Secret App Closing Doors: A Lesson on Building for Customers

Secret App is closing it’s doors.

$10MM+ Series A rounds. $100MM valuations. $25MM+ for Series B. $500MM+ valuations.
Some weeks it’s easy to wonder what’s going on.

And then there’s the example of Secret, an anonymous social-networking service, that closed its doors, after just 16 months.

The Valley of Death

That in and of itself isn’t so unusual. Lots of startups can’t weather the march through the “Valley of Death”—so named because it’s the phase between an idea and paying customers where many startups run out of cash.

Except that Secret didn’t have that problem. There was plenty of cash.

The company raised $8.6MM in March of 2014, and then last summer a $35MM series B from Index Ventures, Google Ventures, and others. The company was valued at $100MM.

Secret moved to new offices and the founders gathered employees to announce the investment and plans to rework the app. There was a new version of the app but usage declined and customer interest faded.

The next news was that Secret’s two founders had sold $6MM of their shares. This wasn’t announced to employees. Nor the new Ferrari purchased by one of the founders. The New York Times reported that some employees found out—ironically—on Secret.

Then, in April, founders announced that Secret was closing.

CEO David Byttow, announcing the shutdown in his blog post wrote:

“Secret, Inc. still has a significant amount of invested capital, but our investors funded the team and the product, and I believe the right thing to do is to return the money rather than attempt to pivot. Innovation requires failure, and I believe in failing fast in order to go on and make only new and different mistakes.”

Mr. Byttow also wrote that he:

“…plans to publish postmortems so that others can learn from the unique mistakes and challenges we faced and the wisdom gained from such an incredible 16 months.”

Learning from mistakes and best practices

I hope he does. I’m a big fan of learning from other’s mistakes. I’m also a fan of learning from best practices. And that brings me around to Concept Academy, Rev1’s intensive customer/product/market validation program.

In Concept Academy, entrepreneurs validate their business concept in a way that leads them to build the features that matter most to customers—features that customers will pay money to have.

Or the market tells them that their business concept isn’t valued or sustainable and they must pivot or move on to something else.

And that’s accomplished before the company spends time and treasure (theirs or investors), and creative energy building products that no one wants to buy.

And market validation isn’t the only reason that Concept Academy is a powerful experience for entrepreneurs. They also learn about building connections and relationships.

  1. Ownership is bigger than your slice of the pie. With ownership comes responsibility—to the customers who purchase your product, and to the employees who buy into your vision and join your team. It’s one thing for founders to take personal and financial risk. The responsibility becomes much greater when the company begins hiring employees or takes any investors’ money.
  1. Reputations are built over time. There’s the opportunity for considerable flim and flam in the entrepreneurial world. Investors are looking for entrepreneurs with integrity and good judgement. People have long memories. Secret’s founders may be returning money from their $25MM Series B round, but they haven’t said anything about the $3MM they took off the table before it was clear they had a viable business. Was it part of the deal? Yes. Does it represent a best practice? No. Will some investors buy their way into “hot” deals this way again in the future? Absolutely.
  1. At one point, according to App Annie stats, the Secret messaging app hit No. 61 overall in Apple’s App Store. A month later, the app wasn’t in the top 1,400 apps. Was there a point when Secret’s founders (or board?) realized they needed help? Or that their product wasn’t all that interesting to the market?

In late March, a month before the company closed its doors, Mr. Byttow was quoted as having no plans to pivot. Whether he did or didn’t, isn’t the point.

The lesson to entrepreneurs is to have the willingness, preferably sooner rather than later, but certainly in the event the product is starting to fizzle, to stare down reality, actually talk to customers, and change to better align with the markets you have committed to serve.