This sounds to me like two people who sweet talked their way into a large amount of money from rich people, spent it all on an idea that had little basis in reality (market research was newspaper articles?!), and then wrote an article to make the people whom they lost money happy.
There were many losers in their story, but they sure as hell were not any of them. They had fat salaries, spent a lot of money and then folded the "idea".
Well, all I'll say is that one of the most prestigious venture firms in the world saw fit to invest in their seed round. Also, they took considerably less (half) of what is considered standard salary. In any case, it certainly wasn't an example of wily entrepreneurs ripping off dumb money. Everyone took risk because they felt that there was significant upside.
Kudos to them for returning the money rather than trying to ride it out. That said, I somewhat agree with the post below about things taking time. You need to be around a while before people start to trust you. That has to be an especially problematic hurdle if you're managing people's joint ownership of physically indivisible objects.
At a fundamental level I don't understand what fractional art ownership is, who would pay for it, or why they would pay for it. I understand what fractional jet ownership is and why timesharing a vacation condo works, but fractional art ownership seems to me to be fundamentally different. Where was the evidence for need? What do people do today in lieu of fractional art ownership?
Agreed. While reading through the article, it feels like an over-analysis of what is really a no-brainer: a solution to a problem that doesn't exist in a bad economy. Sure, many great ideas probably seem absurd initially, but that's more the reason to minimize burn rate and increase longevity (which isn't evident from the 9-month number they cite).
Hi-
People already physically share their art with other people and institutions over the course of the year, think of all art in museums that is "on loan" from private collections.
Fractional ownership would enable art investors to diversify their portfolios and would reduce the entry point for investors in the space. Also, unlike planes, art is an appreciating asset.
I think skmurphy understands the theory behind fractional art ownership but is simply skeptical such a market exists in practice.
Is there an established market for shared art ownership (besides fractional donations for tax purposes)?
If not, then I think there's a more direct and simple lesson from the failure: if there's no existing market for your idea, the most likely reason is that people don't want to buy it or use it. Thus you better have solid evidence there really exists unmet demand, probably via experiments in the earliest stages of the venture.
There are firms that rotate paintings/photographs through corporate lobbies but retain title to the collection (it may also be for sale). There are many "loan" arrangements. I am not aware of "fractional ownership" arrangements: I think one of the key challenges may be "fractional sale."
I actually think it's a good idea. I don't know about fantastic or if it would make much money but I can see potential in it.
I don't think they had the right team for it. I did not see much creativity or innovation going on here. It's a very difficult proposition to sell someone something that they can't keep. They should have tried other methods. Maybe allowing towns to pool money together to get pricey famous art to spend a year in their museums? Or allowing anyone online to purchase a fraction of art in Iraq so that it is protected from looting - it can be toured worldwide and returned to the country when it can actually be protected. I can keep going. But they apparently chose not to.
Their idea reminded me of Paul Graham's initial idea of selling art over the internet (before Viaweb). The only difference with Paul's idea and theirs involved the partial ownership bit.
What were they be spending 31,000 a month on? YC companies are expected to get by for 3 months with just half of that.
"an outsized sum was spent on professional services (legal, branding, design, etc…)."
You can get good branding and design for cheap if you know where to look. The only real (large) necessary expense I see here is legal services to draft up contracts and agreements for co-owning art. Why couldn't they make a deal to pay the lawyers after they raised their next round? Don't startups do this a lot?
It seems as if their quick demise could have been avoided (or at least delayed) if they had kept their burn rate lower and focused more on sales instead of marketing. In the end your sales numbers determine whether you live or die.
I can't answer directly for Jordan, but I would assume that their costs were a lot hire than you would expect because they were working in the ultra-luxury goods category. When communicating in this market, everything is about extravagance- from your website to your office to you business cards. Building a company in this market is just a lot more expensive than getting feedback on consumer web app.
That certainly allows for an increase. It's a different type of market with different requirements. I have respect for the man in the arena and I'm positive there's more information that I don't know; I'm just genuinely curious as to how one could spend that much money so quickly.
Realistically a fancy website and business cards should not cost you more than a few thousand/month. However, a nice office in a good ___location with fancy decor could really burn some cash.
There's no reason 2 guys need a nice office in a good ___location. They were a pure internet company doing something like group-buys for fine art. Chances are the expenses might be something they couldn't reduce like warehouse space, escrow, or insurance related. Usually employee salaries are the biggest expense for typical internet companies.
I can definitely understand why you might think that this business was an pure internet play but it certainly wasn't. As PG learned, people don't buy highend art over the internet. They need to experience in person. The need to know what it is going to feel like to "live" with a piece.
Jordan knew this going in, and their model required a fair amount of in-person, highend selling.
They closed the business about a year after it was formed. Also, i wouldn't say that the business was formed because of the stock market, more that the economic downturn had an outsized influence on their customers propensity to spend. The aspirational art market (35 year old hedgefund managers) evaporated over night. Yes, perhaps they could have seen it coming, but then again, these hedgefund managers certainly didn't...
"In addition, Never a good idea to build a business based on what newspapers are saying or how the stock market is performing..."
It's probably not a good idea to ignore them, either. I don't know about you, but all the "market research" that my customers ever do is whatever lands on the front page (or on their favorite 24h news channel), and they allocate their buying power accordingly.
Elephant in the room: The art market went through a massive, just staggering, boom. Prices and volume went through the roof on fine art.
These guys showed up way too late to the party. No matter what their product was, it wasn't a good idea to launch something related to the sales of fine art just as the bloom came off the rose.
Your point about the art market boom and downturn is definitely true. As the article alludes to, fractional models tend to do well in downmarkets because they enable buyers to reduce risk.
There's some really good stuff in here. I definitely agree that aligning corporate and personal identities is pretty crucial, at least for someone on the core team of founders. Sometimes you can fake this I guess, but it's hard to evangelize a product or service that you yourself wouldn't use.
There were many losers in their story, but they sure as hell were not any of them. They had fat salaries, spent a lot of money and then folded the "idea".