bypass the deeply flawed framework and economics of the existing music industry by enabling artists to directly interface with their fans on a truly global scale, creatively, emotionally and commercially. Our aspiration was to create a system of nano-patronage, where you and I could directly support and interact with the creators we love, while being exposed to and discovering new ones, from all over the globe.

I’m so very proud say that we did it… we actually did it!

But today, it is my sad duty to announce that after 2 years in operation, Airborne will be no more.”

It’s a story usually told in statistics – for every smart 20-something selling his mobile app for billions, there are thousands who had to accept defeat, or at least pivot. You’ve probably seen the figures – some estimates suggest 25% of startups fail within their first year, and more than half are written off within the first five.

Even the ones who hone their pitch deck and manage to get some investors aren’t safe – a recent study by Harvard Business School found that some 75% of venture-backed startups in the US don’t give their VCs any return on their investment.

But how – and why – does a startup with an innovative idea and a passionate team suddenly find itself facing a shut down?

The dream

In Melville’s case, there isn’t an easy answer. Airborne began as his solo side-project, which grew gradually into a fulltime endeavor as he met like-minded people who were willing to help build it. After pouring in some initial seed capital and personal funds, the team began to work on the first version of the site – the proof of concept – and expanded to include five Ukrainian contract developers, a member in Switzerland and seven more who worked out of a loft apartment in central Cape Town.

They worked to offer the world a new way to consume music, by offering one channel, one license, with one payment solution that hoped to become a conduit connecting artists and their fans. Fans (called ‘carriers’) paid just US$1 a month to subscribe to an artist – in return, they received all their new music, which they could stream on anything from their desktop to their phone.

Music, Melville explains, is an emotional thing — “it doesn’t suit commoditization particularly well.” So the idea was to make a company that makes it possible for any band anywhere in the world to reach any fan anywhere in the world – a near-impossible task, but one they were up for. “iTunes can’t do it, Spotify can’t do it — it all comes down to licensing and these intermediary organizations,” says Melville. “It was a really interesting and – dare I say it – sexy problem, for which I felt I had a solution.”

In the early days, a shared interest in music and the desire to do something good for artists and fans saw Airborne attracting serious interest. “We were signing up bands left, right and centre, talking to Richard Branson… the momentum was swelling nicely,” explains Melville. They offered fans a way to support their favourite musicians and listen to their tracks, and provided the artists and their labels with a reliable income and rich data – they could identify the fans, track how their music was shared and discover key locations where the biggest groups of fans lived so they could plan their next tour effectively.

Their conversion rates showed that the superfans really did want to – and would – hand over cash to support their top bands. On average, their users supported 1-2 bands each month, with 15% of users signing up to contribute more than US$1 monthly to the artists they loved. For every song that was shared by an Airborne user, 50 new visitors arrived on the site — a statistic that “really re-enforced for me the fact that music is an inherently viral medium,” says Melville.

But the team soon realized that, despite the initial traction, running a global music company with an expensive international payment framework from the tip of Africa was not possible without significant funding, as well as a lot of nuanced guidance.

“We got to the point where we had built our proof of concept, but it was basically an encapsulation of our first lot of ideas and something to show that we could take a little bit of money and turn it into high quality software. We could execute on the dream, on the vision. From there, we had difficulties in terms of getting to the next step,” explains Melville. “That’s partly because we didn’t have the right people on board to help us get to that next level.”

Eventually, the startup simply could not afford to keep running – and while they had learnt from their prototype and knew what they had to change for the next version of the site, they could not afford to pay the developers to actually code it. The team moved on to other projects, and the site was memorialized to remind future visitors of the vision and explain why they had to stop.

As it turns out, you can’t always change the world while still covering your overhead costs.

The market and the money

So, where did it all go wrong? The answer isn’t simple, but it starts with the type of play Airborne was trying to make – a massive one – and the ecosystem they were trying to play in. While Melville acknowledges that South Africa does have massive talent and lots of problems waiting to be solved, the tech startup landscape is still in its infancy. While there are increasing numbers of success stories, very few entrepreneurs who’ve made their millions return to invest in the next generation of startups.

Even the big names like Elon Musk and Mark Shuttleworth eventually left their home country for the States, sending the message that you have to move to make it. That leaves the country’s entrepreneurs with less capital to play for, but also fewer potential mentors and role models in a nation where would-be founders are shepherded safely into the corporate world instead of encouraged to take risks. Add to that the relatively small online population and smartphone penetration levels, and you’ll see why trying to revolutionize the global music business from South Africa was never going to be easy.

“In hindsight – I didn’t know this at the beginning, but having travelled the world a bit – the first thing I would have done is taken my little bit of seed capital and moved to San Francisco,” says Melville. “The culture of supporting artists is already there, the market exists, the technology is readily available – people are used to paying money for digital satisfaction. In South Africa, we have none of that.”

Trying to pitch to local investors was just as difficult. As 4Di Capital CEO and co-founder Justin Stanford explains, although they liked the Airborne team when they were approached for funding, they were wary of backing a high risk consumer internet play – particularly one focused outside Africa. “It is more the typical domain of Silicon Valley and plays to its strengths, and even there the risk is very high,” says Stanford. “Airborne was a particularly bold example too, with big ideas which I thought were exciting and interesting but faced major uphill challenges, whether here or in the Valley. Tackling the business model of the global music business is no mean feat.”

But it’s not all about the cash

While finding funding is usually a main aim for early stage startups, Melville stresses that it is often more important to look for partners and mentors than investors. “People are more important than money is,” he says, explaining how some advice from seasoned industry veterans is often worth giving away part of your company for. “You have to share your vision. If you keep it to yourself, not only is it selfish, but it’s stupid – it won’t go anywhere.”

While founders favour deals that see them gain more money for less equity, Melville warns that it’s more important to consider the amount of guidance you’ll receive rather than fuss about dividing up portions of a business that may fail without that wisdom.

“Funding is not necessarily a panacea, and can even be detrimental; it can be distracting or keep alive bad ideas for too long that need to go through a pivot or feel the feedback of market forces,” says Stanford. “Skills, knowledge, wisdom and experience are priceless and very hard to come by. Funding will always follow sound businesses ultimately.”

Cést la vie

However the startup community likes to spin failure (“It’s how you learn! You’re so much wiser for it! You’ll succeed next time!”), being forced to pull the plug on something you’ve worked for years to build isn’t easy. But it’s better than never taking the risk in the first place. “I hope it’s going to be the low point of my life,” says Melville, who is now working on a mobile showhouse finder called Ekaya. “But it’s higher than some people’s high points.”

As that final email arrived in the inboxes of Airborne supporters, Melville took to Reddit to share his experience with the r/startups community. In the post, he shares how he felt when he pushed pause on his dream:

Airborne wiped out every cent I had in the world, and I think it aged me rather rapidly. It also taught me a butt-load about raising money, hiring people and evangelizing a cause. It was my life, my identity for so many years… and now it’s gone.
…

I will tackle this tiger one day, but that day is not today… It’s time to recharge and rebuild.