Why do so many startups fail? If you’re looking to become an entrepreneur, it’s natural that you’re drawn to this question. By understanding various factors and unfortunate steps that led certain startups to failure, you can prevent making the same mistakes with your own company. Others failed, so you don’t have to, right?
Since the startup failure rate is fairly high (some say it’s 90%, others claim this piece of statistics is a myth and show survival rates tend to vary depending on the industry and the geographical area), there is a goodwill trend that emerged within the Silicon Valley and then spread across all industries. Entrepreneurs all around the globe have started a practice of sharing post-mortem stories.
By using the method of reverse engineering, they have publicly discussed the reasons their startup has died and explained what could have they done better. Maybe their plan B should have been their first choice? Or perhaps they didn’t do a proper research of the market and there was not a place for their product or service? Sometimes, ill intentions and poor relationships within the team are the reasons behind failure.
The CB Insights have listed the top 20 reasons for failure after analyzing over one hundred startup post-mortem stories. However – it’s never a single reason to blame, but a mixture of several ones. The top reason listed (42% of startups) is the lack of the market. Entrepreneurs get carried away and they focus on tackling problems that are interesting to solve – not those that actually need to be solved. Their startups might be solving some problems but they are not large enough to acquire sufficiently enough customers or users that would bring significant profit to the company (or at least produce sustainable cash flow).
Interested in how these failures look from up close?
We went through post-mortem stories and prepared for you an analysis of three different failed .ME startups and extracted valuable lessons you can learn and put to action. In addition, there is a bonus section where we’ll discuss how one idea can really survive if properly executed. We will also show how entrepreneurs can indeed make mistakes when trying to see the bigger picture and assess what went wrong.
Sonar was a great startup that enjoyed massive support from renown companies and thought leaders, such as Google and Apple. Their idea was great, chances for growth looked bright, and things were starting to catch on. However, it is probably one of the best case examples that show how multiple situations and wrong decisions can pile up and lead to failure.
Sonar was a location-based networking mobile app designed with the intention of creating a more friendly world. It simplified real-life social interactions as it revealed information about a certain person before the first real contact.
Sounds confusing or intimidating? Here’s how it worked: the app used to find nearby users based on the geotags (i.e. check-ins) on Facebook, Twitter, or Foursquare and then displayed data users have previously voluntarily shared with the public across different social media. The data was organized in two categories: “Friends Nearby” and “Relevant People Nearby”, which helped people meaningfully connect. And for one period of time, Sonar opened up a great opportunity for business networking.
The team raised $2 million through funding rounds. The app was downloaded millions of times and it got featured in the most reputable media such as TIME, CNN, Tech Church, and New York Times. So, what went wrong?
Brett Martin, founder of Sonar.me, shared his experience on Medium, which is a popular platform for publishing post-mortem startup stories. Here are the key things Martin has pointed out while reverse engineering and mapping out the reasons their startup died:
Researching the market or asking for feedback seems like a pretty logical thing to do, right? Undoubtedly, you need to know what you’re aiming at and have measurable data to lean on so you can set the new course for your business, if necessary. But in some cases, users don’t know what they want until you show it to them. And it just might turn out they want the existing service modified and improved instead of something revolutionary. In the case of Sonar.me, they’ve focused on improving engagement rates instead of growth, when it should be the other way around. This is true for every social network in the phase of development, Martin believes.
Since there was an innovation stagnation in the field of ambient social networks, Sonar’s controlling investors decided it’s time to repack the backend technology and make offers to companies searching for Big Data solutions.
The biggest lesson learned from the Sonar.me case, when you sum it up?
You cannot control everything and there is no magical formula for success. It’s all about trial and error, perfecting your sense for business, knowing when to back down, and hoping for the best. Something can always come up and it usually does. The question is how well can you adapt and whether or not you have luck on your side.
We’ve already mentioned Everything.me in the post where we discussed the importance of a business plan for startups. In short, Everything.me was a unique Android screen replacement which allowed users to manage and group their apps based on previous behavior and the context, time and location. Not only that, but it also used the available data to predict which apps you would want to open up next. At the time, it was one of the best Android tools that offered amazing UI and transformed the connection we have with our smartphones.
It all started like a fairytale: the team behind Everything.me managed to raise $40 million through funding rounds and the potential of the app has been widely recognized. Investors who decided to financially support this startup are renown venture capitalists: does Mozilla or Horizon Ventures ring any bells?
Despite its popularity (it was downloaded around 15 million times) and the fact people loved the app, Everything.me shut down. So, what gives?
They simply could not obtain enough money to make the startup sustainable. They’ve relied on getting profit from advertising and since it was also contextual – it simply was not enough. The team explained how they’ve built model assumptions on the contextual discovery, but they failed to find a way to convert. The lack of an efficient plan for growing their business led to 36 employees losing their jobs and the app being pulled out of the Google Play Store. They simply didn’t have enough money to invest in the further product development.
The lesson learned?
Everything.me is the ultimate example of how it takes more than a great idea for one’s business to survive. No one will come and throw money at you just because your product is awesome. Focus on building a business model before the actual launch.
Formspring (spring.me) was once a social network launched in 2009 by the founder of the online form builder Formstack, Ade Olonoh. The network was based on questions and answers users would ask and give to one another. Olonoh noticed great number of users were making “ask me anything” forms, so he saw a business opportunity and decided to launch a network to satisfy this want on the market.
And it became insanely popular.
The growth was amazing, which led to sealing the deal with investors: total equity funding was $14.26 million. The network was on its steady path of growth and new features were added, such as special options for celebrities who were using the network: they were now enabled to communicate with fans through different categories. In 2011, the company made a huge breakthrough by establishing media partnerships with MTV, The Huffington Post, Funny or Die.
However, in 2013, Spring.me has closed and two years later, it became a portal of Twoo, a social discovery platform. But, what events led to this?
Cap Watkins, former employee, shared what happened in his post-mortem story. The first significant hiccup for spring.me was hidden behind the reason it was so amazingly popular: users could post questions anonymously. No surprise there – everybody loved it. However, there was the other side of the medal. It opened the door to cyberbullying and harassment, given the fact people’s identities were undisclosed. So the team tried filtering inappropriate questions and flagging them, but the network already became infamous because of it.
The anonymity went beyond just that: the whole network functioned that way. Users could not see their followers and there was not a single way one could know whether or not their content was consumed. That’s when the team introduced the Smiles feature, with the same function as likes on Facebook. Eventually, public following was introduced so one segment of anonymity was shut down and there was a lot of social pressure put upon the users all of the sudden.
We could say the team was torn between giving the users what they want and being responsible in the cyber world. They’ve turned to many different growth methods, but their mistake was they’ve focused on social media giants and proven ways of success. This led to building someone else’s product, not their own. The vision was lost as it stopped aligning with what users wanted and what direction should the product be developed.
Now for the big question: is it really that easy to put a finger on what went wrong? How can an entrepreneur be certain he or she is analyzing what happened properly? Here’s an example to learn from.
The startup called Remember was founded by Adrian Tan. The team built a B2C mobile app called the Remember App and called it “the family Time Capsule in your pocket”. Basically, the idea was to create an app that would serve parents as a digital scrapbook so they can store all their kids’ drawings, photographs, and other types of content. This startup was one of the participants in the JFDI Asia’s Accelerate 2012A Batch. But accelerators imply fast growth, which Remember failed to achieve.
In the post-mortem Tan selflessly shared, he identified team’s failure to prioritize the customer market, which is the main listed reason for shutting down the startup. In addition, there were already dozens of existing services with the same or very similar idea, along with Facebook. Tan concluded parents were not interested in secure and private uploading and sharing. He underlined the importance of a quality competitor analysis, validating assumptions, and focusing on customer discovery.
However, keepy.me is a successful startup that managed to cope with the competition and push a very similar idea to the limits. The background storyline is the same in both cases: a father who, inspired by his new life role, wanted to offer parents a way to store their kids’ mementos. Keepy.me managed to raise $1.1 million in one round and it continues working wonderfully.
What’s the catch, then? Why did one succeed and other backed down?
Well, there are many intangible factors at play here. It could have been that the latter team had better luck at reaching their target audience or even creating the need for the app in the market. Maybe the need for it spontaneously emerged by the time keepy.me has launched because parents got concerned with the privacy issues that come along with major social networks. The reasons behind their success could be something so simple like creating great and simple design and crafting UX that resonates in an awesome way with the target group. Maybe their website was what captivated users, side by side with the genuine, heartwarming feel of the apps name.
Bottom line is this: there is no way to start a startup and be certain you’ll prevent disasters by ticking everything from the list of good entrepreneurial practices. Don’t get us wrong – it is the smartest thing you can to. But even if you do everything right – sadly, it’s not a 100% guarantee you will succeed.
As the last takeaway, soak in the wisdom by Brett Martin, founder of the failed startup Sonar.me: Startups don’t die when they run out of money, they die when their founders let go. So don’t let go, adapt, pivot, try and fail and then try and succeed. And your startup will survive.
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