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 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.
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.
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.