Learning from those who failed before you

Web equipment rental companies have come and gone. A former colleague of mine even tried to build a sharing site for studio space for photographers. He’s a brilliant web developer and a professional photographer. His site was beautiful and extremely well done. So well done it convinced me to work on my own idea with him. But like many other sites attempting to ride the wave of the sharing economy, eventually his site folded for lack of business, but not before he attempted to work with yet another sharing site, this one for professional camera lenses.  Even the combination of the two was not attractive enough to professional photographers to generate enough business.

So when I saw the news on Techcrunch about Fat Lama raising $10 million for an online marketplace it caught my eye. Yet another contender in this well trod space! And yet another company name that was so ridiculous it proved my contention that all the good names have long since been taken.

Fat Lama, the startup that offers a fully insured peer-to-peer rental marketplace for almost anything, is getting a little fatter. The London-based company has raised $10 million in Series A funding in a round led by Ophelia Brown’s recently outed Blossom Capital, with participation from Niklas Zennström’s Atomico and existing backer Y Combinator.

Well that’s certainly impressive news! What was Fat Lama doing that was different? Well they were very smart: they studied the companies that had gone before them, and figured out that there were a number of problems with this sharing economy business beyond simply creating a platform where supply – expensive items like power tools, met demand – people who had a one=time need for a power tool like a tile-cutter.

Traditional rental companies typically require the borrower to leave quite a large cash deposit in case an item is broken, lost or stolen. Likewise, equipment-sharing websites that don’t require a deposit can be perceived as too risky for the lender.

So Fat Lama addressed the risks of breakage, loss or theft in a much smarter way: their solution to this marketplace problem is to insure each item up to $30,000. But getting that insurance was hard work – it took them 9 months just to find an insurer! And insurance is not their only way of addressing this risk: to further manage this risk, Fat Lama requires users to pass identity checks, in addition to employing risk-profiling technology.

Fat Lamas CEO clearly expressed their business case:

Put simply, we don’t think it makes sense for people to have to buy the things they only use occasionally. And what we’re seeing, whether it’s environmentally or financially driven, is that globally, people are less and less interested in owning things, Fat Lama is connecting people with spare stuff to those that need it. By using a combination of risk-profiling technology and insurance, we’re making it not just possible, but safe and seamless, for anyone to have access to almost any item, potentially within minutes.

There are valuable lessons for founders in the Fat Lama success story.

1. It’s not a problem to tackle a market where other founders have failed, so long as it’s a large enough market to be of interest to investors.
2. It’s very important to study where the previous founders failed and address each point of failure.
3. Persistence is very important. Insurance was a key differentiator for Fat Lama and they were willing to work hard to find an insurer, even if it took 9 months to find one.
4. Fat Lama saw that while insurance was necessary to mitigate risk it was not sufficient. They brought their tech chops to the table in developing their own risk-profiling technology.
5. They had a very attractive road map for investors: Fat Lama plans to tackle the creative professionals market who have “project-driven, often last-minute demands” for niche equipment.  “Many are also sitting on big inventories of gear which they rarely use, from which they’re now generating an income in the thousands.”
6. Fat Lama nailed it, then scaled it by raising the $10 million Series A to launch in New York after they had started up in London.
7. They copied operational concepts that had worked for others in the sharing economy. Like Uber, Fat Lama hires city managers for each city where they plan to launch their business.

As a mentor I often see founders tackling areas where others have failed. But I’ve never seen founders like Fat Lama who successfully tackled such an area and succeeded by methodically de-risking all the factors that had sunk previous startups. Check out Fat Lama’s web site. It’s very well done, leading off with a simple but powerful value proposition to the two sides of their market: those who lend things and those who borrow them. “Borrow stuff you need. Lend stuff you don’t.” And they also have a great simple and powerful tag line: Fat Lama, The Future of Ownership. Kudos to the founders, they’ve really nailed it where many others have failed!