There’s so much excitement when a startup finally gets off the ground. After months, maybe even years, of hard work, the company finally gets funding and begins the journey to attracting customers and making a profit. But along the way, a million different things can go wrong that could potentially cause the startup to crash and burn before it reaches its potential.
Most people who have experienced a startup failure would probably say that they didn’t foresee the problems that led to their downfall. However, looking back at failed startups can provide rich insights into the business world that might help some to avoid the same mistakes.
Important lessons to learn from failed startups
Understanding a startup failure can be pretty easy in hindsight. But when you’re wrapped up in the day-to-day operations of a business, these small issues can easily be overlooked. As something small grows into a larger problem, it becomes too late to turn back. Protect your business and become a successful entrepreneur by learning from the following startups that failed.
Pixloo: Make sure your team is solid
While John Rampton was working at a real estate startup called Obeo, he discovered a potential market for people who wanted to sell their homes online. Because they weren’t licensed real estate agents, they couldn’t use services like Obeo, so Rampton decided to create an alternative called Pixloo. This website would allow both real estate agents and homeowners to sell properties online.
The site was clearly reaching a market that needed a tool just like Pixloo. Within 42 days of the site’s launch in 2012, Pixloo had 86,000 customers and over 1,200 leads to agents. In addition, over 400 homes had been sold.
So where did it all go wrong? Unfortunately, the leadership wasn’t on the same page. Rampton had cofounded the company with a developer who worked hard to get the platform up and running. However, after about 10 months of working together, the two had very different ideas of where the company should go next. They also disagreed about whether additional investment funds were needed. Neither of the founders was willing to budge on his position, so they sold the company for much less than it was potentially worth.
Lesson learned: Have a clear vision for your company that all the company’s leaders are on board with. Be willing to compromise on tough areas, or seek help from an outside source to come up with solutions that will keep your startup going rather than running it off a cliff.
In Your Corner: Don’t get caught up in the culture
When you conjure up an image of a startup company, you probably see a cool, stylish workplace filled with young, attractive people smiling and laughing together. They’re all grabbing free smoothies and burritos from the on-site employee café and taking breaks from work playing video games or ping pong.
Unfortunately, Bea Arthur got caught up in this pleasant fantasy when she founded In Your Corner, an online platform that provided counseling services through video and journals. Her startup was successful from the beginning. Thousands of paying clients all over the world signed up, and her company was heralded as “the future of therapy.”
However, in rehashing what led to her startup’s failure, Arthur noted her distraction with the trappings of startup culture. After viewing some of the chic Bay Area offices of rising new businesses, she got a very large (and very expensive) New York City office for In Your Corner, despite the fact that she often worked from home and had a very small team at that point. Then, instead of focusing on honing their strong points, Arthur attempted to rebrand the company and roll out a bunch of new features that clients didn’t need or want.
In addition, Arthur failed to create distinct boundaries between herself and her employees. She attempted to create that chummy vibe from the startup fantasy by befriending her employees. Unfortunately, it led to some individuals taking advantage of her, to the point where two employees actually stole client data and created copycat sites with the same business model.
Lesson learned: Don’t let the idea of a what a startup should look like distract you from your goals. Stay focused on producing a good product instead of all the enticing employee perks, and develop professional boundaries that make it clear who’s in charge.
Sidecar: Never underestimate the competition
Waiting for a cab always bothered Adrian Fortino and Jahan Khanna. So in 2011, they partnered up with venture capitalist Sunil Paul and founded Sidecar. This ridesharing service allowed anyone to sign up as a driver and use their own car to drive customers to their destinations. All the customers had to do was order a car on the app.
Sound familiar? Sidecar was actually around before Uber and Lyft. More importantly, when it started out, Sidecar was quite different from its two future competitors; Uber was focused on high-end black-car service, while Lyft was pairing people up for long trips. However, both those companies moved in on Sidecar’s territory and began similar services with drivers using their own vehicles for short, local rides.
Because Lyft and Uber started out in a different ridesharing niche, Sidecar didn’t see them as competitors. But by the time they moved in on Sidecar’s territory, it was too late. Uber and Lyft had recognizable branding and great features that improved the customer experience. Meanwhile, Sidecar had been idling, not expecting such fierce competition so fast.
Despite their innovation in the industry and an excellent tech platform, Sidecar hadn’t established a dominant market presence. Uber and Lyft were able to raise more money, too, making it even harder for Sidecar to keep up. Uber was especially successful, raising over $8 billion by the time Sidecar folded. Ultimately, they were able to use those funds to create a better product for the customer, especially when it came to fast pickup times. Sidecar tried to pivot to delivery services but ultimately failed in the shadow of more successful ride-sharing companies.
Lesson learned: Even if you’re a pioneer in your market, don’t assume you’ll always be on top. Be aware of potential competitors, even when you’re number one (for now).
Everpix: Always try to grow
Startups often boast about their stats as a sign that the launch is going well. Founders will brag about the number of new customers they’ve acquired within a set amount of days or how quickly they reach a major sign-up milestone. When Everpix launched in early 2013, the number of users quickly spiked. It seemed as though this photo storage service was going to be around for the long haul.
Acquisition discussions were prompted by tech giants like Facebook and Dropbox, but founders Wayne Fan and Pierre-Olivier Latour wanted to develop Everpix on their own terms. They had created a practical solution for storing photos that no other startup had delivered, but not everything was so rosy. The team spent too much time perfecting the product according to their own high standards and rolling out new features.
While focusing their attention and their budget toward these goals, Fan and Latour failed to spend money advertising their service and attracting new customers. By the time they went out to seek additional investing, Apple and Google had started delivering their own alternatives at no cost to users. The startup quickly shut down under crushing debt despite the fact that they had created an app that was well-loved and highly rated by their (relatively small) customer base.
Lesson learned: Don’t make your product your baby. While you may be very invested in developing your business to meet your own standards, don’t lose sight of the fact that you need a savvy business plan in order to stay afloat.
For aspiring entrepreneurs, today’s startup-friendly culture is especially enticing. While it may be easy for you to come up with a business idea, remember that putting it into practice comes with many risks. These startup failures have plenty to teach those who hope to build their own company from the ground up. Make sure to take these lessons to heart if you hope to avoid the failed startup trap and go on to develop a successful business instead.
