Aka-Aki: Left Behind by the Berlin Start-Up Boom

By Max Biederbeck

Photo Gallery: The Demise of a Berlin Start-Up Photos
Aka Aki

Everyone wants to talk about the start-up boom in Berlin, particularly with Chancellor Angela Merkel visiting promising new firms on Thursday. But for every success, there are numerous failures, including the award-winning Aka-Aki.

Gabriel Yoran had a brilliant idea, but failed nonetheless. Because the entrepreneur wanted to make money, his product could not survive on the market. Today, he is certain of one thing: "Only one in 10 business ideas makes it. Three plod along. The rest immediately disappear forever."

For a long time it looked like his tech start-up, Aka-Aki, was going to be one of those to make it. It was based on a great idea, was lauded by the media, received the Lead and Webby awards, and was loved by 700,000 users.

"But you can't trust the hype," Yoran says today. Everyone wants to talk about projects they find exciting, he says, but that doesn't mean the business model will bear fruit. That proved to be the bitter truth for Aka-Aki; it no longer has any users at all. In 2012, Yoran and his co-founders dissolved the business.

Young creative minds market their ideas, invent new Apps, or develop the online market in a new way. It is a process that can be fascinating to watch, and it can also be worth a mint to investors. Private equity and venture capital firms are eager to find those projects with promise, and are buying in at earlier stages than ever before. For the start-ups themselves, the cash infusions that result are vital to having a chance at success.

Dreams of the Next eBay

The hope is clear. Who knows when the next Facebook or eBay will suddenly pop up. And the interest in new entrepreneurship is so large, that German politicians see it as an opportunity for the German economy. Economy Minister Philipp Rösler and Chancellor Angela Merkel are even visiting the successful young gaming developer Wooga on Thursday, and are meeting with start-up founders and financiers to make their presence felt.

In Berlin, a hype surrounding the start-up scene has long since emerged, the downside of which Gabriel Yoran experienced from the beginning. In 2004, the then-25-year-old came up with the idea of developing a mobile phone program, one that would transfer the principles of Xing and MySpace, popular at the time, to a mobile phone.

"I thought, maybe I could bring this 'I know him, through him, through him,' principle to the street," Yoran remembers. The simple idea: The telephone rings in your pocket, and lets you know that your friend Anja is nearby.

When he presented his idea to some of his fellow students, they were enthusiastic and they soon went into business with two external programmers. The investors were standing in line even before the owners unveiled their product in 2007.

"The hype started when we wrote a blog entry about our idea," Yoran says. Quickly, an appropriate financier was found and the numbers of users also began to grow. The climb was slow at first, because only a limited number of mobile phones had Internet access and mobile data connections were still very expensive. But by 2008 Aka-Aki already had 50,000 users.

Overwhelmed after iPhone App

When the first Aka-Aki app came for the iPhone arrived in February of 2009, the numbers exploded. "We had hundreds of thousands of new users at the same time," he says. "They completely overwhelmed us." His start-up had to buy 40 new servers in order to get the overload under control. It was an enormous expenditure. Yoran and his colleagues spent half a year, day and night, stabilizing their system and programming new servers.

Aka-Aki's expenses were growing rapidly, however. The market for new smartphone products became tougher as new companies were founded and the number of apps on offer grew exponentially. The limited number of professional app developers available were constantly demanding higher salaries. Because Aka-Aki was free, the founders paid for each new user.

A financing model was meant to rescue the project. They developed a plan to finance the app through advertising. But many other providers were also banking on the same idea, and at first, only a few advertisers moved to the mobile market. The banner ads served to the app brought less and less income -- and the first copy-cats began duplicating Aka-Aki's product.

In the end, the seven founders split into two camps. One group wanted to integrate a paid dating service into the network. The other advocated building on the already growing business of social gaming. Ultimately, the owners opted for gaming.

It was a mistake; users didn't bite. It looked as though Aka-Aki, despite the ingenuity of the idea, was not an app that could bring in revenue. Yoran and his colleagues decided to slowly wind down the business before going bankrupt.

A Balancing Act

For investors, such mistakes can be absorbed. "It is the rule that only one to two investments will lead to a great success," says Patrick Meisberger, managing director of T-Venture, the venture capital arm of Deutsche Telekom. "Nevertheless, a further three to four start-ups will develop into profitable and viable companies, though without bringing these extremely high yields."

Yoran, on the other hand, is certain that you always have to keep one thing in mind: For start-ups, failure is normality, no matter how great the hype is surrounding it. "On the one hand, the founder has to be naďve enough to believe that they can beat the odds," he says. "At the same time, they must be able to make cold business calculations." It is a difficult balancing act.

In the meantime, the founders have moved on to new projects. Yoran is focusing again on an Internet security firm that he helped found while he was in school. It may not be as romantic, but it is a good business. He is now one of those who profitably plods along.

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