123Skins files for bankruptcy

123Skins made a business of enabling users to design and print personalised protective „skins“ for laptops, mp3 players, mobile phones and other devices. But now the company’s founders are in court hoping to prevent their own devices from being skinned by the bailiffs. On 13 August, 123Skins filed to begin insolvency proceedings.

The bankruptcy of 123Skins

It was probably the curse of over-financing which ultimately led 123Skins founders Fabian Deschler, Simon Lee and Gregory Moss into the bankruptcy courts. According to the Deutsche Startups blog, the Investment Bank Berlin, Estag Capital (a private investment company) and business angel Holger Czesnat were all early round investors, giving the young startup – at that time still known as Tortoise Design – a financial cushion of around €450,000.

A promising beginning, which got even better when 123Skins was one of the annual winners of the Financial Times Deutschland’s enable2start competition in 2008, which brought the startup invaluable publicity plus an additional €50,000. In September 2009, 123Skins wrote in its FT ‚founder’s diary‘ of breaking even for the first time. This was probably the high point of its financial performance and things went downhill from there. German startups reported layoffs in the summer of 2009 and „nervous investors staying away“ because of poor turnover figures. According to boocompany, which covers announcements from exit-oriented companies,123Skins ran into difficulties with business partners, shedding some suppliers in January because it lacked the necessary liquidity.

Above all, there is the question of whether the startup was simply mismanaged. Co-founder Simon Lee has admitted a common error of new startups – an inflated marketing budget. „We thought we’d simply put money into marketing, and everything else would follow,“ he wrote in his ‚founder’s diary‘. Besides the lack of strategic direction, there were also operational blunders (such as failing to adequately control costs for a TV advertising campaign which showed no significant success) and little appetite for innovation in the product offering.

What now for 123Skins?

One of the chief beneficiaries of the demise of 123Skins is likely to be its main competitor DeinDesign (designskins.com), which it has been in open war with over use of the words „Design-Skin“ to describe the custom-made device covers that both companies make, a term which DeinDesign was the first to register as a trademark. It will be interesting to see whether DeinDesign now swoops in to pick over the bones of its fallen adversary. It could end up picking up some of 123Skins’s printing equipment – perhaps even the 123Skins domain – on the cheap.

Internationally, the US competitor Skinit may come in with a surprise offer for the entire company. But the most likely scenario for 123Skins is a straightforward break up and liquidation of assets.