An Austin based startup that promised to revolutionize the way Americans read postal mail is going out of business. Outbox was founded by a pair of Harvard Business School graduates with little or no actual business experience, Evan Baehr and Will Davis. CEO Baehr’s resume consists almost entirely of time spent on the federal payroll, or at right wing lobbying organizations.
Despite the absence of work experience, investors backed the company, and it began small scale operations in Austin in 2011, later expanding to San Francisco. But they had a problem, as the founders explain on their blog:
Although an early test with the USPS that let users redirect their mail to us showed signs of success and operational simplicity, an interview by CNBC triggered a request from the Postmaster General himself to meet in Washington, DC. In one of the most surreal moments of our lives, we had our very own Mr. Smith Goes to Washington encounter where the senior leadership of USPS made it clear that they would never participate in any project that would limit junk mail and that they were immediately shutting down our partnership. This 30-minute meeting was the end of our business model.
The would be “entrepreneurs” seemed mystified that the USPS didn’t want to support them, despite the fact that their “business model” was basically that of a parasite- using the USPS as a revenue stream, while actively trying to damage the postal service’s advertising mail product. But that didn’t stop the two whiz kids- they plunged ahead anyway, shifting their “model” to one that required their employees to drive around and take mail out of their customers’ mailboxes. What could possibly go wrong with that?
However, after an extensive email marketing campaign to our waitlist, total yield from the waitlist was under 10 percent. And as we started marketing outside of this network, we had difficulty finding a repeatable and scalable acquisition channel. Across all of our efforts, our acquisition numbers were over $50 per lead.
As our marketing efforts lagged behind schedule, our density numbers remained consistently flat, causing us to spend about double our projected cost to service each customer. Even our most dense routes cost us approximately 20 percent more than our break-even target.
So, after blaming the PMG for screwing up their business model, it turns out that the real problem with Outbox was that its founders vastly overestimated the demand for their product, and grossly underestimated their costs. So Outbox crashes and burns after two years, while the USPS carries on after more than two centuries.
Read more: Outbox Blog.