June 1, 2018, In order to start Deep Block and Omnis Labs Company, I submitted my resignation from the company I was working for. And on June 5, 2018, I started developing Deep Block by myself. When I first started my company, I never thought about how to make money. I started coding with the intention of creating a world where people can use machine learning technology without coding. In the hot summer, the air conditioner in the small co-working space turned off at night, and I stayed up all night creating DeepBlock.net.
And in January 2019, Omnis Labs Company was established. The capital of the corporation at that time was $385, and the company began operating with a loan of $77K. And then the trouble began. At first, I thought it wasn't difficult to get investment or start a business. However, it was not as easy to get investment as expected, and as employees were hired immediately after starting the business, the $77K loan was gone in 6 months. By the time we had almost spent all my money, we were barely able to survive by receiving software development project contracts. And, some team members continued to work hard to implement Deep Block.
The image is a layout of Deep Block in early 2019.
After overcoming the crisis, I participated in a startup incubation program hosted by the Seoul National University. At that time, I received a lot of criticism from the judges. “How will you make money?” I started the business without thinking about making money, but I realized that if there is no money, the company cannot survive because we will not be able to pay the salaries to employees. I thought hard about how I could sell this product. Based on the fact that the business was started at a business incubation center on the university campus, I contacted 190 professors in the campus that might be interested in our software. We introduced our services through email and requested a meeting. As a result, the people who showed the most interest in our technology were professors in fields related to remote sensing. Those working in the remote sensing field are interested in machine learning technology, but they don’t have knowledge about machine learning technology. I also noticed they lack skills in software engineering and handling large-volume images. So, I thought we could do better in this field, so we started updating Deep Block to be able to process this large volume image file.
After that, I was very busy carrying out contract work, company management, and product development, and 2020 came. Although the company's debt increased further in 2020, we continued to improve our services. In this year, I met two famous accelerators in Korea. In one place, the analyst of the AC was very interested in us, but the AC CEO was busy criticizing us. I later found out that this AC CEO had a personality that was notorious among other startup CEOs in Korea. After the meeting, I met another AC. They rejected our application, but a partner of them introduced me to meet the CEO of a startup. At first, I thought he was trying to give us a chance to market and sell our product. So, I met with the CEO of the startup. However, at this point, the CEO of the company suggested me to stop my business and join his company. In the end, I realized that the AC partner was not trying to help us, he introduced the company to me in order to help the company he had invested in. On the meeting day, I had a chance to take a look at the company's software. And, the company's software could not properly process even 1GB image file. Since we could handle photos larger than 10GB, I immediately declined his offer. This 1GB company continues to receive investments whenever they runs out of money, and is still making a huge loss.
The first half of 2021 was a very difficult time because we got scammed. I handed out flyers on the street and paid my employees' salaries with personal loans. My credit card debt was $10K, my bank loan was $40K, and the company debt was $200K. Miraculously, we were able to survive by winning another software development project. None of these debts currently remain.
In 2022, we focused on technology development. Meanwhile, our high-resolution image processing data pipeline was finally completed. From the end of 2022, we began carrying out online marketing activities more actively. Of course, the company's expenditure also increased. However, we did not have the chance to properly produce digital marketing content until then. So, I decided to invest money in digital marketing content creation.
2023 came. In the spring of 2023, I worked hard while sleeping for 4 hours a day, and, surprised by the huge cash burn of our competitors, I began to look for strategic investors. However, many people in Korea I met did not show much interest, saying there was no difference between our software and other companies' software. Although I was desperate, I assumed that there were still many places where our technology could be used, so we continued our sales activities. And, there is one thing I realized while working hard in sales.
The people I met to sell our product were government officials or employees of large corporate business development team. These people don't need to know any technology, and even if they don't improve their work processes, they have no problem getting paid, and they don’t get fired. (Korean labor law is really strict, and the law guarantee lifetime employment of employees)
Also, these people were not in charge of technology development. And, they had no ability to distinguish fake technology from real technology.
Therefore, these people do not actually need to use the software, develop technology themselves, or improve the company's business. They were people who bought software when their boss told them to, and had no ability to distinguish between good and bad software.
In the end, we did not achieve much success this year. And, in this process, I learned that there is no point in investing a lot of energy in sales to people who are not willing to solve their problem, or who are not aware of their problems. But at least, by running the company without debt, we have checked our business and customers' willingness to purchase in Korean market. Of course, it would have been better if this had been done in 2022, but since the number of potential customers in this year's market has increased compared to last year, and the completeness of our technology and marketing materials are much greater now, I have no regrets about conducting the market validation this year.
It's already been over 5 years since I quit my job and started coding in an office without a window. At first, I developed it on my own with nothing, but now our company has employees, windows (😂), created software, users, and followers, and the five years of experience have taught me many lessons. Throughout my life, I struggled to survive in Korea's competitive education system. Graduating from the most competitive high school and most competitive university in Korea, I have never been at the top of my class. In schools, there were always people who were better than me. Because there were such outstanding people, I lived with the thought that I had to be humble. However, after running a business for 5 years, I learned that arrogant people sometimes look down on humble people. I have seen many investors and people look down on others, and these people are usually not the best at anything. People who ignore someone are usually arrogant, and these people are usually not decision makers, but people who work for someone and receive a stable salary. And since I realized that the sales activity to these people is meaningless, I decided to focus my sales efforts on only the RIGHT people.
Now, let’s take a look at what’s happened to other startups over the past five years.
Companies that failed While doing business, I met many suspicious CEOs. One company had a CEO who didn't know much about technology, but was good at pitching, and the product was also technically difficult to make. He got investment quickly, but his company no longer exists. One company hired famous people as advisors and received a lot of investment. I was suspicious of the CEO's background and suspected that he was a scammer. He got investment twice so quickly. But after 3 years, the company and its CEO disappeared together.
Companies on the decline It is not easy to get an investment these days, and many Korean startups that relied on VC funds are having difficulties. There are CEOs around me who are experiencing such difficulties, and the number of companies experiencing the Death Valley for various reasons is increasing.
Companies in chaos Last year, I visited the office of a CEO I respect. Next to his company was an urban air mobility(UAM), UAV startup with a huge office. This company has been in business for longer than us, but last year’s sales were lower than ours. While sitting in the CEO's office and talking about the room next door, the CEO said this to me. “People who do business with other people’s money, work in an expensive palace-like office and spend a lot of money on rent.” From my point of view, companies that borrow an expensive office fall into two categories. 1. A company that receives a lot of investment 2. A company that makes a lot of money In case 1, I think it is difficult to succeed, and my philosophy is that the CEOs of such companies are dangerous. I once checked to see what was going on with the UAV company recently. When I checked, this company was currently in a lawsuit with a Korean local government.
Too Big to Fail Companies that have already received too much investment are of particular interest to investors. Let's take a look at the cash flow of a company that is considered to be a future unicorn in Korea.
Their cumulative operating loss is nearly $1Bn, their last year operating loss is $27MM, but their last year's revenue was $5.7MM. Don't be fooled by the graphs. This is a company where many of my alumni work, the company continues to raise new investments when it runs out of money, almost twice a year or more. Compared to 2021, the increase in sales can be impressive, but if you look at the financial statements of most companies that raised HUGE investment, and received GREAT SUPPORT from the Korean government, you will see that they have a business model that cannot survive without investment. However, the Korean government provides various grants and funds to VC-invested startups, provides free business trips abroad, and invites these companies to various trade shows and events. Typically, these companies apply for stock exchange listing if they are not successful in generating operating profits or improving cash flow. Afterwards, VC, PE investors who invested in these companies sell their equity to individual investors after listing, and run away. And the companies that continue to lose cash eventually disappears. Sometimes, these companies’ CEOs are invited to various tech events to give lectures to other startup founders. But I don't understand why these people are lecturing me about business. It sounds like they are giving a lecture on how to raise investments not business. The CEO I met described these companies as follows. “There are companies that regard investors as their customers.”
Companies that are making a profit but not growing From here, I think the founders of these companies are doing business more successfully than me, and I respect them. One company my friend works for, received investment from one of Korea's most famous VCs and started a new business. They already had recurring profit, and the costs for new business development could be covered with cash earned without consuming investor’s money, but unfortunately, the company failed in new business, and their sales are no longer growing. Another friend's company also generates annual sales of Millions of USD, but its sales has not continued to grow beyond $1Bn, and it has not yet become a unicorn. In fact, not all startups need to be unicorns, but looking at this situation, I realized that it is difficult to create a company that makes a profit, and that it is even more difficult to create a company that generates sales of more than $1Bn.
Truly successful unicorns In the end, I realized that business is very difficult and a true unicorn startup is very difficult to create. Among the so-called unicorns, Korean startups, we will look at companies that generate operating PROFITS and high SALES. The first company was Woowa Brothers Corp, which generated huge sales through its food delivery application and merged with Delivery Hero. Second, HyperConnect, which commercialized a video chat application (AZAR) similar to a dating app, and sold the company to Match Group. Other than these companies, unicorn startups with high sales and operating profits have rarely appeared in Korea over the past five years, and I also realized that creating a unicorn business is really really difficult.
In the end, our company also failed to achieve large-scale growth over the past five years. I think it is the result of a combination of the limitations of the Korean market, our limited sales capabilities, lack of capital, and limitations of our business model. But I was able to learn the following lessons from my experience.
VCs are also failing in their investments, and I have not been able to successfully grow my business too. We seem similar in this respect. Some VCs say that the CEO knows the business best, and some VCs say that they know everything. However, with five years of experience, I can confidently say that I know our market better than investors. While participating in various pitch events, I got the impression that some of the VCs in Korea who were judging were participating in the event to criticize and receive a fee for judging. I also knew that these judges usually had no intention of helping the people they were criticizing. In the end, after confirming that most of the investors who enjoyed criticizing startups were not making successful investments and knew less about the market than I did, I realized that there was no need to be frustrated by the criticism of these evil people.
One of the mistakes I made was that I didn't need to look at all VCs in a bad way, but due to many bad experiences, I was not active in getting investments. If I searched hard, I would have been able to find a good investor, but I did not actively attract investment, but only used our own capital to validate the business. Due to the problem of making a living, I had to constantly expend resources to generate cash flow for the company, and although I was able to improve my ability to survive in this process, I could not devote 100% of my energy to our product. I spent my own money, the company's cash, and the revenue to run the business without investment. If we had received investment and had more cash, wouldn't we have been able to run the business more efficiently without much stress about cash flow? The good news is that we are free, without any debt. And we don’t get a pressure from investors.
Over the past five years, it was difficult to grow in the markets we focused on, and we did not achieve much growth. Looking at Korea, no company has become a unicorn through its B2B SaaS business. While doing B2B and B2G business, we spent a huge amount of money on technology development and did not make any significant sales. I should have started business outside of Korea. Or I should have started different type of business.
So now here's what I'm thinking: “Business areas and business models that can build a unicorn company” “The plan to achieve this” Currently, we are carrying out new ideas that can keep our technology, team, and Deep Block.
While doing business, there were many times when I was heartbroken by people who laughed at me or criticized me, but in the end, most of these people failed too. This means I don’t need to feel sad about what bad people say to me. Although I did not achieve great success so far, I think I have made a good journey so far even without getting investment.
I think the next few months will be a very important time for our company, and I plan to work hard to ensure that many of the people who helped me feel rewarded.
I hope that the CEOs who are working hard to make sales will achieve great success, and I will also work hard tomorrow like I did so far.