Editor’s note: This story was written by Henn Idan and Yaniv Feldman, and was originally published in Hebrew by Newsgeek, the largest tech blog In Israel. 

Earlier this week, Israeli start-up Xeround, announced it will shortly be closing its doors. Xeround, which provides a cloud model database as a service solution (DaaS), informed users on its official company blog that free users will have just one week to move all their data to another database provider. Paying customers were given a little more breathing room, and are expected to have their bags packed and their beds turned over by the 15th of the month.

While no details were given as to the reason they decided to close up shop, company officials hinted to the fact that management has decided to re-focus the company’s efforts, and as of the dates specified, will no longer be providing any more support for its services.

What happens when you over-pivot

Xeround was founded in 2005 by Sharon Barkai – founder of Sheer networks, which was eventually sold to Cisco , and Dr. Gilad Zlotkin – founder of Class Data, also sold to Cisco. Originally, the company started out developing SS7 Gateway type communications components. When they realized this direction wasn’t getting them anywhere, they pivoted, choosing to focus on designing databases geared toward handling large information loads with fast response times and high survivability (Real Time Carrier Grade Telco Database).

Comparing the advances of Xeround with what was available at the time, when the Clusters models of Oracle and Microsoft were not as stable as they are today, it looked like Xeround really had a qualitative advantage over its powerhouse competitors.

For two and a half years Xeround tried to push their solution as an OEM product to major telecom companies like Ericsson, Siemens and Nokia, but the red tape involved when dealing with major providers made the process excruciatingly long. Xeround then looked to branch out, seeking to partner directly with other media companies within Israel, and AT&T in the United States.

“Ultimately, this too proved fruitless, because the fact was, Xeround was the scrappy new startup trying to play hardball with the older boys, and despite having what to offer, they were never really given the chance to show it off. They learned early on that trying to tangle with customers used to working with the likes of Microsoft and Oracle, was not an easy task. Sales cycles were long and unpredictable. Massive amounts of time, money and resources were being poured into customer demos and trials, only to find out, that at the end of the day, decisions were being made based on political considerations or the like, and had nothing to do with who can actually provide the best solution for the company. Xeround was out of their element.” a source close to Xeround told Newsgeek.

At this point, investors looked to pivot once again, keeping the technology but reconsidering their target market. Charlotte Yarkoni – a senior exec at Amdocs, was asked to take over as CEO, and see if she could turn Xeround into a sort of ‘mini Amdocs’. She was not to focus so much on the product, but rather on the end users, and see if she could broaden the base of who could and should be benefiting from what Xeround had to offer. Yarkoni managed to secure two U.S. funds and recruit the single largest investment of the company, nearly $16 million. By now, the product was already very polished and the main focus of all company efforts shifted to closing deals with other companies in the form of developmental integration.

This strategy worked for the better part of two years, but once again, the beurocracies of large organizations came back to haunt Xeround with a vengeance. The straw that broke the camel’s back was a big contractual project that had been running smoothly for 8 months with Amdocs and AT&T, which suddenly fell through, shutting down in a single day.

“Hundreds of millions of dollars that we counted on, was suddenly cut off. Other than a few dollars coming in here and there to cover costs, we were basically running dry,” Newsgeek’s source says. “Shortly after we lost the project, she [Yarkoni] also left and a lot of the money she raised went with her. She took all the people dealing with it, leaving the company with no money and no infrastructure.”

Three years ago, the investors tried to take matters into their own hands, and brought in a new general manager named Razi Sharir to try and take the company’s technology to the hottest new party on the block at the time, the Cloud. The idea was to try and provide the same database service advantages of speed, enterprising growth capacity etc. – while bypassing the larger customers with all their baggage of time and cost constraints, by opening up Xeround’s services to all size customers in the form of an SaaS model.

Like a Shakespearean tragedy, the new model proved as faulty as the others. First, the company tried to establish its own server farm but quickly nixed that idea after calculating the real costs involved. When other cloud service providers started competing in the same space with similar products, Xeround decided to throw in the towel for good.

“This last idea had potential. If you’re looking for a place to lay blame, it’s with the investors and senior management, chasing their own tails and not knowing where they were going from one day to the next,” Newsgeek’s source says.

“Nothing ever filtered down properly to the operational employees. You need to remember that when Xeround first opened up shop, the plan was to sell its product to large companies. Much about Xeround’s products were designed with the assumption that someone else would eventually be responsible for them. Jumping right into the cloud with the idea that everything would just be converted to a smaller user, SaaS model, was unrealistic. Xeround had to bundle their services with a cloud provider, and to make that work properly costs money. It turned out that the backend operational expenses wound up costing more than Xeround was actually bringing in from their customers. You don’t need an MBA to realize that this sort of business model wasn’t going to work.”

A year ago, Xeround managed to raise yet another round of funding, buying it one last chance to tap its unrealized potential. However, six months ago, we began to notice significant reductions and layoffs in the company, culminating in what was the dramatic ‘closure of service’ announcement last weekend. Overall, during its eight year run, Xeround raised a relatively high amount of capital, about $34 million from VC firms like Israeli Giza, Benchmark Capital, Ignition Partners and Trilogy Partnership. In its last days the company employed close to 40 people at its offices in Yehud and the United States.

According to information received by Geektime, most employees had already been informed about the fate of the company on the day before the official announcement on their blog. Apparently, a number of senior employees were left on hand to wrap up unfinished business, probably involving the selling off of assets and other such liquidable items before the final close. There have been reports of late, of some larger deals being closed by Xeround with the kind of big scale clients they’ve had so much trouble trying to hook in the past, but apparently it was too little too late, and the trajectory of the company could no longer be changed.

We turned to the company for comment, but did not hear back from them as of this writing. Should we get more information, we will update the post at that time.

So what do we do now?

The biggest question surrounding Xeround is not necessarily why the company closed, but what are their customers supposed to do now. The risks in dealing with startups are well known, and anyone looking to entrust their business to a startup is fully aware that such a company can go belly-up at any moment, ditching them in the middle of the road to find their own way home. However, it’s not often that a well-funded organization hangs up a ‘closed’ shingle on their doors one morning without so much as a ‘heads up’.

For users, or even companies, who base their services on a startup like Xeround, a closure like this can be fatal. Loss of business, the need to search for a new provider ASAP, dozens of minor emergencies are created, each one costing precious cash that individuals and startups simply don’t have. Sometimes companies base entire business models on the assumption that a certain company’s services will exist for the foreseeable future. When one day it doesn’t, neither do the companies who relied on it.

It’s important to clarify that this is a problem without any clear solution. Investing solely in well established companies and ignoring startups will only serve to make startups superfluous. With no customers to speak of, investment would dry up and startups would soon disappear, taking with them all the price points and innovation that they bring along with them to the table. On the other hand, the risk is always there – and when a well-funded, 8-year-old startup can’t make it work, it makes you think twice about using the really small startups for your business operations.

Bottom line: selecting the technology solution of a young startup can be equated to investing shares in their company. There’s risk involved, but also plenty of benefits if they succeed. Stepping back a bit and looking at this thing objectively, we believe that just like you’d want someone to invest in you, you yourself must continue to invest in others – small as they are. But make sure to have a backup plan in place, so you don’t find yourself stranded on the side of the road with your thumb sticking out.

Image credit: Adam Gault / Thinkstock

Even the most basic of feedback can seem confusing.

Just one thing

Frequently, founders are told “Do one thing and do it well.” Instagram is an oft-cited winner that honed in on a simple task: mobile photo sharing.  Instagram’s former self, Burbn, was scrapped after feeling cluttered and overrun with features, with its wider offerings around location check-ins and social event planning. Instagram CEO Kevin Systrom said, “Focusing on one thing and doing it really, really well can get you very far.” In fact, $1 billion far.

Cue envy. Cue funding funneling to players riding at the coattails. There were so many Instagrams for video at one point that The Next Web felt compelled to pick just the top ten.

Okay, that’s easy enough. Crush it performing one task.

Not so fast. Founders also sometimes hear that they are not building real businesses. Instead, they are declined as FNACs - just buttons on a page. Well, any number of technology behemoths could build that; how defensible could this be? Thanasis Delistathis from New Atlantic Ventures cleverly pointed out that blue chip companies like Apple, Google, and Microsoft “have built such a cash cow in a business line…that in their search for growth spend lots of money to give features away.”

But as we’ve seen, the ecosystem can bear fruit to many winners. Spark Capital’s Andrew Parker astutely cut up the Craigslist homepage to show how the directory has given way to category-oriented companies like HomeAway, OkCupid, and StubHub. It’s an image regularly shared across the web, though infrequently commenters address Parker’s amazement of how Craigslist continues to compete, “if not dominate”, with basic HTML/CSS UI and fewer features. Yes, it appears even Parker was intrigued enough to explore the “adult services” section.

A matter of perspective

Here’s the secret: investors themselves often struggle to delineate the difference among these identities. Wasn’t Twitter just the status bar feature on Facebook? Facebook Places launched in 2010, a year after Foursquare. Did Foursquare then qualify as a feature?

Bill Gurley from Benchmark Capital drew criticism after claiming Dropbox to be a “major disruption” because the team “had taken a hard problem – file synchronization — and made it brain dead simple” as disbelievers fell into the Steve Jobs camp that file sync is a feature, not a product. Rory O’Driscoll from Scale Venture Partners came to Gurley’s defense, stating that the feature label should be taken as a compliment. “To get any traction in software today you have to start with a feature — an atomic unit of delight. You have to solve one problem superbly.” Dropbox is currently valued at over $4 billion.

Google, Yahoo, and more recently Mailbox are other examples that were turned away, or funded, based on subjective viewpoints of their status. Where did startups like Disqus and UserVoice first fit in? Attempting to find the common thread was perplexing.

Pulling discussions together, features perform an action. Products, normally a package of features, solve a problem. Businesses, potentially a package of products, provide recurring value to users. Ideally, these users offer up some measurable currency (data, time, cash) in exchange, otherwise it is not a particularly sustainable business. Do keep in mind that what may be disruptive and novel today may only be a button on a page tomorrow, shifting investors’ attitudes accordingly. Further, it could be argued that at the early stage investors almost never see full-blown companies, but kernels of opportunity through features and products.

Cool. How does this apply to raising venture capital?

Evaluating opportunity

Jason Mendelson from Foundry stated that the discussion around FNACs ultimately comes down to single question: is this a big enough opportunity in which to invest?

Venture capitalists evaluate the size of an opportunity centered on one primary ‘thing’: anticipation. Investors anticipate the behavior of competitors (current and prospective) and customers (also current and prospective), before checking into any concerns regarding management, the government, and black swans. Their interest is to pinpoint, then pile their time and capital into, high potential exits. They place bets on predictions, encouraged by evidence.

When considering competitors, VCs will ask, “What is challenging to replicate?” With incumbents and future contenders boasting perhaps more talent, funding, and scale, where is the edge? For some, this may be their sticky network (Evernote, Buzzfeed, WhatsApp), for others, a growing pool of insightful information gathered from complex algorithms (Palantir, bitly, Etsy). Is this particular opportunity unassailable?

When considering customers, venture capitalists will ask, “What are the trends?” Where are the signals indicating that people are climbing over themselves to be a customer and evangelizing the solution to peers because it is simply so special? Is the dynamic likely to continue and grow into the future? A good example might be Airbnb, which has grown by leaps and bounds domestically and abroad despite the challenge of building a two-sided marketplace and initial skepticism of renting a stranger’s home.

The shift of the experience from experimental (at the least this will make for a good story) to utilitarian (I just want the most affordable/delightful/convenient stay) is key for unlocking hearts and wallets of the masses.

Getting back to this “one thing” – ignore the labels. Utilize focus to be one step ahead. Build a powerhouse, not a business.

Read more advice and opinions on running tech businesses at TNW Entrepreneur.

Image credit: Thinkstock

Streaming live on The Next Web, Ciplex founder Ilya Pozin will answer questions from readers at 3 p.m. ET (12 p.m. PT) Thursday, May 9th. As part of the Young Entrepreneur Council’s #StartupLab initiative, a virtual mentorship program, Ilya will appear live via video chat broadcast on this site.

Ilya Pozin is an entrepreneur, writer and investor. He is the founder of Ciplex, a digital marketing agency, and a columnist for Inc., Forbes and LinkedIn. In 2012, Inc. Magazine recognized Ilya as a 30 Under 30 Entrepreneur. In 2013, LinkedIn selected Ilya as one of 100 influencers, along with the likes of Richard Branson, Barack Obama, Tony Robbins and Mark Cuban.

An early immigrant from Russia, Ilya founded his first company Ciplex, when he was 17. Ciplex is a digital marketing agency that provides web design, application development and marketing services. The company has been in business for over 13 years and is the recipient of multiple awards, including Inc. Magazine’s INC 500/5000 award for 3 consecutive years. Ilya resides in Los Angeles where he consults, writes, invests, mentors and on occasion, attempts to golf.

#StartupLab is a free virtual mentorship program created byThe Young Entrepreneur Council (YEC), an invite-only organization comprised of hundreds of America’s most successful young entrepreneurs. #StartupLab takes YEC’s mission to help more people start successful businesses to the next level by offering millions of entrepreneurs direct access to YEC members through interactive video chats, email lessons and a library of how-to articles, videos and eBooks. Whether you’re just starting up, a current business owner, or you run an organization that supports entrepreneurs, sign up for #StartupLab today for real-world advice from some of the coolest entrepreneurs on the planet.

Check The Next Web tomorrow afternoon at 3 p.m. ET (12 p.m. PT), when Ilya will answer questions from the audience live via video chat.

Photo courtesy of Ilya Pozin.