Fruugo, the much-debated ambitious Finnish e-commerce startup (see our previous coverage) that has raised tens of millions of euros of funding, filed its 2009 annual report last Friday. The report reveals the company made a loss of 11,040,071 euros (USD ~13.9M) in the financial year 2009. Despite the huge loss, the result was actually a slight improvement from 2008 when the company made a loss of 14.5 million euros. The report also tells that Fruugo produced a turnover of 8236 euros (yes, not a typo; i.e. USD ~10,350) from the sales commissions in 2009. The company launched its web storefront, available to consumers in Finland, Sweden, and the Netherlands (and including merchants from also the UK), in May 2009 several months late from the planned schedule.

Fruugo’s CEO Juha Usva said in an interview by ArcticStartup that the firm is in a challenging financial situation and negotiating for new funding, but all their metrics point to the right direction, and sales are steadily increasing. He would not state any statistics related to the service, but obviously profitability is still quite far away.

Fruugo did big layoffs in Q4 2009 to reduce its headcount. Fruugo started the year with 72 own employees, and ended it with 33, according to the 2009 filing. The current figure is around 25, add some contractors, says Usva. The personnel costs were EUR 4.5M in the year 2009. R&D was another big single expenditure item at EUR 2.5M, while much down from EUR 6.9M the year before.

Fruugo recently got EUR 1.6M in new funding in the first half of 2010, but as also stated in the annual report, the company’s situation is difficult and it will need more funding in the second half. In 2009, Fruugo raised EUR 11,9 million in new equity. Coupled with the existing equity of 11 million and a subordinated debt of 5.9 million, the total capital pumped into the firm reached about 29 million euros. At the end of 2009, the firm’s balance sheet shows accumulated losses of around EUR 28.8 million, and shareholders’ equity in the red by EUR 5.9 million. The balance sheet total at the end of 2009 was barely 1 million, including a short term debt of around 950,000.

Despite the challenges, Fruugo’s business idea as such is pretty good – making cross-border online shopping in Europe simple, safe and social. In Europe, the economies are tightly interconnected, and yet due to the different languages, customs and tax regulations, and payment preferences, ordering goods from the web is a pain to both order and deliver (excluding the obvious very big multinational etailers) – and god forbid if you want to return some purchases. Smaller merchants might refuse to sell internationally altogether to avoid the hassle, and consumers are often afraid (or purely unable due to language or payment barriers) to order from webstores in other countries.

Fruugo makes it possible for everyone to use their own local language and preferred payment method (even local bank transfers) and guarantees the transaction. Hence, it would make the market bigger for everyone. Fruugo focuses on physical merchandize, like cosmetics, toys, baby care, and outdoor equipment that are easy to buy, pack, and ship. It is now said to feature over 100 trusted retailers from Finland, Sweden, the UK, and the Netherlands, offering over 100,000 products in total.

Speaking of the social shopping features, Usva admits those are still light, and Fruugo could do more for example in terms of Twitter and Facebook integration. Usva told us that Fruugo is currently focused on increasing its volume of transactions, acquiring more customers and retailers, and increasing the customer conversion. Fruugo has accumulated thousands of customers and repeat customers.

The biggest portion of Fruugo’s customers come from Finland, but over 70% of Fruugo’s transactions are cross-border, one direction or another. This proves that the firm’s cross-border trusted middleman concept works, Usva states, as it makes no difference to Fruugo whether the transactions are done between any of the currently supported countries. The company is not looking into integrating any new countries for the moment, though, as that would require quite significant marketing resources.

Usva describes Fruugo’s journey in the firm’s blog, reflecting the experiences against the book Rework by 37signal’s Jason Fried and David Hansson:

“We prepared a bit too eagerly against the early, ambitious plans of the company. As a result, we made some investments too early – both in technology and in resourcing. Lots of these early investments become handy now that the business is picking up, but a different route would have made certain things easier.
in Fruugo’s case it might have been beneficial to aim at starting the business phase a bit faster, using a slightly simplified business model and technical solution and start expanding from there.
But then, Fruugo’s business model […] requires investments in complex product data management capabilities, handling of multiple currencies, understanding VAT-rules and consumer protection laws in different countries etc. Fruugo’s business model requires more upfront investments than perhaps in most other web-startups.”

Regardless of the astonishing cash burn and seemingly small results to go with, it’s little use downplaying or mocking the firm. We have far too much cynicism and too many told-you-so’s already. Fruugo has been a grand undertaking, and hopefully it can still find a way forward. However, fellow entrepreneurs should try to understand what has happened, take note and apply the learnings, and do things wiser in new projects.

In the Nordics and Baltics, we need more ambitious startups, entrepreneurs willing to think big and able to go to the global markets. Sometimes (or more often than not) you end up crashing and burning. But as they say, not making any mistakes means you’re not working on hard enough problems – and that’s the biggest mistake of all.

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