We all love a good tech start-up, coming in out of nowhere, with promises they will be the next big thing. So why is it approximately 90% of tech startups fail and more importantly what can we learn from their mistakes?
I mean, not every company can succeed and with competition being what it is, that’s not surprising, but sometimes there are fundamental flaws in a company’s business model that lead to their eventual demise. So let’s take a look at 5 start-up failures and assess why it is they didn’t succeed.
BranchOut – Don’t rely too much on others
BranchOut started out in 2010 by Tickle co-founder Rick Marini. It started as a Facebook desktop app, with the purpose of helping people to find jobs and know where their friends were working. Going head to head with LinkedIn allowed BranchOut to raise capital from a variety of sources such as: Accel, Floodgate, Redpoint, Norwest and Mayfield Fund.
Eventually they raised $49 million in capital and things were looking good, but the golden days can’t last forever, and they didn’t – in fact things went downhill very, very quickly.
The problem was to do with the way in which BranchOut grew its membership; opting to use spam-like, Facebook wall posts to rapidly grow huge numbers of sign-ups, reaching 33 million users early on. Then the bomb landed – Facebook banned the spam wall post method and BranchOut began to bottom out.
So what is the lesson we can learn from BranchOut? Their business relied completely on another company, basing their business model on Facebook’s current platform at the time, and we all know Facebook can easily change their settings, interface and algorithms whenever they please.
The company had no way of adapting to change and when Facebook banned the spam wall posts that BranchOut relied on; their demise began. So the morale of the story is establishing your business on the reliance of another is a big risk – if they change, you lose!
Wesabe – Beaten to the Punch
In November 2006, Wesabe launched as a site to help individuals manage their personal finances. Wesabe was not the first company to try and solve this problem, however, they were one of the first using a web 2.0 (newer) approach to tackling the problem.
One of the differing features was that they tried to accumulate knowledge from users and data, that would fill in some of the blanks and point users in the right direction.
During this time there were other companies also attempting this, however in 2007 Wesabe was considered the market leader. Then came the left hook – Mint, a competing company, quickly launched and won the TechCrunch 40 conference, putting Wesabe in second place.
Mint took the industry by storm, casting a dark shadow on its competitors. Two years later Mint was acquired by a company called Inuit for a whopping $170 million and a bit less than a year after that Wesabe called in quits, shutting down their operations.
So where did Wesabe go wrong? What could they have done better?
Before we get into the serious reason for why Wesabe failed, we’ll start with some lesser, contributing factors. Although Marc Hedlund the ex-CEO of Wesabe disputes that this was the major contributor to their failure, many simply agree that Mint had a better name and a better design.
Mint’s design was simpler, more intuitive and out-performed Wesabe’s – in short, Mint had a far better user experience. Although this not a major factor – with stiff competition every detail counts.
Marc believed that the main reason Wesabe failed was that rather than use an existing data aggregation service called Yodlee they decided to build their own. Marc believed some other company would eventually signup with Yodlee so they had to be at least the same or better than it – to cut a story short, they took too long building that.
Mint chose to use Yodlee and guess what – they bet Wesabe to the market with a simple and easy to use product. They then won TechCrunch and eventually got acquired for the big bucks, the rest is history.
The morale of the story – spend too long building the perfect all-in-one product and you’ll get beaten to the punch, from there it can be hard to claw your way back.
Pay by Touch – a Great Company is nothing without a Great Leader
Pay By Touch was a company founded by John P. Rogers, which allowed users to make payments by swiping their fingers across a biometric sensor. The system allowed secure access to financial, health and other forms of personal information, through the use of an individual’s unique biometric features.
The company reached $340 million in funding and employed over 800 staff members – things were looking good for Pay By Touch. However, there was one problem the company had. The founder and CEO, John P. Rogers was the thorn in the company’s foot. Over the years he was accused of domestic abuse, drug possession, and spending company money extravagantly – in other words, the captain was drunk and steering the ship towards an iceberg.
On March 19, 2008, without even informing its customers, Pay By Touch called it quits and shut down; it is no longer in operation. Most of its assets are now owned by YOU Technology.
This is a great example of the importance of having a good leader. The company can be amazing, the staff fantastic, but if the person leading the pack isn’t fit for the job, than things will end badly. Mr Rogers was terrible with managing the company’s money and had an unstable personal life, which unfortunately lead to the demise of Pay By Touch.
The lesson to be learned here, is having a good leader is key. If you’re not fit to run the company yourself have a plan in place, whether it be taking on a lesser role/responsibilities, sharing the load or taking a proactive approach to improving your situation and management skills.
On the other side of the coin, if you’re an employee, look for pathways within the company where you can discuss your employer’s management process or if the environment is already too toxic, perhaps consider looking for another job.
Reactrix Systems – Have a Backup Plan
Reactrix Systems was an American Company Founded by Matt Bell in October 25, 2001. The company provides technology for interactive advertising interfaces, which respond to human gestures and movements.
The technology is used in a variety of fields including outdoor advertising, retail, and entertainment. Each installation came with an infrared camera, computer and projector, allowing consumers to interact with projected images and for the images to react accordingly.
The company grew nicely with a backing of $75 million in funding behind it. Reactrix Systems was an expensive and experimental form of advertising, with an ROI that was hard to calculate, so when the global financial crisis hit, they were the first adverting platform that companies scrapped.
During this time their revenue began to dry up and the company had not conserved enough cash to sustain the business. The company, having failed to secure additional funding from its backers, was eventually placed into receivership. It was purchased in April 2009 by Dhando Investments, Inc. and is still currently operating.
Although this may just seem like a story of unfortunate timing, when selling such an experimental and new product, it is important to have back plans, and additional financial security, due to the increased risk involved with product uptake and cost.
The lesson to be learned is always plan for the worse, make sure you have steady cash flow and if your business is high-risk, make sure you have financial security in case of a macro-event that could seriously impact your financial projections.
Friendster – Know when to take the Deal
Friendster was founded in 2002 by a computer programmer named Jonathan Abrams. Friendster is considered to be one of the first great social media platforms, eventually giving way to sites such as MySpace, Bebo and Facebook.
After launching in 2002, Friendster quickly grew to 3 million users within the matter of months. Friendster was considered the top online social network service until sometime around April 2004, where it was eventually overtaken by MySpace; with Facebook lurking in the shadows.
Google offered $30 million to buy out Friendster in 2003, however, the offer was turned down – this was eventually considered one of the big Silicon Valley blunders of its time. With the competition mounting, and their user base levelling out, it may have been the right time to take the money from a big player like Google.
Some would say this should not be considered a mistake; it’s easy to look at in hindsight and say they should’ve taken the money, but they took a risk and bet on themselves. The bet didn’t pay off, but where would we be, as people, without taking risks.
Looking at it now, however, they should’ve taken the money. The site continued to grow in Asia, but its user base exponentially declined in the USA, due to…you guessed it, Facebook. After receiving a lot more funding over the years, Friendster was eventually acquired in December 2009 by MOL Global – one of Asia’s biggest internet companies. It was purchased for $26.4 million and re-positioned as a social gaming website.
The lesson to be learned is sometimes it can be good to have an exit plan. Yes, it is important to back yourself and take risks, but sometimes you need to know when to hold em’ and know when to fold em’.
Yes, it’s easy to look at these companies and say, in hindsight, they should’ve done this or that, but as in life, with every failure or mistake, there is a lesson to be learned. Learning from mistakes is crucial in order to be successful as an individual and as a company.
Look to the past; where did you go wrong? What could you have done better? Every time you as an individual or your company slips-up, identify why it occurred and establish a process to ensure it doesn’t happen again.