The Shore Annual Report 2019 looks already pretty dramatic: The provider of customer management software had dismissed more than half of its employees and made immense losses. In addition, the company feared a liquidity shortage. How bad is the crisis of the Munich startup?
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Shore sells a tool that allows hairdressers, beauty salons, and physiotherapists to manage appointments and customers. Depending on the size of the team, companies pay between 39 and 99 euros per month to use the software. However, the costs of attracting new corporate customers are high: over five years, more than 30.6 million euros of losses accumulated, as the financial report from 2017 shows. Sales were below losses. German startups first reported that current figures are not public.
The management reacted with radical steps: In order to reduce costs, Shore has laid off around 120 employees in the past two years – above all sales employees. According to the Financial Report 198 employees were employed in the Shore Group at the end of 2016, there are currently around 80.
Too expensive customer acquisition
In the crisis, Shore has adapted its strategy: by 2018, the company had actively gone for customer acquisition, sales staff had traveled across the country to find new customers, say the current CEO Nikbin Rohany and Christian Kählig in conversation with founder scene. But: “The acquisition costs were not in proportion to the costumer lifetime value,” says Rohany today. Every customer brings the company a certain turnover over the years (Costumer Lifetime Value). But Shore spent so much money on sales that sales per customer were far too low in the end. Therefore, the startup has decided to attract new customers only via online advertising and no active sales more.
The remaining sales representatives of Shore then advise and conclude the contracts over the phone. As a result of the changed strategy, the SaaS startup is now able to centrally control sales, and therefore no longer needs employees in Spain, Switzerland and Bulgaria to address companies there, according to the company. Only the offices in Munich and Los Angeles have remained, all others have closed the company.
Shore was founded in 2012 under the name Termine24 by Alexander Henn and Philip Magoulas. In 2014, they renamed their SaaS tool in Shore. Rohany’s startup Absence.io was acquired by Shore in early 2017 for a million dollars. In the same year, the Absence.io founder moved to the management of the Munich-based company. The Shore founders Henn and Magoulas left their startup in 2018. Kaltenig completed the management towards the end of the year.
“There was a lot of growth going on”
“There was a lot of growth going on, and that only works to a point”, says Rohany in retrospect. With the austerity program, Shore was able to cut costs and lease its vacated office space. Nevertheless, the losses in 2017 were high. Eight million euros accumulated until the end of the year as a shortfall. More than 10.8 million euros were in the year before. This compares with sales of around five million euros in 2017, about 44 percent more than in 2016.
The information on the financial position also sounded dramatic in the 2017 Annual Report: “The external funds made available for the financial year 2018 are limited to EUR 4,785,232.23, which can lead to unplanned liquidity shortages of Shore GmbH and thus to a significant uncertainty in the continuation the company’s activity, “says the report for 2017. The paper was launched at the end of June 2018, shortly before the company closed a financing round. Various existing shareholders invested according to the startup a seven-figure amount.
At the time, Shore had only a small amount of money left, the managing directors report. Even if the then managing directors Henn and Magoulas assumed that they would get a month later a seven-figure financing, they had to announce the bottleneck. “We were never close to bankruptcy”, say the current two managing directors Rohany and Kählig today. However, donors – especially in companies that have problems – often say at the last minute, so that a planned investment breaks down and startups are insolvent.
The old shareholders saved the startup
With half a team and a less aggressive sales force, Shore could not increase his sales in 2018, but at least reduce his losses. Last year, the turnover amounted to six to seven million euros, said Kählig. He also expects a net loss of “probably less than four million euros”.
In January 2019, a few months after the last financing, Shore has again raised capital. Various existing shareholders gave a seven-figure sum, which should help to reach the breakeven point, the managers said. The new round is currently not visible in the commercial register. In the past, Metro, Funke Mediengruppe and Zalando founders Rubin Ritter, Robert Gentz and David Schneider invested in the management software.
This year Shore wants to hire up to ten more employees and focus on its core markets. The German-speaking region is the strongest for the business, say Rohany and Kählig, but there are also many customers in the US and Spain. However, they do not want to reveal what figures the Munich residents are expecting for the current year.
Also published on Medium.