In general, startups don’t have the best track record. According to Startup Genome’s “Global Startup Ecosystem Report 2019,” 11 out of 12 startups fail, mostly due to premature scaling. Other common reasons for startup failure, according to Failory, are lack of product-market fit, marketing problems, team problems, finance problems, tech problems, operations problems and legal problems.
Failory describes a startup as “a business experiment with potential” and acknowledges that, by nature, they test assumptions. The more innovative the startup happens to be, the riskier the assumptions. And the riskier the assumptions, the higher likelihood that the startup will ultimately fail.
To illustrate that theory, here’s background information on 10 notable startups that hit bottom (instead of being one of the few businesses that pivoted and came out on top).
Last updated: Aug. 27, 2021
MoviePass, founded in 2011, got a huge bump in subscribers in 2017 after offering an incredible deal: unlimited movies in theaters for just $9.95 monthly.
Part of what made the deal so incredible was that the service stated that it would be honored at all major theaters for any movie, any day of the week. The company’s hope was that by giving users a huge discount on movie tickets, it could negotiate with theaters for bulk pricing and then make up the costs on other customer services. But those plans never reached fruition.
According to a Federal Trade Commission report, the company, looking for ways to reduce costs, went to great lengths to keep subscribers from using its service, including password resets and unannounced limits on their accounts, which resulted in numerous customer complaints.
In April 2018, MoviePass admitted to regulators that it had been suffering a loss of approximately $20 million per month. Over the next 16 months, the company borrowed money, limited users to three movies a month, increased prices and implemented new leadership in an attempt to stay afloat. Unfortunately, it wasn’t enough, and the company closed its doors in September 2019. Deceiving customers never pays off.
Elizabeth Holmes, CEO and founder of Theranos in 2003 at age 19, promised financial projections on medical technology, i.e., a commercial portable blood analyzer, which never was developed to plan. The technology’s shortcomings triggered several regulatory agency investigations, as well as a variety of lawsuits. Additionally, several high-profile investors collectively lost more than $600 million, including Betsy DeVos, the founders of Walmart and Rupert Murdoch.
In order to settle fraud allegations made by the SEC, Holmes agreed to pay a $500,000 fine and give back the majority of her shares in the company. She also was barred from acting as a public company’s officer or director for 10 years. Overpromising and underdelivering is a poor strategy that can end up being very expensive to all involved.
Quibi, founded by Jeffrey Katzenberg and launched during the first part of the COVID-19 pandemic, lasted a mere six months before it was voluntarily shut down. In case you aren’t familiar, Quibi was a subscription streaming service dedicated to short-form entertainment, such as little movies, no longer than 10 minutes each, to be enjoyed by users exclusively on their smartphones. Subscriptions cost $4.99 per month with ads and $7.99 per month without. In an open letter to shareholders and users of his intent to shut down the platform, Katzenberg stated he believed that Quibi was not succeeding because of one of two reasons, “… because the idea itself wasn’t strong enough to justify a standalone streaming service or because of our timing.” Although Quibi only lasted six months, it lost $1.75 billion dollars in investor money. Sadly, speculators were betting on the platform’s failure before it even launched, which begs the lesson: Consider what your critics say, because they just might be onto something.
In 2010, co-founders Tri Tran and Conrad Chu launched Munchery, an on-demand gourmet meal service that delivered convenient microwaveable meals to its customers’ doorsteps and did quite well. In 2015, the San Francisco-based business began to compete with Blue Apron, offering customers an additional service — the ability to order boxes of ingredients and recipes to make their own meals. Next, Munchery expanded into New York, Seattle and Los Angeles and set up expensive production kitchens, but this move didn’t quite work out as planned. Long story short, the expense of expanding, a dwindling customer base and the rise of food delivery services like DoorDash that sourced from a variety of restaurants forced Munchery to shutter its New York, Seattle and Los Angeles kitchens in 2018 and close down completely in January 2019. The company raised $125 million in venture capital, but fell victim to a variety of factors. Unfortunately, food delivery services make up a crowded market, and only the strong survive.
Originally founded in 2010 by co-founders Adam Goldstein and Steve Huffman, Hipmunk, a travel comparison and booking site, joined the ranks of other failed startups almost a decade later in January 2020. But at the time of shutdown, Goldstein and Huffman were no longer involved. In 2016, the startup was acquired by SAP Concur. And a short four years later, SAP Concur stated that its approach to providing business travel solutions had evolved, which meant the ax for Hipmunk. Startup capital for Hipmunk totaled $55 million. The lesson here is to keep up with the competition or get out of the way.
You might not expect this wireless technology startup to crash and burn because of its long-standing track record. Two years before its demise, it was valued at $3 billion and had 450 employees. Hosain Rahman, CEO and co-founder of Jawbone, helped launch the company in 1999. At that time, it was known as AliphCom, which was focused on selling military-grade audio technology. Later on, in 2004, the company sold its first Bluetooth headset, and in 2010, began selling wireless speakers. In 2011, the company added health and fitness trackers to its product line, which led to various product issues and financial challenges, which led to the startup’s end in 2017. The startup received a total of $991.6 million in funding over three rounds during its lifetime. It seems scaling isn’t always the best move.
Founded in 2014 by Kurt Rathmann, ScaleFactor, which received $100 million in investments, was marketed as a gamechanger for small businesses who wanted to replace their accountant with artificial intelligence. When the company shut down in 2020, it blamed the pandemic for a 50% drop in revenues that led to its closure. However, that may not be all that contributed, according to reports that surfaced after the company failed. Although ScaleFactor claimed that the accounting duties for customers were being completed by AI, former employees and customers reported that human accountants in ScaleFactor’s headquarters or from an outsourced office located in the Philippines were doing the work instead. To make matters worse, it was reported that some of the customers’ books were found to be rife with errors. With any business, customers expect to get what they signed up for.
Originally founded in 2014 by Matt Salsamendi and James Boehm as Beam, what was most recently known as Mixer was another startup that met its end in 2020. In 2016, the duo sold Beam to Microsoft, which ended up forming into Mixer, also known as Microsoft’s streaming platform. Over the next three years, Salsamendi and Boehm helped lead efforts for Mixer to compete with Amazon’s Twitch but ultimately decided to amicably part ways with the tech giant in late 2019. Salsmendi said in a 2020 interview with GeekWire that he believes given the competitive challenges and ongoing investment Mixer required, Microsoft did the right thing by shutting it down. TechCrunch reports total capital raised for the startup was $520,000. The lesson learned here was pointed out by Microsoft’s gaming chief, Phil Spencer, who said that Mixer was already behind the competition when it started.
Founded in 2010 by Carnegie Mellon graduates Boris Sofman, Hanns Tappeiner and Mark Palatucci, Anki, Inc.’s mission was to integrate artificial intelligence and robotics into toys and games for children, including emotionally intelligent robots. Successful products included the app-controlled Anki Drive (a toy race track with programmable cars), the more advanced Anki Overdrive, an interactive toy robot named Cozmo and its successor, the Vector. Unfortunately, the consensus of why the startup ultimately failed in 2019 was that it could not successfully continue being both a hardware and software company due to lack of funds. Total startup funding equaled $182 million. Taking on too much, too soon without knowing how you’ll get there is often a mistake.
Meal-kit company Chef’d, which was founded in 2015, abruptly ceased its operations in July 2018, laying off 350 employees. The decision came as somewhat of a shock, as the company had made several recent major announcements in the months prior, such as selling its meal kits in select Duane Reade and Walgreens locations in New York and partnering with Byte Foods. Additionally, the year before, the company raised $35 million in funding. Founder and CEO Kyle Ransford sent out an email to employees stating that the company was ceasing operations due to “setbacks with financing.” Arranging solid funding and being a good steward of those funds is key to keeping a business alive.
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