Plenty of people have ideas for businesses, but few have the guts to start one from scratch. Jordan Schlipf launched Gift Cannon in October last year, firing thousands of free pints around Oxford to promote a novel way to send physical gifts over the web.

However in just seven months the company ceased trading, having exhausted its £50,000 of start-up funding. It became one of thousands of now forgotten start-ups that might have made it to the mainstream, but did not.

Gift Cannon was an instant voucher service for mobiles that let you send and redeem treats at local shops. A doting parent for example could buy an ice cream, and make it instantly available to their offspring at G&Ds. Over 900 people tried the system, heavily promoted on launch, to prove the technology worked well, and over two dozen shops signed up in Oxford, the guinea pig town.

Every step in the chain was profitable to some extent, and many cafés put up free treats like cakes, in the knowledge that customers usually bought other things too. Gift Cannon negotiated discounts meaning that a gift sometimes ended up cheaper online than if bought in-store.

Rage against the machine (code)

According to its co-founder, the project was scuppered mainly due to a dispute with two developers in Germany, who drifted away from the project just when funding had been secured. It left the other directors facing a tough decision in April this year: either to access a guaranteed £200,000 further investment, and commit the company to rapid expansion, or to kill their own creation. They chose the latter.

On a personal recommendation, Gift Cannon’s core technology was developed in Berlin by two techies. They promised to come to London to join Gift Cannon’s team full time, but in the event after funding was delayed “a highly personal fight” ensued. Jordan and co-founder Henry were left with a half-finished system, unable to track if customers were spending enough to make the business sustainable in the long-term.

“If this number isn’t actually what we think it is, then the business model isn’t working,” were Jordan’s thoughts. He admits that the lack of hard evidence on their profitability shook even his own confidence.

Struggling for cash was a perennial issue. “(We were) structurally stupid,” says Jordan, with too many shareholders to keep happy. Having to “tranche” 80% of the money, and make do with only 20% of what was required initially, was also deeply unhelpful, but grimly unavoidable for Gift Cannon.

“(It got to the point where) if we didn’t manage to close the (funding) round before we ran out of money, we’d have to have got a real job.”

Henry (left) and Jordan (right) give away an iPad  Source: Gift Cannon

Free, as in ‘free beer’

Despite the impression left on many Oxford students that Gift Cannon was profligate with its freebies, the firm was more thoughful than at first glance. The cost of an iPad giveaway and £3000 of promotional spending was dwarfed by the costs of paying developers for work that didn’t meet expectations. Practically half the budget went to Berlin, to little effect in later stages.

Gift Cannon’s intentions were enormously ambitious from the start. Along with several direct clones to compete with, the app was involved in a land-grab to become the accepted platform for gift sending. As PayPal and VISA can attest, handling money on a large scale can be very profitable indeed for those that become established.

Particularly worrying for Jordan and Henry was an announcement only weeks after their funding that Facebook were launching a service of their own.

“Suddenly you’re in a space going head-to-head with Facebook, a $100bn company… I think they’re going to win.”

At a fancy press launch in New York, while Jordan and Henry were still funding Gift Cannon from their personal savings, Mark Zuckerburg announced that online gifting would become a key revenue stream for Facebook, and that with its scale it could potentially leapfrog the early innovators.

Meanwhile back in Oxford, chain stores refused to participate, while the firms controlling cash registers were not interested in integrating gifting onto their payment terminals. Intermittent Internet access complicated the clearing system for vouchers, and a bad taste from Groupon, who “kicked (independent retailers) in the nuts,” made it difficult to find the ear of some small businesses. That Gift Cannon made the progress it did seems more impressive with all these considered.

Jordan Schlipf, ex-Oxford student and entrepreneur (30)

Onwards and upwards

Far from being downbeat after seeing his company dissolve so quickly, Jordan Schlipf says he has learnt much from the collapse. He is now entrepreneur in residence at #1seed in London, helping other businesses find their funding. The £50,000 loss from Gift Cannon is peanuts in the risky world of start-ups, and will soon be forgiven.

Despite a clear failure this time he believes the experience puts him in a good position to try again, with a new idea, older and wiser.

Jordan Schlipf (30) studied Engineering Science at St Peter’s College. He conceived of Gift Cannon with a business partner in late-2011 and launched it first in London, then in Oxford, before it closed in April this year. He is now entrepreneur in residence at investment house #1seed in London.