Some of the challenges facing Internet startups as compared to brick-and-mortar companies include:

• Developing trust between consumers and online brands is a challenging process because consumers are reluctant to switch to something unfamiliar. It’s often easier to stick to old habits only because they proved to work and are safe. Online companies often have to be very creative in their marketing in order to encourage adoption. Taxi Magic’s partnership with Heineken is a great example how TM leveraged brand loyal consumers of Heineken to reduce the “risk” associated with adopting new habit.  Music Juice, on the other hand, simply assumed that the Dutch model is going to work in the US and failed to generate interest in public.
• There are concerns consumer has to overcome when providing personal information/credit card number to the online site. TM recognized this problem when they made a decision to stop asking consumers for their credit card and giving them the option to pay cash. Consequently, they saw a significant increase in sales after this change was carried out. MJ again failed to research consumer behavior and did not adjust their model even when they recognized things were not going well.  They could for example partner up with Amazon or iTunes to generate more “buzz” or encourage voting to ensure that only musicians selected by the public are eligible to raise funds.
• Consumers do not receive their purchase instantly often having to wait for days for their purchase to arrive. To counterbalance this issue companies have to provide benefits that are not attainable in brick-and-mortar stores such as more product variety, convenience of shopping, and price flexibility. TM knew that the only way consumers were going to switch to ordering taxi on their smart phones is by ensuring that it is more convenient than to call for a cab. Not only TM provides the functionality of ordering taxi in minutes but also creates an image of safety and transparency. Therefore, providing additional benefits other than benefits provided by brick-and-mortar shops is a good way to ensure success and a more rapid adoption.
• Competition is a challenge as well since it is easier to build a website than it is to start and maintain a brick-and-mortar business. One way for an online company to block itself from the competition is to build a strong brand, aggressively market it to consumers and initiate “lock in” where it would no longer be economically feasible for users to switch to other brands.  Although TM did not spend considerable resources on marketing it was able to build technologically superior product that instantly create a “buzz” among “influencers”. In today’s social media driven world, it was enough to create a very substantial users base and achieve exposure in media. Strong brand, “sexy-taxi” layout of the app and loyal consumers made it possible for TM to maintain their leading position in the market even though there are more than a hundred other competitors that provide similar services. MJ, on the other hand failed to do either, build a strong brand through marketing or produce a technologically superb product. Their website is unappealing and confusing creating a “blurry” image in terms of their value proposition.

So what was the main reason behind TM’s success?

I read an interesting article last semester for Entrepreneurship course about the way venture capitalists evaluate new ventures. A number of the most influential venture capitalists were interviewed and asked about what they viewed as most important things they look at when evaluating potential venture opportunities. Apart from the important factors such as large addressable market, sustainable competitive advantage, timing, pain ladder (need in the market) and business model, everyone agreed that human relationships are crucial for project’s success.  Most of the interviewed venture capitalists are looking for a reliable team, committed people who understand the whole thrust behind the technology and the industry dynamic behind it. There has to be a vision, execution, sales, experience and entrepreneurship in the team. Venture capitalists spend a lot of time with entrepreneurs and their team evaluating whether there is a real connection between the teammates, what are their biases and their experience. I believe the main success factor of TM was extensive expertise provided by the founders of the company, family-like atmosphere and continuous enthusiasm to try new things and explore new opportunities. The founders of MJ, on the other hand, did not have experience in building online ventures or in Internet marketing, things that are essential for success of this type of e-Business. Their deteriorating relationship and lack of motivation contributed to the failure of the business.