Why Loosecubes Failed
Loosecubes, one of the great innovative companies of the last decade is closing its doors this Friday. Many are beginning to wonder why Loosecubes failed.
Loosecubes was a service that matches restless mobile workers with office workspace in locations all over the world, from London to Silicon Valley. A couple of years ago, it boasted a network in 347 cities across 47 countries and now has over 25,000 members. Started in 2010, Loosecubes was revolutionary. Free co-working space so you no longer had to hang out at Starbucks; a great community of mentors and entrepreneurs who were building sustainable companies and making things happen; and a chance to create an interconnected entrepreneurial ecosystem throughout the world. In addition, they recently (As of June 2012) received 7.8 million funding from New Enterprise Associates and Revolution Ventures. This all sounded great. But why did it fail?
Once you offer a service or product for free, it is very hard to turn around and try to monetize this.
It was very recently that loosecubes sent a survey to its members asking the following questions:
- How they would respond if loosecubes decided to charge a fee?
- What they would be comfortable paying?
Although they began rolling out their monetization plan this fall, the coffin was already shut and the writing was on the wall.
Having a finance background, I look at numbers all the time and have always stood by the philosophy that “CASH” is and will always be king. A business model is not sustainable unless it can generate steady streams of cash, also known as cash flow.
When I consult with first time entrepreneurs who are looking for capital or trying to develop their business model, I always hear what seems to be a great idea, infused with excitement and enthusiasm. The entrepreneur is extremely passionate about the business, which is a must in order for the company to succeed. However, it is normally at this point, when I ask the follow-up question – ‘how do you make money?’ – that I am often dismayed at the response. More often than not I hear “We’re not sure yet.”
At this point, my personal excitement about the business fades and my mind moves on to something else. Alternatively, the entrepreneur will sometimes say, we are going to offer it for free and then worry about how to make revenue later. So let me get this straight, you’re going to use my money (many times there is no skin in the game) to develop a business, where the business has no revenue coming in, and no thought process about how you are going to make money. I call this FMS or the “Facebook Model Syndrome”, which I tell entrepreneurs to avoid if they can. Essentially the FMS mindset comprises of, let’s get a lot of users, get some buzz and hope some big company notices us enough to acquire us, despite the fact that most companies are not great acquisition targets.
Now back to loosecubes – yes it was a free service. But it is my feeling that the company should have charged at least $5 a week for its services. Let’s say there was a team/company of four people who wanted to use loosecubes. How about a membership of maybe $5 a week for the first team member and $1 for each supplemental team member. So for a team of four using different locations, it would cost only $32/month. What a steal! Some of these co-working spaces were absolutely astonishing. The point here is that the free model (even supported by advertising) no longer holds true. This is not 1999, and companies need to develop real sustainable revenue models. This occurs only when you include revenue drivers in your business model from the very beginning. Unfortunately for loosecubes, this was a little too late.
Yes, by charging a fee, some members would leave (hey there’s always Starbucks), but the core base who believed that loosecubes provided real value would stay and pay the minimal cost. And in this world, there is no free lunch.
Jeremy Andrews is the Founder of SmartMoney Entrepreneurs
About SmartMoney Entrepreneurs:
SmartMoney Entrepreneurs is a broker dealer based equity crowdfunding platform. We provide startup entrepreneurs with a revolutionary source of seed funding through our crowdfunding portal. We provide crowdfunders with unparalleled controls and protections over their equity investments through our real-time financial monitoring and partial recuperation features.