Building a Virtual World from Berlin: Smeet CEO Sebastian Funke (Part 2)

Sramana: How long did it take you to realize that what you had set out to do was not going to happen?

Sebastian Funke: Way too long. We spent a lot of time trying to optimize the product by adding features and more capabilities. We never really looked at what the users wanted. We never really analyzed the human behavior behind that. It is a social product, which means it is human driven. We just looked at heavy users who used the product because they had built our relationships on the platform. They had found friends on our platform and they were talking with those guys.

Typically users would enter the system, and some of them would be active and start running around. Then they would start chatting and eventually some would start using the phone. We were founded in 2006, and it took us until 2008 to fully understand that process and realize that we were optimizing on the wrong end of the conversation model. At that time four of the seven founders left the company.

Sramana: How were you funding the company from 2006 to 2008?

Sebastian Funke: We had a seed funding round as well as a Series A, and we were able to raise a total of 6 million euros.

Sramana: How much of that was spent by 2008?

Sebastian Funke: We had spent 80% of the original funds.

Sramana: So you had a little over 1 million euros left to rethink the strategy of the company and of four co-founders left. What did you do?

Sebastian Funke: I took over the company in 2008. It was very different from the founding of the company when everyone was very excited. I tell people that the founding felt like +100, and in 2008 it felt like -100. Investors were frustrated and had given up on the company. The entire team was frustrated, including all of the employees. We had 50,000 registrations and very few active users. It was a legacy product that we had to use as the basis of our strategy.

At that time, the most important thing was focus. We began looking for opportunities to make money with what we had. We realized that we had a lot of rooms, so we decided to build a virtual world and see if that experience would be more enticing for users. We concentrated on building the possibilities of our universe, which meant allowing users to create a custom avatar, custom rooms to put furniture in, and other traits that are common in virtual worlds.

That took us a couple of months, and then we started generating a couple of thousand euros a month. That demonstrated to us that we could make money with that concept although we still had a lot of skeptics who did not think we were going to be able to survive. We saw the positives and decided to press forward with the company, which also meant we had to make difficult decisions. We downsized the company from 50 people to 25 and developed a very clear business plan. We reduced all costs to an absolute minimum and gave out equity over salary. We reduced salaries, especially those of the founders. In 2009 we started building up our revenues.

This segment is part 2 in the series : Building a Virtual World from Berlin: Smeet CEO Sebastian Funke
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