Pivoting in the face of an unscalable business model

This article is an excerpt from an episode of Startup Snapshot, a Tech in Asia podcast that features the leaders and innovators in the Asian startup scene, and discusses the highs and lows of their founder journeys. It is heavily revised from the original transcript. Listen to the full episode on Spotify, Apple Podcasts, or Google Podcasts.

When he was 20 years old, Fave founder Joel Neoh launched his first business: an employment agency that matched university students with employers for part-time jobs. Since then, he’d founded and headed several startups, even taking on the role of vice president at online deal marketplace Groupon’s Asia-Pacific operations.

Neoh left Groupon to start gym subscription startup KFit in 2015. But one year into that endeavor, he realized that the business’ negative unit economics meant it was operating at a loss. That realization spurred him to pivot KFit into digital merchants platform Fave.

On this episode of Startup Snapshot, Neoh talks about his early days as a student entrepreneur and how he later had to make the difficult decision of pivoting to the Fave model.

What challenges did you face as a student entrepreneur?

My parents. They didn’t understand what I was doing and they called it a hobby. They wanted me to focus on studies. In fact, right after I graduated, they took my degree certificate, made a few copies of it and sent it out for job [applications].

My parents were really concerned. When they first came to my office and they saw what I was doing, they were quite heartbroken. My mom went to the toilet, got a broom, and started to clean up the office, because that’s the only thing that she understood about what we were doing. She just wanted to contribute.

I felt really bad, but I’m glad that I pushed on. Today, I think they fully understand what I do, and trust and support my decision [to be an entrepreneur].

When did they start to understand what you were doing?

It was one day in 2012, when I bought them an iPad. They were playing around with it and they came across a website that was selling coupons. My mom attached a credit card inside, she bought some coupons, and she was really excited about using them.

My dad was very upset because that credit card was his and he was afraid of fraud. Because at that point in time, the newspapers were reporting a lot of fraud in terms of online transactions, so they sought my opinion. My mom showed me the website and it was Groupon, which was actually the company I was building at that point in time.

Fave founder Joel Neoh / Photo credit: Fave

They didn’t even know I was [heading] Groupon. It only connected with them after I told them, “Hey, mom, this is actually the company I’ve been building for the past two years.” She was pleasantly surprised. That was quite a proud moment for myself.

In 2015, you left Groupon to start KFit. What challenges did you face, going back to launching a startup after running a scaleup?

Two things: unit economics and churn. In terms of unit economics, the simple way to think about it is how much revenue we are able to generate from every customer. The reason why that’s important is because revenue that is generated is then invested back to grow the platform.

For KFit, it was a negative unit economic. The more consumers or customers that were using the platform, the more money we had to pay the gyms and studio owners, which in turn creates a loss for every customer.

Was the decision to pivot the business a difficult one to make?