Little traction with small businesses in South-East Asia
Undone by its founders ambition
THE Singapore start-up Chalkboard had invited about two dozen friends and partners to its office for pizza at the end of April. Chief executive and founder Saumil Nanavati had ordered three large pies from Rocky's, his favorite pizza delivery joint.
As Nanavati and his co-founder Bernard Leong circulated around the room munching on cheesy slices, the scene could have been from any happy start-up office. But their guests' jaws dropped when either Nanavati or Leong broke the news in conversation with them: Chalkboard, the location-based mobile platform that promised to revolutionize advertising with funding from tech icon Joi Ito's venture fund, was closing down. This was a 'failure party'.
“Our partners were quite shocked when we told them we were closing down," Nanavati says.
Chalkboard had been hailed as one of Singapore's most promising start-ups. It was an early recipient of the island's National Research Foundation's new start-up funding plan called the Technology Incubator Scheme.
The foundation had taken a stake along with Ito's fund, Neoteny Labs, which is based in Singapore. They had bet an undisclosed amount -- but estimated at several hundred thousand Singapore dollars -- on Chalkboard's goal of changing the way small businesses advertised on mobile phones.
On paper, Nanavati and Leong were a dream team for investors. Nanavati had been president of Sydus after coming off several roles with global technology firms such as Motorola. Leong had the technical chops, holding a doctorate in physics from Cambridge University and had strong links within the Singapore's programming community.
What went wrong at Chalkboard? Are there lessons for other companies in Singapore's rapidly growing technology ecosystem?
The way Nanavati puts it, Chalkboard was a victim of its founders' ambition.
"We wanted to build a Ferrari that could go from 0 to 100 in 3.2 seconds. We built that, but unfortunately, our performance was not as good as we hoped for," he says. "Most people fail to build the car, but we did build it -- but were we happy with that?"
The 'Ferrari' Nanavati and Leong built was impressive. Chalkboard was built in January, 2010 after a 21-day sprint involving Leong, Nanavati and two developers, Michael Cheng and Vishnu Prem. The product -- originally missing an 'a' and called Chlkboard -- was a web application that served ads from local businesses based on geolocation information supplied by a user's browser.
Leong and Nanavati raised seed money from two of the latter's relatives, whom Nanavati described as "professional investors", and eventually, Neoteny Labs and the NRF.
By then, the product was known as Chalkboard, and it had evolved to include an API (application programming interface) that mobile app developers could use to serve hyper-local ads within their own applications.
Chalkboard made high-profile hires with cash in hand. Nazrul Kamaruddin, who is prominent because of his role with CodeAndroid Malaysia, moved to Singapore as a developer evangelist. Lichi Wu left Google's AdMob to become business development director. Chong Kai Min, an early Microsoft Singapore employee and a former venture capitalist, became vice president of sales.
Wary of the Internet
Things went to plan, at first. In a press release last January, Chalkboard said it had served more than 10 million impressions and 4,000 clients since it started 11 months earlier. It announced a partnership with HTC in Malaysia and Singapore to have a widget pre-loaded on handsets that ran Android 2.1 or higher.
But behind the impressive numbers was a mounting problem with Chalkboard's premise: It turned out that small, local businesses didn't want to advertise online or on mobile phones.
As Nanavati tells it, mom-and-pop stores were afflicted with an inherent suspicion of a technology product, and they were more concerned with preserving their existing customer base than advertising to new leads.
"The single most important thing we came across, was that small business owners in South-East Asia are just wary of the Internet. They looked at the Internet with an eye of suspicion. They didn't believe there were people on the Internet using apps. And there's nothing we could have done about that," Nanavati says.
"When that core part of your customers [is] not interested in being online, and you have to convince them that the Internet is great -- that's a fundamental problem."
Business owners who did sign up with Chalkboard, a 'self-serve' platform where clients are expected to create their own ads, deluged the team with calls for help and advice.
"Small business owners (in South-East Asia) were very 'high-touch', they needed a lot of hand-holding and that incurs costs, which ultimately get passed back down to them," Nanavati says.
‘A tool, not a guarantee’
Zang Toi Cafe, in Kuala Lumpur's plush Pavilion Mall, was one of Chalkboard's customers. The cafe is named for the Malaysian couturier who had made his name in New York dressing high society dames. Its director, Lam Su Moi, signed up with Chalkboard for six months. She was not impressed by the service.
"I don't think I have any positive comment about Chalkboard," she says. "I don't think I had any customer come in as a result of advertising on it."
When asked about Lam's case, Nanavati says he didn't personally work with Lam, but adds that his platform can only serve up impressions. A business owner's advertisement would have a huge influence on how customers respond to it.
"It's an advertisement tool, not a tool to guarantee that people will walk in to a shop," he says. "No tool can guarantee that."
Nanavati cites Brewerkz, a popular micro-brewery and restaurant chain in Singapore, as a counter-example. He says one of their ads, which promised a 'free blackberry', generated click-through rates of more than 17% for an offer for a free blackberry-flavoured beer that it was promoting.
He claims that big businesses that he personally signed up in Malaysia, like Alliance Bank, were pleased with the results.
American dream, start-up nightmare
But the negative impression formed by business owners like Lam wore on Chalkboard's regional traction. As it dawned on Leong and Nanavati that South-East Asia's small business owners wanted nothing to do with location-based advertising, they started thinking of new markets to enter. They decided that the time was right for Chalkboard to break America.
But Chalkboard's US expansion met with internal resistance, this time from the firm's most prominent investor, Neoteny Labs. James Chan, the fund's Singapore-based principal (Ito isn't involved in day-to-day operations), says he advised Nanavati and Leong to ignore the American market.
"I told them to focus on South-East Asia where they were getting some traction, instead of spreading themselves thin and going to the United States," Chan says. "But ultimately, it's their company and [Neoteny] is a minority investor. It's not our style to tell founders what to do."
Chalkboard pushed ahead with its US plan, issuing press releases and hiring a team there. Nanavati says American users reacted enthusiastically to his service. Chalkboard signed up dozens of businesses a day after it was briefly mentioned in an Inc. magazine article about small business marketing.
Nanavati says American users understood self-service systems, and didn't bug him for customer support.
Even as the US market showed promising signs, Chalkboard failed to get the traction its founders expected. Nanavati says he couldn't hire the people he wanted because of an unprecedented job glut in the Valley. With the US push faltering, Chalkboard came closer to shutting down.
As Nanavati talked to investors in the United States and Singapore about raising a Series A round of funding, it became apparent that his firm wouldn't find the right match. Singaporean investors didn't like a business that had no physical goods, he says, and he didn't click with other investors the way he had with Ito.
Although Singapore's start-up scene has been flush with big funding rounds recently -- e-commerce firm Clozette and property listings portal PropertyGuru have raised tens of millions, for example -- Nanavati says that in the end, Chalkboard simply couldn't find the right investors to work with.
"You need a lot more Jois (in South-East Asia) who are willing to say, 'You know what, it doesn't matter if you fail, just go out there and try something new'," Nanavati says.
But the spectre of failure isn't so easy to shake. Leong tells Digital News Asia that he personally apologized to Chalkboard investors after the decision was made to wind up the company. "I apologized because I have taken responsibility and accountability for the fact that we did not manage to meet expectations."
"I am not affected or afraid of failure, but my problem at the moment is that I have the urge to do something new," he adds. "However, I decided against it. I am better served if I take more time to reflect and think about the lessons learnt from this one."
(Editor's Note: The last two paragraphs of this story were amended after further correspondence with Leong.)
Wong Joon Ian is a journalist and entrepreneur. He writes about start-ups in South-East Asia, sells Paperlounger, the best recliner for outdoor events, and is working on The Industrialist, a blog about the future of work. Follow him on Twitter @joonian