Hitting The Wall

About five weeks ago, Rabbit ran smack into a brick wall at 100 mph. Rest easy: no actual rabbits were harmed. I’m talking about the company, Rabbit, where I was CEO. It was both surprising and not surprising. Surprising because we had millions of users and incredible engagement. And even though we hadn’t figured out monetization in a rights restrictive market - we had a plan. Oh and we were stealth, so no one knew us - but how hard could it be? 

So in mid-May, when the next round of investment went from final term sheet negotiations to “no deal” in literally a matter of hours, I was floored. I had to close the doors and let a great team of 35 people go with less than 36 hours notice. It was with a heavy heart and a big lump in my throat - still in a bit of a daze from the past two days - that I told the team that Rabbit was shutting down. It was a brutal way to learn some valuable lessons.

Shutting down was hard. We are a family. The team had worked really hard, accomplishing great technical feats that had attracted millions of users. Rabbit found success by letting users watch anything with anyone anywhere. You could watch the game with your buddies or just spin YouTube with friends. we attracted nearly four million monthly users all through word of mouth. And these users spent several hours a month on the site - more hours than the average user spends on Netflix! We had a ton of interested users who saw the future we did: watching content with friends wherever you are.

It was this awesome product and team that attracted me to Rabbit. But growth had stagnated the months before I started, and it was time for a new plan. I joined last August with excitement, optimism and a clear mandate to reaccelerate user growth and figure out a funding strategy. I had about ten months of runway. Go!

But there were a few obstacles. First, we didn’t have a strong monetization strategy. And while it’s often said you can “figure that out later,” you had best have a lot (I mean - a LOT) of funding available and some stellar user growth to buy time until that nebulous “later.” Second, we didn’t have explicit content rights, which is a problem when your primary offering is allowing users to share other people’s content with friends and family. The absence of content rights wasn’t an immediate problem, given monetization wasn’t the current priority. But it would have become a huge issue once we were ready to go full tilt at making money (as any real business should).

In my first few months, I worked with the leadership team on a plan to reinvigorate user growth. Our problem wasn’t getting new users but rather getting users to come back over and over again. We made meaningful changes to the core product - creating permanent spaces for users to chat with friends. This allowed them to coordinate what to watch next and to watch what they missed so they could stay in sync with friends. Our kickass product and engineering teams brought this to life, and those changes improved user retention by over 25% in the few months after the release. We had helped to improve the growth by significantly reducing the leak in the user funnel. The team knocked it out of the park - underscored by user retention numbers that we hadn’t seen in a long time.

Meanwhile, I spent my time working on a business and funding strategy. We needed more capital, and to get more capital, we needed a way to show a plan for revenue. Maybe we could get users to pay for the service? User feedback was decisive: they loved using Rabbit - but not enough to pay. Maybe we could do advertising? Then it became clear that advertising on top of someone else’s content (to which we don’t have rights) is unappealing to advertisers. Maybe we could sell the data to content creators? Oh yeah, we didn’t exactly have rights to the content, so selling the studios’ information about the content we were using wasn’t really something they wanted to pay for. Could we buy rights to content? Nope. Turns out that’s really expensive and we didn’t have the capital for this model.

Acknowledging that we didn’t have growth numbers to stay in the “we’ll figure revenue out later” VC funding plan (even with better retention), I turned to strategic partners who would be interested in the co-viewing technology and the value we could bring to their content. I spent months on the road introducing the idea of co-viewing, the company and myself. Through conversations, it became clear that the most realistic path was going to be through licensing the technology to the content rights holders for use on their streaming sites. 

The fundraising process was further complicated by the fact that we didn’t have any industry relationships. The company hadn’t invested in marketing or press ever. In fact, it had chosen not to do press releases around major funding or product release events, so no one knew who we were. It was hard to get meetings, but harder to tell our story, reset minds on how content should be consumed, and convince strategic partners that they needed us - and that we weren’t stealing their content - all in an hour. To say we were starting cold is an understatement - with a very limited time frame.

We ended up with two interested strategic investors and a potential acquisition offer. But when pushed, we got a term sheet from only one strategic investor and an acquisition offer, which was low. We focused our energies on the strategic investor. We had a verbal agreement on terms, and then while I waited on their edits, they sent an email saying they couldn’t move forward with the round. I’m not entirely sure why they changed their minds - but without the funding, we couldn’t keep going. We hit the wall. And as simple as these few sentences sound, it was a dramatic, stressful and utterly chaotic 36 hours as I reached out to any and all for funding to prevent the inevitable. But we were out of money and options - and I had to let the team go. We were done.

The stars didn’t align for Rabbit to take our next strategic steps. We seemed close - but then again, we were so far. And in my ten months as the CEO, I learned three hard lessons:

1. Figure out monetization early - even if you don’t implement it. Otherwise you’re just giving away free stuff, which isn’t product-market fit - it’s just free stuff being given away. I could grow a user base massively by giving away free beer - but that’s not a business.
2. You need a ton of capital (and time) and user growth to make a run at a content business. Netflix, Spotify, YouTube. These took years and hundreds of millions of dollars in capital.
3. Business development isn’t a four letter word - literally and figuratively. Invest in learning the partners in the ecosystem, get on people’s radar, make and maintain relationships. You never know when you’ll need them. 

It’s been a hard few weeks. I wish things would have turned out differently. We built an incredibly talented team of great people that built a kickass product. I’m thankful for the co-founders and the team which worked so hard. And I’m still confident that the future will involve watching anything with anyone anywhere. Someone will figure this out. Maybe it will be a rights-holder who wants to differentiate their product offering or someone with deeper pockets and the long-established relationships to pull it off. I know that watching shows is better with friends, whether that’s at a sports bar, in my living room, or my virtual living room on Rabbit. We just didn’t have the right formula to pull it off this time - but someone will. For now, we move on to our next adventures a bit smarter and we wait for the world to bring the Rabbit experience back in the future.