news Pollenizer-backed startup 99dresses this week took its site down for renovation promising that it would eventually return, but revealing it was suffering from financial problems linked to its use of virtual currency.

The site was launched in 2010 by high-profile Australian entrepreneur Nikki Durkin (pictured in a video by StartCastAU), backed by local startup incubator Pollenizer. Its model has seen users able to upload their unwanted clothes to sell for a virtual currency — known as ‘buttons’ — which they can then spend on other users’ clothes. It shot to local prominence after tens of thousands of women shared its Facebook page.

Durkin — in her early twenties — has been a regular in Australia’s startup scene and has featured in dozens of articles about her early success, as well as winning awards. As late in October last year, for example, Durkin won the iAwards startup company category awarded by the Australian Information Industry Association. She granted an interview to site The Brave Discussion in November, and was featured in a video by Australian Anthill in July last year discussing her sudden success.

In November ZDNet.com.au revealed that Durkin and her technical co-founder Peter Delahunty had been accepted into the three-month development program run by US incubator Y Combinator. The spot comes with venture capital and graduates enter an exclusive club with extensive access to successful startup mentors and financiers.

As first reported by ZDNet.com.au, 99dresses’ site has been taken town. A note on the site posted by Durkin states that “99dresses is changing dramatically due to financial constraints.” “Unfortunately we have to do away with buttons as a virtual currency,” Durkin added. “I just wanted to thank everyone who gave 99dresses a go, and apologize for letting you down. I’ve learnt a lot, and I’m confident that I’ll eventually be able to make this new version of 99dresses even bigger and better with your feedback and support.”

“We’re doing away with the current 99dresses because it just doesn’t make for a sustainable business and so heading in a new direction,” Durkin added in a YouTube video disclosing some of the new features and design of a planned new version of 99dresses. The new version, she added, would use something called ‘closet credit’, which users could earn — although users would be able to pay the difference in cash if they didn’t have enough to buy items.

“Thanks for sticking with me throughout last year. I made a lot of mistakes and kind of really screwed up, but I’m still not giving up. I really want to change the way women consume fashion, so this is my next attempt,” Durkin added in her video.

opinion/analysis
Durkin’s actions in taking 99dresses down for renovation says several things about her company and about Australia’s startup market.

Firstly and most obviously, I consider it fairly strange that the site has simply been taken down for renovation instead of developing a new version on the side and then launching that. Durkin has been very public in comparing 99dresses to established retail sites such as eBay, but there is simply no way that most other retail sites would take their current sites offline while they developed new ones.

With all the backing that Pollenizer and Y Combinator can offer, couldn’t 99dresses have kept running while Durkin and her team developed the new one in the background? The only explanation I can think of is that they were losing money speedily by keeping the existing site up. However, if this is the case, why was Durkin so prominent in the media just several months before the site went down? Shouldn’t she have declined interviews and focused on the business until things were back on track?

Secondly, this event illustrates the highly volatile nature of Australia’s startup market in general. Hugely popular and well-known in Australia’s startup community, Durkin had won awards, been featured in countless articles in the mainstream media and become an icon for entrepreneurship locally. If someone in that position can have their startup fail — and need to go back to the drawing board — then anyone can. I do, however, wish Durkin the best of luck in the future — often small business failure only leads to larger success later on, for tenacious and repeat entrepreneurs like Durkin :)

Image credit: Still of StartCastAU video

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1. Anthony S
   Posted 23/01/2012 at 12:03 pm | Permalink | Reply

   Well, as she said, she’s made lots of mistakes. I’d assume she had some blue sky perception that she was going to make it, and if she repeated the perception enough that it would become truth. Overt optimism is both the blessing and curse of the entrepreneur.

   Thus no Plan B, no graceful site transfer.

   • Renai LeMay
     Posted 23/01/2012 at 2:47 pm | Permalink | Reply

     I think there’s definitely stuff going on here behind the scenes, as is often the case with startups. I’m sure it will come out in the wash ;) I personally think it has something to do with Y Combinator — the timing seems to be linked etc.

2. Phil
   Posted 23/01/2012 at 5:04 pm | Permalink | Reply

   I think the bigger issue she has faced in recent times is a massive conflict of interests and IP ownership issues stemming from her relationship with Pollenizer. From what I have seen and heard, her now association with Y-Combinator and her history with Pollenizer has created some legal headaches regarding who owns what and what it’s worth etc

   Not sure is what the deal is as the domains are under what seems to be personal ownerships of Nikki Durkin (99dresses.com) and Ingrid Durkin (99dresses.com.au).

   This may be the easiest way for Nikki to break free of any business obligations the old business may have had with Pollenizer to focus on her new relationship with Y-Combinator while retaining ownership of the domains, of which are fairly well known. It also provides her with an immediate re-entry point for an updated version at some point down the road.

   Pollenizer also takes startups under it’s wing so to speak, ‘for a price’ which includes some development, project management and mentorship but does not include any cash investment. In these situations the startup has to pay Pollenizer for Pollenizer to be involved in the same model as a traditional client/supplier relationship. I might go as so far as to suggest if this was the case that Pollenizer dumped Nikki once the cash dried up.

   Interesting to also note that Pollenizer has removed any mention of 99Dresses from its portfolio…. this might be a flashing light that Pollenizer is distancing itself from 99Dresses which is funny given that they were not that long ago putting it on a pedestal for being a great innovative startup.
   http://www.pollenizer.com/portfoliocompanies/

   Based on all of this it looks like a business/relationship gone bad in favor of greener pastures.

   Best of luck to Nikki as she is a smart girl and will do well under the Y-Combinator program.

   • Renai LeMay
     Posted 23/01/2012 at 5:36 pm | Permalink | Reply

     Interesting. Second time today I’ve heard a similar explanation. Not saying that makes it true, but the Y Combinator timing is interesting.

   • Mick Liubinskas
     Posted 23/01/2012 at 8:29 pm | Permalink | Reply

     Renai, I think the heading is a bit alarmist. Working out your business model is not ‘financial problems’, well not at least in the short term.

     Turning your site off is a good sign of focus. If it’s going in the wrong direction evening maintaining an old site is not worth it. It takes a lot of guts to do but I’ve seen startups fail by supporting the wrong customers.

     Nikki works hard and has a lot of drive. My guess is that she’s got a few more twists and turns to find the right model. If it’s there to be found I’d back her to find it.

     It’s great she’s in YC like lots of other Aussies have been. I just hope she comes home one day. :-)

     • Renai LeMay
       Posted 23/01/2012 at 9:14 pm | Permalink | Reply

       Hey Mick,

       I appreciate your comment — cheers!

       To be honest, however, I disagree with you. If I shut down Delimiter and acknowledged there were financial issues, such as Nikki has, I would expect such a headline. It was as factual as I could make it.

       And I don’t agree that turning off a site is a good sign of focus. For a business, turning off your web site effectively puts a sign on the door saying ‘we’re closed for trading’. Existing customers will be weirded out by that, and won’t have much faith in the business as an ongoing concern. If you can shut it down once, after all, why not again?

       My own business is of a not dissimilar size to that of Nikki’s, and I can assure you that if I shut down Delimiter to re-focus, my readers and advertising clients would be quite disconcerted. I’m speaking here as a fellow business owner, not just as a commentator.

       I agree with you about Nikki, however — she’s definitely got enough energy, smarts and passion to be very successful, and I think she will be :)

       Cheers,

       Renai

       • Mick Liubinskas
         Posted 23/01/2012 at 11:11 pm | Permalink | Reply

         Renai, it’s completely different. She’s not shut down to work on UI or relaunch branding. She’s go to rethink the whole model. You two might be the same size, but you’ve got your model worked out. She is trying to work out how to create value, how to do it for enough customers and then how to make it profitable.

         I’ve been in situations where you’ve got a product and paying customers and you realise that it’s never going to be big enough or never going to be profitable. In that case, if you keep your product or your customers and try to improve on it, you might not (and probably will not) get there. You have to wipe the slate clean, take your learnings, and build from scratch. Mig33 did it twice. Posse is onto their third build (not just version).

         In her email she said it was expensive but that’s not financial problems. She’s not having revenue drop, she’s not making enough at all. Which is fine, that’s what iteration on a new business model is about. Very risky, but worth it if you get it right.

         It’s quite different.

         • Renai LeMay
           Posted 23/01/2012 at 11:46 pm | Permalink | Reply

           No worries, I understand what you’re saying and I agree you have a point.

           Checking out the video posted, it very much seems to me like Nikki is looking at an iteration of the site’s revenue model and design rather than ripping everything out and starting again. To me it seems very much like something where the site users could be transitioned over. But perhaps you’re right and it is going to be radically different etc.

           I would be interested to know how the Y Combinator stuff plays into this as well. Nikki’s business seems like a fairly established one — she knows within what bounds she’s innovating. But aren’t Y Combinator focused on those beginning right at the start?

           Using a Delimiter analogy, it wouldn’t make sense for us to sign up with an incubator after two years of business and learnings etc. We’re a successful small business now. I wonder to what extent the Y Combinator approach makes sense for 99dresses.

           Apologies if I seem overly critical. I’m not trying to be. I just think it’s interesting to discuss the issues. If I was a journo sitting in an ivory tower without my own business my comments would have a lot less merit, in my opinion ;)

           • Mick Liubinskas
             Posted 23/01/2012 at 11:59 pm | Permalink | Reply

             Dont’ apologise. It’s a really good discussion.

             I still feel the anguish from being at Tangler and not emailing all customers and saying ‘Sorry!” and deleting them. Could have been a different ball game.

             Your point is a good one about sequence. Some say that a startup is an idea in search of a small business. Once you get it, you grow. You’ve got it. Nikki hasn’t yet.

             The other point is that just because you know the type of business model, doesn’t mean you have your business model nailed. Wooboard is subscription based, but what price, what features, what time period, how to serve them – there is still 20 variables to be nailed before you have a working business, not just a functioning product.

3. Phil Morle
   Posted 23/01/2012 at 6:37 pm | Permalink | Reply

   Hey everyone. For clarity, 99dresses and Pollenizer parted ways a year ago. As is our policy, we made sure that Nikki was completely clear to run the business with no hinderance from Pollenizer. We have nothing owing, no IP and no equity in 99dresses. So, no politics to be found here.

   I personally think it is brilliant that Nikki continues to collaborate with her users towards making 99dresses a viable business that people love to use. She will get there.

   It’s a startup. Give her a chance.

   • Renai LeMay
     Posted 23/01/2012 at 9:15 pm | Permalink | Reply

     Cheers Phil, thanks for clearing that up!

     Renai

4. Ian Cullinan
   Posted 23/01/2012 at 7:24 pm | Permalink | Reply

   Is it possible that 99dresses was just a dumb idea? I can’t find anywhere what the site even did, but I get the impression that it was some kind of eBay clone for dresses (because you can’t buy/sell dresses on eBay), using some Second Life-style “virtual currency” (because people hate buying and selling things with Dollars). Sounds like a mash of buzzwords designed to appeal to investors rather than actual functionality that would appeal to users.

   • Renai LeMay
     Posted 23/01/2012 at 9:17 pm | Permalink | Reply

     I don’t think 99dresses was a dumb idea, I think it was a great idea, as its early success proved, and I think it will continue to be a great idea.

5. colonel passionfruit
   Posted 24/01/2012 at 1:26 pm | Permalink | Reply

   Possibly the use of a virtual currency is the problem. It is illegal in Australia for anyone other that the Federal Government to operate a currency, virtual or otherwise. Virtual currency is also prone to abuse, so its use would draw the attention of Consumer Affairs as well as The Federal Reserve.

   If this is the case and the articles mentioned change of name for the virtual currency and allowing direct conversion to real currency are intended to correct the problem they wont, they will make things worse.

6. Nikki Durkin
   Posted 24/01/2012 at 2:48 pm | Permalink | Reply

   Hey all,

   Just thought I would chime in and tell my side of the story.

   Firstly, taking down our current site was a matter of focus as Mick said and it was one of the hardest decisions that I’ve ever had to make but I believe it was the right one for moving forward.

   Secondly, the support I have received from my community of members has been overwhelming. I’ve been flooded with emails from girls who are proud that I’m still giving it a go and trying to solve a problem that plenty of us girls experience. Whilst some might think shutting down our current website has massacred our member-base, the opposite is actually true and I believe 99dresses will come out stronger in the end because of it, which is definitely in the best interests of our members.

   And thirdly, regarding the comments on YC being for early stage businesses this isn’t actually strictly true. There are businesses in our batch with 20 million + downloads on their iphone app. There are businesses that are profitable and raking in the revenue. There are businesses that have already raised significant capital or that have several million daily active users. We are actually very early stage in comparison to some, and I believe YC is the best thing for 99dresses at the moment.

   So the picture isn’t as bleak as the media is making it out to be. Everyone is, of course, free to theorize about why we are doing things this way but what matters to me is that we will be back (like that email clearly stated) and we will still be solving a massive problem experienced by millions of women. And I can’t wait!

7. Smartshopper
   Posted 01/02/2012 at 3:56 pm | Permalink | Reply

   Good on ya’ Nikki.

   Life’s full of lessons and most of us get to learn them out of the public eye. Monetising a start-up is the biggest challenge of all, and virtual currency still needs to be paid for. I think you did the right thing stopping before it spiralled out of control.

   Take a deep breath, re-think, re-develop and use that extensive mailing list to start again. Most of all keep your profile high until you do launch that next big thing. Good Luck!