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For many – perhaps most – entrepreneurs, there comes a time when they have to admit to themselves: “This isn’t working.”

Their vision didn’t turn out the way they thought it would, or their startup is heading in the wrong direction. Maybe the niche they saw in the marketplace didn’t really need to be filled, or perhaps people just didn’t really care as much about their product as they did.

At such an inflection point, many founders will have to make the tough decision of wrapping up their business and moving on to the next idea.

But with the right attitude and approach, sometimes there’s still a chance to press the reset button, identify a new niche to fill, and steer a startup back towards success.

That is what has happened to Kuala Lumpur-based Bfab.

Founded by Rocket Internet alumnus Pawel Netreba, the startup launched its online marketplace for the Malaysian capital’s beauty and wellness industry in January 2016.

He had considered entering a variety of verticals using the marketplace model he learned while managing the Malaysian operations of Foodpanda, back when it was still a Rocket Internet company.

Netreba and his co-founders, Sergey Gaydar and Raeesa Sya, settled on beauty and wellness services since they found it to be a particularly fragmented and offline-driven industry, with no dominant player despite an oversupply of service providers. Also, consumers were becoming more accustomed to accessing services online or through mobile apps, suggesting there was potential demand for a beauty and wellness marketplace.

See: This guy used all he learned as a Rocket Internet exec to build his own startup

Brick-and-mortar businesses like hairdressers, nail salons, and spas were invited to list on Bfab’s platform. Customers could then surf the site to find whatever service they require, compare prices, and book an appointment with their chosen merchant.

Bfab experienced several months of decent traction. More than 2,000 salons and beauty professionals signed up to take bookings through its portal by November 2016.

In the same month, Bfab secured a six-figure US dollar amount in funding from Captii Ventures. This came after an earlier six-figure seed raise from Captii, 500 Startups, and KK Fund in late 2015, prior to the platform’s soft launch.

“However, we figured out pretty quickly there’s a limit – a majority of people still prefer to go directly to these guys, using WhatsApp to book, and they didn’t need our booking platform,” Netreba tells Tech in Asia.

Something’s up

At first, Bfab tried to tackle this problem with an offline strategy. The startup sought to build its brand with a media push, talking to magazines, attending events, and sharing social media posts from celebrities that mentioned it.

It also tried to ply Kuala Lumpurians with promo codes, money-off vouchers, and other special offers. But these tactics quickly took their toll on Bfab’s time, energy, and money.

“Eventually, we said it’s not going to work in terms of unit economics,” says Netreba. “A purely B2C booking platform won’t work with limited financial resources – we needed a much bigger budget to change the behavior of the consumers. The salon side was no problem. We were actually increasing the supply side. But we were investing our marketing dollars into educating the consumers.”

Moreover, it faced fierce competition in the space from the few rivals that managed to survive. “Most of the startups in this field died, except for the well-funded Vaniday, Vanitee, and ourselves,” he says. “These startups died, no-one really was succeeding, and it was because of this.”

We sat down and said, ‘What actually is the problem here?’

By the time Bfab’s second tranche of venture capital arrived, the platform had been live for about four months. But its projected marketing spend was going up, and would get increasingly difficult to convince investors to foot that bill without seeing a tangible, positive effect.

Netreba and his team now found themselves stuck, spending what limited money they had left on trying to persuade consumers who could easily revert to their habit of booking appointments directly with their stylists or masseuses.

The probability that they might have have to pull the plug on the business soon grew with each passing day. Undeterred, they decided to look again at the market and the role Bfab should be playing within it.

“So we sat down and said, ‘What actually is the problem here?’,” says Netreba. If these merchants’ customers still book via WhatsApp or a phone call, then why did so many salons and beauty professionals sign up for Bfab in the first place?

Eureka moment

The Bfab team worked out that customer attraction and retention were the core issues facing most merchants. They found it difficult to secure regular customers, and many didn’t make repeat visits. By signing up with Bfab, they hoped to find a source of new customers to make up the shortfall.

“They have this fundamental problem: they never took care of their existing customer base, never understood them,” explains Netreba. “They weren’t communicating with them – [not] with regular emails, new updates, new promotions. They didn’t do anything in terms of CRM [customer relationship management].”

Digging deeper, the Bfab team found that most of their merchant partners didn’t database their clientele, didn’t analyze the demographics, and rarely stored email addresses or phone numbers. When asked how many customers they had, they couldn’t give a definitive answer. Moreover, this meant they couldn’t easily determine the number of customers and which ones returned to book a second appointment.

“In short, they didn’t have easy-to-use tools to do the numbers and analytics,” says Netreba. “We came to the conclusion that 60 percent [of merchants] were totally manual – even bigger outlets with three or four branches were manual. The few that had software typically had a 10-year-old old POS [point-of-sale system] for their invoices, and were using Excel for their customer data.”

It was then that Bfab realized there was a need for a software-as-a-service solution in the beauty and wellness space. The decision to pivot to a B2B model, providing a whole suite of services from customer communications and POS to invoice and inventory management, was made.

Bfab began building around its simple, existing in-house CRM, working with its merchant partners to customize the new cloud-based platform – named Bfab Pro – to their needs.

Since releasing a rough alpha version of the software in April, the startup has signed up more than 30 merchants – including not just beauty salons and spas but also physiotherapists, opticians, and fashion designers – to road-test the platform and report bugs.

New beginning

Booker and Mindbody in the US, as well as Zenoti in India, have built similar enterprise solutions for the beauty and wellness industry. But Netreba claims that Bfab Pro is the only one available in Southeast Asia that offers a wide range of features, plus onboarding and support services.

Depending on the package they select, merchants pay around US$110 per month for Bfab Pro, though they have to pay their subscriptions annually and in advance.

Netreba says a basic version starts at around US$50 per month, per outlet. Clients can then pay extra for add-ons like marketing tools, online booking, advanced analytics, and loyalty management.  Bigger groups consisting of more outlets get a volume discount, reducing the price they pay per outlet.

While Bfab Pro is still in its infancy, Netreba predicts average annual recurring revenue (ARR) of US$1,200USD per client based on its current pricing framework and client base. “The CLV [customer lifetime value] is immense as we estimate the average customer to stay at least three years,” he adds, indicating a minimum US$3,600 lifetime revenue from each merchant that signs up. “That gives significant room to invest into acquiring these clients. We calculated that every sales person, after two to three months, will be profitable, covering his own cost, and generate a positive profit contribution for the business.”

Netreba says that Bfab will soon begin the search for investors for its next fundraising round, the proceeds of which will go towards sales activities.

Recently, the startup also announced its expansion to Singapore as part of its growth plans. Compared to the Malaysian businesses that needed to first understand the potential benefits of CRM, Singaporean merchants are ready and willing to try out new technology that can make their businesses more efficient and cost-effective.  

With only a few months of traction, we weren’t getting a big benefit, and went through this big, cold winter.

Additionally, Singapore hosts the regional headquarters of many larger brands in the beauty and wellness space, presenting more opportunities for Bfab to seek out partnerships with them. Netreba says that the startup has already held discussions with cosmetics and haircare brands L’Oreal and Wella, with a view to providing its software solution to their partner salons in the region.

The pivot has not been without its own costs, however. Co-founders Gaydar and Sya – who served as Bfab’s chief marketing officer and chief creative officer, respectively – both departed during the transition. Netreba says Sya left as her background was tilted more towards the consumer-facing model that Bfab was moving away from, while Gaydar left for family reasons.

In a relatively short time, the startup has traveled a long and winding road. From its beginnings in the B2C marketplace – which is still operational, though Bfab is no longer allocating significant resources to it – to its current foray in the B2B software space. 

As Netreba points out, Bfab’s old B2C model could have worked, “but it [would have] required a lot of external financing.”

“With only a few months of traction, we weren’t getting a big benefit, and went through this big, cold winter,” adds Netreba. “So we had to think – how can we tweak it? How can we still service this beauty industry which is huge, but is still old-fashioned, traditionally minded, relationship-based, and relationship-driven?”

“It was a time of uncertainty, with no path, no clear options,” he admits. “We went through many big discussions and many emotional phases over which path to choose, which option to focus on.”

But with input from partners, investors, and other people in the startup world, new possibilities began to emerge, and the future looked brighter. The ability to bounce off ideas with peers and seek their support was critical to Bfab’s eventual pivot – and is key for any startup going through a similar experience, Netreba suggests.

“There were a lot of lessons learned,” he says. “One thing you should do is engage early with your investors and get their feedback. That’s important because they’ve heard so many pitches, seen so many other other markets. They can really help you think about your options, which to consider and which to rule out. They can give you good market sense and good perception.”

This post Survival of the prettiest: Malaysian beauty marketplace Bfab gets a makeover appeared first on Tech in Asia.

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