22 November, 2022

The forgotten ones: tales from the start-up realm

Alongside industry experts, Gambling Insider looks at various examples ofstart-up businesses within the industry – and why the vast majority of them fail.

Rudyard Kipling once wrote in his poem, If, ‘if you can meet with triumph and disaster, and treat those two imposters just the same’ – a phrase that is true in business and life; because for every success story, there are multitudes more of failure and ruin.

As any start-up worker involved in a failed company will attest to, the confidence and bravado of every bullish start-up CEO soon dissipates in the face of financial Armageddon – as those that started the floundering company begin to look for the exit – flames licking at the ankles.

The gambling industry is no different. It’s filled with wide-eyed hopefuls who dream of becoming the next bet365 or Entain – only to find themselves consigned to the scrapheap of discarded businessmen & women; wondering why a seemingly unique idea didn’t come to pass the rigorous standards set by the fierce competitiveness of the industry.

It’s been reported that over 90% of all gambling start-ups fail – 10% higher than the UK average, which shows that 20% of start-ups fail inside year one, and around 60% fail inside the first three years.

This is a fact Ebbe Groes, CEO of EveryMatrix, knows very well.

During a recent interview with Gambling Insider, Groes took a moment to process our question before responding: “Your success rate is well below 35% for start-ups – that’s just a fact, it’s nothing special to our industry. I started many years ago and that’s how it is: most people will fail and you have to embrace it as an entrepreneur.”

Almost letting out a smile as he thought further on the question of start-up failure, Groes elaborate: “If you embrace it and say 'I’m truly confident I will succeed, but I’m also able to handle the fact I will fail and I have a plan B... and I’m not going to go broke and lose my wife and children, and sleep on the street and cry all day. If I’m able to do this and compartmentalise my endeavour and accept the fact I will most likely fail, even though in my mindset I think I will be the exception,' then you’re fine.”

THE COMPLEX CASE OF FOOTBALL INDEX

Arguably the most famous case of a start-up being highly successful before becoming irrelevant in a very short space of time is the extraordinary rise and fall of Football Index.

The now all-but-defunct company started with a wave of electronic marketing and famous faces coming on board – including iconic football commentator John Motson – becoming a leading gambling hub for UK players wanting a new way of betting. Football Index offered players a stock market-esque trading system, allowing bettors to buy shares in players throughout world football, which would rise and fall depending on the performances and results achieved on the pitch.

It grew at such a rapid pace that Football Index even began sponsoring EFL clubs. Both Nottingham Forest and QPR signed deals with the company on the back of the success of the betting operator, proudly showing the moniker of Football Index alongside club crests. However, underneath the expensive sponsorship deals and glitzy stars Football Index put forward, a storm was brewing.

The structure of the company fast became identifiable as a Ponzi scheme when investors began to question the inner workings of the business. So, on one fateful day in March 2021 – the ravages of the pandemic still causing mayhem – the Gambling Commission finally brought the online operator’s business to a sharp halt by revoking its licence, leaving over £90m ($109m) of player money trapped inside the system. Famously, though, this was after it had already gone into liquidation, also calling the competence of the Gambling Commission itself into question.

Although the example of Football Index is somewhat laden with caveats, being that it was operating under suspicious circumstances throughout most of its existence, it still serves as a message to those attempting to set up a business in the gambling industry. The platform gained significant traction very quickly – before going down in the sort of flames that evoke images of the ill-fated Hindenburg.

However, the idea of Football Index wasn’t a poor one and had a niche that legitimately interested the public. If it’d been better taken care of, the concept had staying power. However, while the story of Football Index may be unique, the generality of its ephemeral lifespan isn’t. The company failed to correctly keep itself afloat and went out of business because of poor management decisions – a tale as old as trading itself.

IMPACT OF PRODUCT DEFINITION

However, the reasons why start-ups fail are not always strictly down to financial & regulatory shortcomings. When asked by Gambling Insider during a recent interview: ‘Why do start-ups fail?’ Axes CEO Earle Hall leaned forward in his chair, the blue of the Pacific Ocean shining through the windows of his Californian office, and with a chuckle said: “That’s the easiest question you could ever ask.”

As Hall took a moment to structure his answer, he noted there are three sources of failure a start-up is most vulnerable to, of which he said the most important was ‘Product Definition’.” The Axes CEO then went into further depth, explaining his belief: “More often than not, the entrepreneur or visionary, or whatever, has a dream to build something, but it’s askew on what the market wants to buy. When your product definition is not tailored to what the market wants to buy now, the cost and the amount of money you’ll put into your start-up to wait, to find a niche, or to find a couple of believers and early adopters who’ll buy your product – or rent it if you’re SAAS based – it will take a fortune to keep the company alive, not thrive.”

However, Hall also noted the importance of having adequate people in the team and raising capital. “Because start-ups grow fast, a start-up reinvents itself every 90 days if it’s doing its job, which means as compared to a company like IGT, Scientific Games or Konami where they have about 2-6% growth, they will reinvent themselves every three to five years. A start-up will reinvent itself every 90 days.

“So, I’d say after the 50% that’s product definition, 30% of why they fail is because they suck at raising capital. And there’s only one way to raise capital: that’s get on the aeroplane and don’t come back until you have a cheque, that’s what I’ve done all my career.”

While Hall spoke, he also noted that start-ups must have “the courage” to evolve the team. “Start-ups kill me because most people say, look at my team, they’re all my friends, well they’re going to drown you. I’ve done seven start-ups and I feel like I’m 700 years old. I’ve made all the mistakes.”

FINDING INITIAL SUCCESS

That said, just because a start-up may eventually fall, as Goliath did in his iconic battle with David, it doesn’t mean the whole experience is a struggle. In the case of the recently renamed UK-based company, iGaming Agency – initially called Affili8 – the name change was driven by the vast consultancy tangent the business took in the past two years.

IGaming Agency’s moniker shift was down to its consultancy side of the business becoming more prominent the more business the start-up affiliate took in. That success has driven the business on, and it’s now due to break its year two expectation of £500,000 because of the new contracts it has signed with partners across Europe and the US.

Speaking to Gambling Insider, iGaming Agency and Affili8 founder Chris O’Rourke commented on why his company has curbed the general trend of start-ups, saying: “It could be that we bucked the trend because we chose a niche, we entered that niche. But we also have had good support from people who knew our investors and us.”

However, while the affiliate agency is proving to be the exception so far, it still has to survive the next year without falling prey to the pitfalls the vast majority of start-ups, unfortunately, are found guilty of. Things can change quickly in the realm of new businesses, and the newly branded iGaming Agency will be one to watch from the perspective of the industry.

It’s a sentiment that Almost Friday Media’s President and COO, Andrew Kenwood, summed up perfectly while speaking to Gaming America: “A lot of start-ups fail; that’s the nature of any venture business,” he explained – in total agreement with both Groes and Hall.

However, Kenwood then took a moment and reflected: “I think, in the gaming space, there are so many product-driven companies that are pre-revenue, they are launching with the hope of amassing some critical audience for their platform, their technology, and it is just wildly competitive. Until you reach that tipping point, you’re so reliant on investor funds to carry you there – you’ve got to have something undeniable.”

It’s a point that remarks on the fate of many firms trying to break into the gambling industry; either a tipping point is reached, and the revenue runs dry - or the product on offer isn’t - to coin Kenwood’s phrase - undeniable. Earle Hall said something similar, telling Gambling Insider he recently informed a new company CEO that met with him: “You can burn $10m to learn this lesson, or you can take the notes and save yourself the money.”

Naturally, the gambling industry isn’t unique in the start-up failures that lay dead at the roadside; if anything, it follows the broad trend of every business out there.

IN THE END

The truth of the matter is that every start-up begins with a mission to change the industry – gambling, gaming or not. Most know the immutable truth of failure will engulf the business within the first three years – as those that survive longer continue to wrestle against the tide of brutal trials any business must go through to become stable. There is no gaming element to that challenge either; no second lives to activate once a business has fallen into the abyss.

For all the tips and thoughts willingly offered by CEOs and Founders on why start-ups fail, in reality, the reasons are infinite. Inexperience, financial gambling, too much restraint, too little restraint, incorrect product definition, the wrong idea, the right idea at the wrong time; anything can be a catalyst for seeing a start-up go bust – while the path to success remains shrouded in mystery. The facts are the facts, statistics don’t lie – failure is a near-certainty in life, successes are few and far between – the median age for a CEO that founds a successful start-up business is 45, according to Harvard University research. This means all the bright-eyed people at 20 with a dream inevitably have to fail a few times to succeed.

And that’s the real test; for most, success is dependent on failure, a trial many never make it past.