Earlier this year, HBO wrapped up its second season of Silicon Valley. The comedy series follows a group of engineers through a series of wacky, disappointing and downright cringe-worthy moments as they navigate the ins and outs of founding a startup in the technology hotbed. Whether it is from outside competition, product malfunctions or an unfortunate mishap involving a tequila bottle, more than once you are just sure the young company is on the brink of complete destruction.
Although the show paints an obvious caricature of start-up life, it does serve as a reminder of just how tumultuous it can be to launch a new endeavor. A humbling nine out of every ten startups fail for any number of reasons. So how do you become one of the 10 percent who make it? This blog post takes a look at four failed startups and what we can learn from their mistakes.
First-time entrepreneur Ivaylo Kalburdzhiev thought he’d hit it big when he discovered there was not a product on the market that meshed together the concept of gaming wheels and the iPad. With a few months of research under his belt, he set out to build the first-ever iPad racing wheel. Within a year, Kalburdzhiev had built several prototypes, secured funding and attended major industry conferences. But, he had yet to speak to a single consumer. He had no idea there was no actual demand for his product. Fifty thousand dollars, two crowdfunding campaigns, a few embarrassing reviews and three years down the road, Kalburdzhiev packed up his prototypes and shut down KOLOS for good.
Lesson Learned: Never neglect market research. According to a recent study by CB Insights, 42 percent of startup failure is due to a lack of need in the market. The soul purpose of a company is to create a product or service that people want or need. Without that, you’re dead in the water. Is there a healthy competition for your product or service in the industry? If not, take a good look at both your product potential and the market’s potential. Kalburdzhiev failed to see that the lack of competition was not a sign of his genius but instead a glaring indication that there was not a market for this product in the first place.
In 2008, Springpad sprung onto the scene with their online and app-based platform for saving/sharing web content and managing notes. Despite the company’s six-year run and five million users, the Evernote competitor folded this year due to the founder’s lack of ability to monetize the company. Like with many subscription services, Springpad had a choice between opting for ad support or a premium subscription model. By the time they finally decided on pursuing the ad support route, the company was not built to scale for such a model. In short, they simply did not understand how to make money off their service. “We built a heck of a product,” said Springpad cofounder Jeff Janer, “but we didn’t build the business.”
Lesson Learned: Don’t just understand your product, understand your business. Once you’ve taken time to build a solid product and create a working business model, revenue generation should be your primary focus. Make sure you account for growth when deciding on a revenue model. Being flexible when it comes to scalability is a key element in sustaining the life of a start-up. Even the greatest of products can fail if the business providing them is not well tended.
Jun Loayza, founder of RewardMe, learned first hand that cash is king when it comes to the health of start-up. With a functional product, ample funding and a growing client base, the loyalty platform start-up seemed to have it all. But, rapid growth and overspending drained the company of resources and RewardMe folded in June of this year. The start-up simply got too big too fast, losing their runway in the process.
Lesson Learned: Keep the money in the bank. Loayza suggests that every start-up “stay scrappy.” Instead of spending capital on expensive conferences, early hires and hardware, focus on developing the best business you can while staying lean. This means creating the best team possible with as little people as possible. Start-ups focused on rapid growth, far too often staff up as if the size of a team is equal to the amount of success the business will enjoy. Until you have generated a steady cash flow, invest your funding in your product potential, not your growth potential.
The business world is littered with stories of good friendships going bad over failed startups. The story of NewsTilt is no different. When friends Paul Biggar and Nathan Chong launched NewsTilt in 2010, the goal of the site was to build brands and audiences for independent journalists. Two short months later, NewsTilt went into hibernation. Although the site suffered from a variety of issues, both founders cite a lack of communication and passion as the reason for the failure. Neither Biggar nor Chong was a journalist or had a passion for the journalism industry. Additionally, the two founders continually failed to decide on a shared vision causing internal struggles that ultimately cost the company its life.
Lesson Learned: Build a cohesive, passionate team. While products, funding, business models and marketing messages are all important elements to any business, the people are the glue that holds it all together. Passion is an especially important quality to focus on when hiring for a start-up, which often requires long hours and low pay. This starts from the top down.
Next to stepping in a cage with a live lion, launching a startup is the most terrifying venture anyone can embark on. But, with the right combination of focus, expertise and passion, it’s possible for founders to beat the odds. Or at least that’s what HBO is leading us to believe.