Clinkle: How to go from a soon-to-be unicorn to complete failure in one year

How to go from a soon-to-be unicorn to complete failure in one year

In the summer of 2013, a startup named Clinkle took Silicon Valley by storm. Clinkle was widely hailed as the epitome of the Silicon Valley success story – a 22-year-old Stanford Computer Science graduate, Lucas Duplan, and his team of equally smart programmers meet in a Technology Entrepreneurship class (which I happened to be in as well) and create an amazing product. With a product demo described as “mind-blowing” and all the seeming characteristics of a new Zuckerberg, the likes of Peter Thiel (founder of PayPal), Marc Benioff (Salesforce), Richard Branson (Virgin Group), and a host of VC firms all rush to invest, and at $30M, Clinkle became the largest seed round in Silicon Valley history.

Over the next year, however, the team swelled to 70 people, but then plummeted down to 12 – a drop-off caused both by massive layoffs and massive resignations. At its low point, seven employees publicly quit in a single day, in frustration with the CEO. Four years after its founding, Clinkle has never successfully released a product. Though still a company, the business is now frequently mocked as epitome of Silicon Valley’s failure and arrogance.

Underlying all of this is a struggling CEO running a company whose business model is at odds with the way he operates his business.

 

Business Model

At first, Clinkle was created as a mobile payments company – designed to transfer payments between people through the use of high frequency sound, removing the need for things like credit cards or NFC chips. This never gained traction, however, and after an unsuccessful launch the product was recreated and rebranded as “Treats” – a physical debit card centered around a lottery-style reward program. Revenue in both models was simple – taken as small interchange fees on certain transactions, and driven both by number of transactions, overall transaction volume, minus any rewards given away to users.

clinkle-mobile-wallet

Entering the payments space and designing a mobile- and user-friendly product, and competing against large technology companies also trying to enter, meant that Clinkle needed to build several critical factors into its operating model in order to succeed:

  • Technology and design innovation to build a working product that customers could easily use
  • Competitive talent pool to effectively compete against large, technology companies (e.g. Paypal, Apple, Venmo)
  • Trust of users to feel secure using app for payments
  • Speed and agility to get a product to market faster than anyone else

Operating model

Clinkle is anything but a success story, and from the beginning was not a company built with operating and business models that supported each other. Overall, the entire operating model was built around allowing the CEO to control every aspect of the business, with the aim of building nothing except for a perfect product at any cost.

Specifically, none of the critical factors above were addressed, and the following operating model flaws plagued performance:

  • Lack of transparency and information flow – Duplan was able to gain investor backing and high-quality employees by convincing both of them on demos of a product that didn’t actually exist. Even after joining the company, employees and investors both were kept out of the loop in key product decisions and progress. Information rarely flowed through these three key groups – Duplan, his employees, and his investors. Critical decisions, such as major product changes, were made singlehandedly by Duplan and announced to the engineers after the fact. At the same time, Duplan remained largely removed from the actual design process and stayed either inside of his closed office or off-site for most days.
  • Perfection over speed – Clinkle took about 3 years to bring its first product to market, favoring intense testing, product refinements, and a painstakingly-long UI design process over trying to gain traction. At the same time, dozens of companies were entering the space and building user bases. When Clinkle finally attempted to enter, they met a market with several strong competitors, and never gained any traction.
  • Lack of oversight and expertise – Clinkle’s seed funding round – though the largest in history – was on convertible debt rather than equity. Investors, then, had limited oversight into the company and little room to add any expertise or oversight to the company. In place of this investor support, Duplan maintained firm control over the company and of the information that was released both internally and externally.
  • Toxic and hierarchical culture – In stark contrast to most firms in Silicon Valley, Clinkle was built with a clear hierarchy. Duplan, as its CEO, remained removed and closed off from many employees. Key decisions were made from the top with little involvement from engineers. Mass layoffs were done several times – either over the phone, or by bringing groups into a conference room and letting them know, together, that they were being fired that day.

Clinkle’s context and underlying business model made innovation, speed, and trust a necessity. Instead of achieving those things, Duplan built an operating model that put him at the center of a hierarchical process, kept information from key constituents in the process, blocked experts from helping him improve the product, and slowed down the iteration and design process – highlighting a firm’s need to build a process that matches their context and their business. If they had done a few things right, perhaps we’d be Clinkle-ing each other for that Uber ride, but for now we’ll have to stick to Venmo (or God forbid) actual cash.

 

 

http://techcrunch.com/2015/05/15/clunk/#.8iqs27k:mYfH

http://www.businessinsider.com/inside-story-of-clinkle-2014-4#ixzz3aEOAcrGQ

http://www.forbes.com/sites/ryanmac/2015/05/19/more-employees-head-for-exit-at-clinkle-as-company-searches-for-answers/

https://pando.com/2015/05/19/it-wasnt-youth-that-doomed-clinkle/

http://blogs.wsj.com/digits/2015/01/13/high-flying-startup-clinkle-turns-into-treats-a-debit-rewards-program/

https://www.quora.com/What-happened-to-Clinkle

http://nymag.com/daily/intelligencer/2013/06/this-22-year-old-just-won-silicon-valley.html

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5 thoughts on “Clinkle: How to go from a soon-to-be unicorn to complete failure in one year

  1. Great post– was fascinating to see Clinkle rise and fall… especially after all the hype in the Bay Area! I do wonder if the root of their problems operationally (and strategically) was the lack of poor leadership. Would they have been successful had there been someone else on top? Or was the product doomed from the start?

  2. Awesome post. Fascinating. Amazing example of a classic SIlicon Valley structural failure. At the end of the day I truly believe that the operating model drives whether or not good “good ideas” succeed. A business needs to be scalable and adaptable, and the business model needs to support functioning structures and processes. The characterization resonates. Silicon Valley is often more toxic than it looks!

  3. Nice post Patrick – especially having the inside view. As someone that knew the people involved in Clinkle from the start – how predictable was this failure? How was this situation allowed to persist, especially given other tech start ups that were able to oust their founders for the good of the organization? How much do you think this do you think comes back to the broader point we were discussing in class about the volatility in start-ups being in the investors favor?

  4. Great post! Love to hear stories not only of successes but of failures cause sometimes its the best way to learn what to avoid! I believe the operating model does not fit in this era and it seems like he failed also because of arrogance!

  5. Thanks for the highly entertaining read. What was Duplan like in class? Are you surprised by the outcome? I also wonder if experienced engineers think through potential problems with leadership before accepting their positions, or if they’re blinded by media attention, successful fundraising, and potential for equity. What’s Duplan up to these days?

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