Industry Darling

Startups, a Cautionary Tale

founders Movinga startup pr
Getting a move on: the founders wanted to make moving more efficient.
  • Why it matters

    Why it matters

    Critics say Germany’s successful business model is outdated and too risk-averse. To move successfully into the digital age, they say businesses must adopt the “unafraid-to-fail” culture of startup founders.

  • Facts

    Facts

    • Movinga is due to receive the “Deutscher Mittelstandspreis” or German Mittelstand Prize this week for its “valuable contribution to the principles of a social market economy.”
    • In less than a year the company raised €35 million, or about $39 million, from eager investors.
    • By June 2016, the startup’s money was almost gone, 180 employees were let go and the founders themselves replaced.
  • Audio

    Audio

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A note taped to the door of the former Movinga office reads: “Please close the door.” There’s a request on the mailbox to leave packages with neighbors.

Movinga, a highly touted startup that wants to revolutionize the moving market, globally and digitally, is now moving itself.

Two students originally dreamed up the company. They wanted to bundle moving services more effectively and offer lower prices through a digital model. In less than a year they had raised €35 million, or $39 million, from investors like renowned startup builder Rocket Internet.

“If we want to encourage people in Germany to take the risk of founding a company, we also have to ask ourselves: ‘Do we allow for mistakes?’”

Gitta Connemann,, CDU Mittelstand Prize chairperson

Movinga will receive a prestigious award on Tuesday night — the “Deutscher Mittelstandspreis” or German Mittelstand Prize — for its “valuable contribution to the principles of a social market economy,” presented by the Small and Medium-Size Business Association of the governing Christian Democratic Union.

The news seems ill-timed, though. By June, the company had almost run out of money, 180 employees were let go and the founders themselves were replaced.

Nonetheless, the award organizers will go ahead with the prize presentation — suggesting that the hype has even infected Germany’s vaunted Mittelstand, the small- and mid-sized companies that make up the country’s economic backbone.

Critics in business and politics worry German industry is successful but outdated, insisting that in the digital age, companies have to take on more of the risk-taking startup culture.

But it isn’t only smooth sailing in the startup scene. Often launched by young men with the view that anything is possible, sometimes at companies just starting out, things can and do go wrong.

The video game developer Goodgame, for example, just laid off more than 100 employees.

Founders of the dating website Lovoo were jailed briefly in June after allegedly luring customers with fake profiles.

And Thomas Wagner, the head of travel booking website Unister, died this summer in a plane crash, apparently after a desperate attempt to stop his company from going bankrupt.

This is the flipside of the stories told by the hyped-up startup culture that emphasize success, where founders speak of opportunity rather than failure, pragmatism comes before perfection and speed is everything.

Back in March 2016, when the jurors picked Movinga, founders Bastian Knutzen, 23, and Chris Maslowski, 24, seemed to have done everything right.

They won top investors including funders like Rocket Internet, Earlybird and Index Ventures. They also attracted smaller investors, and taxpayer money flowed in via the European Investment Fund. Apparently, even Google considered investing.

Though the moving company hadn’t been on the market for a year, with all the money came media interest – and the prize-givers.

Handelsblatt was also a member of the award jury. We first met the Movinga founders in February. They gave us chips and Coke, and Mr. Knutzen described how digitalization would help the moving business which was dominated by small and mid-sized companies.

But Mr. Knutzen won’t attend tonight’s prize-giving ceremony as he has since left the company.

Back at the start, Mr. Knutzen and Mr. Maslowski were quick to spend the money they received. Sources, who want to remain anonymous, say the founders also presented investors with manipulated figures.

The founders deny the accusation. Their business numbers were “presented at all times correctly and with a maximum of transparency,” Mr. Knutzen said.

Indeed, a network of famous and influential investors backed Movinga, first and foremost Oliver Samwer, the head of Rocket Internet. Many of the investors know each other through Rocket Internet or from the WHU-Otto Beisheim School of Management, an elite university. They sold their own companies at a profit and now act as investors, mentors and door-openers for the next generation.

They thought Movinga was the next big thing. “Everybody was in on it,” one investor said. “They were afraid of missing out on something.”

Another investor called it a “herd mentality.”

Mr. Knutzen and Mr. Maslowski both studied at WHU. Their company arose from a term paper, then they started out booking household moving services for students online.

They thought bigger. The founders wanted an algorithm that would automatically forward customer requests to subcontractors with capacity. The idea was that furniture movers could make better use of their trucks and Movinga would take a commission. Mr. Knutzen and Mr. Maslowski wanted to create a global moving market. Looking at the bus industry, they saw the principle worked. What could go possibly wrong?

The association giving the prize considered withdrawing it – but didn’t in the end. After heated discussion, they decided that Movinga had a good idea, according to Gitta Connemann, the award jury chairperson and deputy leader of the Christian Democrats’ parliamentary group. The company opened the door for small- and mid-sized moving companies to enjoy the benefits of digitalization, she said.

The company now has new leadership, she added, and has overcome its early difficulties. A fresh round of investment money saved Movinga from going under. “If we want to encourage people in Germany to take the risk of founding a company, we also have to ask ourselves, ‘Are mistakes allowed?’” Ms. Connemann said.

The story of Movinga is reminiscent of the dot.com bubble at the turn of the millennium — when many investors didn’t pay close attention to details out of fear of passing up huge opportunities.

There was only tremendous euphoria at the start: Mr. Knutzen and Mr. Maslowski moved from Vallendar to Berlin in May 2015 and set up their first company headquarters.

They hired young people, most of them fresh from college, many from abroad. The employees were enthusiastic: They often worked through the night and sometimes partied together. A later tenant found mattresses in the server room.

Beyond hard work, sources claimed, for example, that trainees wrote positive ratings under fictitious names in internet cafés.

Meanwhile the founders spread a story of how they once invited 10 moving companies to a rented apartment. They said each of the movers was asked to calculate how many crates and people were needed to pack the furniture, and on which trucks.

All of these experts, the founders said, came up with different answers. The Movinga algorithm could do it faster, better and cheaper, they said.

The story seemed convincing — except that it was made up. There was no sophisticated algorithm. Strictly speaking, Movinga wasn’t even digital in the beginning. The company had to call every potential customer and talk them into placing orders.

Handelsblatt interviewed several Movinga employees from summer 2015. Not one could remember having thought something was wrong at the time. “That’s how they all do it,” many said.

The investors didn’t have a problem with that. “In the beginning, you have to experiment to see if something works. And when it doesn’t, you have to quickly make a change,” one Movinga investor said. “If you stuck to the rules, you’d never get ahead.”

For startups, rules can be annoying, like workplace ordinances, working hour laws and data protection.

The prize-givers want to make a make a case for protecting young companies from such bureaucratic constraints.

But Movinga had bigger problems than bureaucracy. The moving industry itself resisted being digitalized. The industry association warned its members about dumping prices and unfair, one-sided contracts.

Once Movinga had contacted customers by telephone, someone had to haul the furniture. The startup worked in part with the smallest, cheapest companies. Customers complained constantly, demanding compensation for time spent waiting and broken goods.

But instead of getting their shop under control, the founders expanded. By early 2016, they were active in seven countries. They wanted to grow before someone else beat them to it.

Investors, meantime, filled Excel tables with everything that could be quantified, they had numbers sent regularly. One of the most important figures was sales growth. If that looked good, they didn’t ask many more questions, insiders say, like for instance whether the booked sales were honored or the cost of cancellations.

By spring 2016, Movinga founder Mr. Knutzen was spending nights at the office. By then, the company was employing 500 people and renting two large offices.

If the numbers didn’t look good, Mr. Knutzen got impatient, former employees said.

At the end of April, someone sent an anonymous letter that talked of an enormous pressure to sell. It made the rounds on Twitter.

Speaking to Handelsblatt at the time, Mr. Kuntzen called it “nonsense.”

But investors became alarmed: They sought and gained access to internal data. The information showed that Movinga was exaggerating its numbers too, some investors claimed. One was the “net promoter score,” which measures the percentage of satisfied customers. It looked much higher than it actually was, sources said.

Investors stood by Mr. Knutzen and Mr. Maslowski for a few more weeks.

But in June, when the money was almost gone, they had had enough. At the last minute, another round of financing that was supposed to provide another double-digit injection fell through.

The official story was that shareholders and founders agreed that Movinga needed more experienced managers for the next steps.

In a letter to employees sent on June 17, the founders had made “the most difficult decision of their lives,” Mr. Knutzen and Mr. Maslowski wrote.

But behind the scenes, investors had applied pressure, as e-mails in Handelsblatt’s possession show.

In the end, the investors saved the startup with a money transfer of €5 million. But instead of being worth €70 million, Movinga is now said to be worth about €20 million. If you count trainees and freelance staff, 180 people were forced to leave, and operations in Italy, Great Britain, and Ireland were shut down.

The investors replaced the founders with three former corporate consultants: Jochen Cassel, Finn Hänsel and Christoph Müller-Guntrum. They are now supposed to fix the operation. They all have years of experience in the startup scene and reputations to lose.

They still believe in the idea, they said.

The company now is back to just one office. The rental agreement for the second office expires this fall. Movinga will again focus on its core markets. It will invest in technology and a cooperative partnership with colleagues, customers and moving companies, Mr. Hänsel said.

The “net promoter score,” he said, has risen significantly. When a customer now books a move, Movinga sends flowers as a housewarming gift. That used to be called gaining customer loyalty, and maybe wasn’t such a bad idea.

The investors hope that in the long term, Movinga, the award-winning startup, will turn out to be a success story.

In the future, some have resolved to pay much closer attention to the companies they give their money to.

Meanwhile the founders of Movinga, Bastian Knutzen and Chris Maslowski, are working on a new project — “full steam ahead,” Mr. Knutzen told Handelsblatt.

 

Handelsblatt’s Miriam Schröder covers startups from Berlin. To contact the author: schroeder@handelsblatt.com

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