Troubles of Finnish startup Fruugo

There has been news about Finnish startup Fruugo having to lay off significant portion of their work force because of financial problems. Fruugo is a high profile startup (at least in the Finland startup scene) that has some of the biggest names of Finland tech industry on its board, like Risto Siilasmaa and Jorma Ollila. The figures are also big for a web startup, it is rumored they’ve burned through €40 million so far. Basically I think they’ve hoped to strike it big in the e-commerce, but tens of millions for a web site that already has competitors like Amazon (they also allow e-commerce sellers to list their products on their site) sounds like a huge gamble. Frankly, the site looks quite plain, and does not have the features to draw users to do their product research and shopping on it.

Arcticstartup blog also covered Fruugo situation in their post. Jugding from the comments, many people see lack of advertising as a problem, because outside of tech news, Fruugo hasn’t really made itself visible atleast in Finland. They don’t have the user base to bring in nearly enough cash flow. How to lure customers is a complicated business, and I can’t really say what they should’ve done to succeed in it.

My gut reaction however is that trying something of this magnitude, when the competition is already well established in Europe and elsewhere, is very risky, almost suicidal. Their approach to being a general store for everything sold on web sounds like a huge undertaking, and I propably would’ve done it on smaller scale first: Build a more concentrated site with one or two product categories, see if you can make it appealing enough for sellers to have their product listed on the site and for buyers to use it to find what they’re looking for. Perhaps also strike a deal with some site with product reviews, so you have more content and can genuinely help people with their decisions.

I have a feeling, that building it big and getting it right on the first time just doesn’t work in web applications. The factors that contribute to one’s success are numerous and sometimes it’s just pure luck. Build something, see if it sticks and iterate from there sounds more like a business plan, where risks can be reduced to more manageable level.