I posted previously that government regulation has become the 4th type of risk that investors and founders must evaluate and try to mitigate: The four types of startup risks and how to mitigate them.
The story When the “best” busts: the spectacular rise and fall of smart luggage startup Raden by Chavie Lieber on Vox has the perfect example of a company that got hammered by government regulation. It’s about the rise and fall of a smart suitcase company.
Three years ago, Josh Udashkin decided that the luggage industry was yet another market ripe for disruption. Luggage accounted for $30 billion in annual global sales at the time, yet was pretty underwhelming as a product category. There were a few luxury brands in the space, like Rimowa and Tumi, but nothing more affordably priced that also had memorable design and branding that could appeal to millennials, a demo that loves to travel and is willing to shell out for their wanderlust. If Casper could build brand affinity in the unsexy mattress space, couldn’t Udashkin do it with luggage?
Unfortunately neither Josh Udashkin nor his investors thought about the fact that luggage is part and parcel of the travel industry, which due to the terrorism scare, is the most overly regulated industry in the world.
What made Raden’s smart luggage smart relied on what all smart devices rely on: the lithium battery. While Raden made other mistakes the killshot was the FAA:
December 2017, the Federal Aviation Administration announced passengers couldn’t fly with smart luggage whose batteries weren’t removable. (A couple of years earlier, major airlines also banned hoverboards out of concern their batteries were a fire hazard.)
Their competitor, Away, raised a lot more money and was able to redesign their bags and weather the storm. Raden was not. So there are two morals to this story: one, know your industry, including current and possible future regulation; and two, raise more money that you think you will need, so you’ll be able to survive those unforeseen events like the FAA regulation concerning lithium batteries.
They say you learn more from failures than successes. What they don’t say is that you should try to learn from other’s failures, not your own! Read the full Vox article for details on how a founder who seemed to be headed for outer space blew up on the launch pad.