Learning from Failure – Scalability of the Product

One of the important features of a product/service is that it should be scaling friendly and can be replicated in different geographies and markets. A startup product which does not have this attribute will find it difficult to grow beyond a certain threshold.

37coins was a SMS based Bitcoin remittance wallet. Despite targeting a big market of around 2.5 billion underbanked adults, the startup failed to assess the reliability of SMS as a medium in many countries. This led to a bad product market fit for a large chunk of the market and hence resulted in the startup shutting down.

Advice – Assess the scaling potential of a business idea before proceeding with it. All attributes of a product must be taken into consideration to assess its scalability.

Learning from Failure – Don't Put All Eggs In One Basket

Dine In was a restaurant delivery app whose founder was very focused on getting acquired by a larger player. An incident with an investor led to their downfall.

The founder Evan Graj says in an article - “We knew acquisition was the best course of action,” says Graj. That eventually led to Dine In being approached in February by a major Internet company active in the online food space, and it’s my understanding that by April — and significant legal fees later — a sale had been agreed. Then at the eleventh hour the deal unexpectedly fell through, leaving the restaurant delivery startup “high and dry” and its unnamed acquirer a “no-show”. Adds Graj: “They backed out leaving us with a huge legal bill both for Dine In and myself personally, a huge debt to note holders, and no VCs to turn to. A hard lesson to learn and one I’ll be taking into my next venture.”

Advice – The startup and its growth should be the prime focus on an entrepreneur at all times. Ignoring this for things like funding, getting acquired etc. is a bad practice and must be avoided at all costs.

Learning from Failure – Regulation Issues Need to be Dealt With

When thinking of your business, it is important to also consider how and to what extent Govt. regulation and policies can affect the same. There can be and have been cases where a good and innovative startup idea has been curbed and has eventually failed because of regulation issues.

Flytenow was a startup which closed because of this. It was a startup which was looking to connect aviation enthusiasts with pilots and go flying together. The Federal Aviation Administration in the US banned this startup and other flight sharing websites. Flytenow had to shut down eventually.

Advice – As a startup, you would not want to get on the wrong side of regulation. Keep that in mind if it can potentially affect your startup.

Learning from Failure – A Wrong Concept Spells Failure

A startup built on a wrong concept is likely to fail. By wrong concept I mean a space which is either not present, very small or is not one which can be monetized. Though a startup may be able to create some value initially, the inadequacy of the targeted space will eventually result in the startup failing.

Ratemyspeech was a startup which focused on improving presentation skills using a community based feedback platform. The startup had to be closed down due to fact that most people did not care about a service like this and would not be willing to pay any money for it. As the founder says in this article – “Most people (95+%) just don’t care enough about their presentations. So they will not take the time to prepare a draft speech, upload it, expose it to scrutiny, then take the feedback onboard and rework it. The rest, the less than 5% on the other hand takes it very seriously, and many of them have a strong network of people who they can ask. But they wouldn’t pay for some service to make this a bit easier. For them, we would not be able to deliver value.”

Advice – Research the market you are targeting time and again to ensure that it is big enough and monetizable for your startup to sustain.

Learning from Failure – Sustaining in Businesses with Delayed Revenue

A lot of businesses have a particular characteristic associated with them, i.e. they take a lot of time to start generating revenue. One such business is the News Business. This is a business which requires a lot of investment of time, skill and money in order to build a brand and a product which can engage its users. Revenue starts once it is able to do so.

Circa News was a news startup which tried to atomize content to deliver the latest news. Its mission was to create a news company where unbiased and concise information could be found. Though the team realized that generating the first revenues would take some time, they tried to raise venture funding to last out the initial phase which they were unable to do so and hence had to close down eventually.

Advice – News startup should realize the nature of the business they are entering and should make their plans accordingly.

Learning from Failure – Avoid Being Over-Optimistic

The Optimism Bias of entrepreneurs is a common problem which can seriously affect the way the entrepreneur thinks about a startup, thereby affecting the startup as well. As the name suggests, it is a cognitive bias which impacts a person’s judgement about a particular event (startup in this case) and makes him/her feel that the chances of a negative outcome are very low.  An entrepreneur, at all times, should think about the startup without having a bias. Only then can the entrepreneur assess the startup’s progress correctly and plan accordingly.

Tale of Tales was a startup which used to create narrative based video games. It was making a video game called ‘Sunset’, which the team felt was very good and would be a success. With this bias, they ended up investing much more time and money then they had initially planned. As a team member said “Surely we can make that amount back in the first month of sales!” This did not happen though and there was barely any income to keep the company afloat.

Advice – Think reasonably and practically about your startup. Biases affect judgement and hence the business itself.

Learning from Failure – Being a Single Founder is Difficult

As the title suggests, starting a company alone is very difficult. First of all, you may not have all the skills required for running the company in the most efficient manner. You start hiring for or outsourcing some parts of your business. Then comes managing these people/vendors, ensuring that the product is built as per your vision, making a marketing plan, doing sales, managing the finances etc. It all tends to become a bit overwhelming for the entrepreneur at times. This can cause burnout in several cases. If not, the startup does tend to suffer in various areas which are not catered to in the best way.

Cusoy was a curated restaurant finder for people having food allergies. It was started by Melissa Tsang, the single founder who was solving a big pain point she faced herself. Even though she has a non-technical background, she was able to create 3 MVPs for her startup. Also she designed and conducted marketing research, in-person usability tests and also pitched to investors to raise money. Juggling between all these tasks, it became extremely difficult for her as she was just not able to find a like-minded and interested co-founder for the startup. Eventually she was mentally, physically and emotionally exhausted and this was a big reason for her closing down the startup.

Advice – Single founders often find it increasingly difficult to sustain a startup after the initial stage. Finding a co-founder who is like-minded, has the same vision and passion and has the requisite skill sets becomes key to keep the company going.

Learning from Failure – Passion Drives a Startup

You must realize that starting a company is a long and tiring process. You start a company, face obstacles, pivot, then scale, then fail, pivot and so on. So with some many challenges along the way, what drives you? Passion & the excitement you feel when you talk about your startup. The day this passion starts going down, you are bound to give up.

Jeanette Cajide is a great example of an entrepreneur burning out. She started Blurtt, an app for creating and sharing digital expressions through photos. She started the app on 2009 with a very different concept, curated photography for creating and sending out postcards from your phone. On not being able to scale up, she pivoted to another model in 2010, and another one in 2011 and finally the final model in 2012. She was trying to reach a model which was scalable and which was ‘investor friendly’. She then realized that she was probably not doing what she had set out to do and was feeling burnt out as a result of this roller coaster journey. She finally closed down the startup in February 2014.

Advice – An entrepreneur’s passion is the energy which drives a startup. This energy helps you find the right path and keeps you going. The day you feel the energy is going down, it might be time to close down.

Learning from Failure – Plan your Cash Requirement

Running out of money is a common cause of startups failing. You may be building a great product, but money in the bank is what can keep you going. Planning your cash requirements accurately upfront itself ensures that you do not get into a position where money, or the lack of it, blocks the path to reach your goals.

Drawquest was a startup looking to create a drawing community online. The product got great traction. It was downloaded more than 1.4 million times in a year and had more than 25,000 people using it on a daily basis. What the business was not able to do was to monetize this traffic.  The startup could not raise investment as well and eventually ran out of cash.

Advice – Financial planning is crucial for any startup. Planning out a requirement of cash helps the entrepreneur thinking about arranging the same, without having to run out of money.

Learning from Failure – Identify a Real Audience

The first step for an entrepreneur after identifying a business idea is to identify and validate is the idea has a certain audience and target market. Having a few group discussions or surveys of potential customers is a good way to do so. Working purely on a hunch may result in an entrepreneur realizing certain facts and trends later on and facing difficulties along the way.

Travelll was a startup which was trying to leverage the power of social media to the travel space and ended up creating a travel inspiration portal. The team felt that this was a model which was successful in a lot of other spaces and should be replicated for travel as well. Despite a reasonable start, they realized that the audience for this space was very limited. People travelled only 1-2 times a year, as against other activities such as fashion, photography which were more engaging and regularly used by customers. The startup tried to pivot along the way, but eventually closed down.

Advice – A ‘real and substantial market’ is required to build a scalable business.

Learning from Failure – Marketing Drives Growth

A lot of entrepreneurs tend to get so focused on the product that they forget to focus on putting it in front of the target audience. No matter how great your product, it means nothing unless customers get to know about it. Right from the very beginning, an entrepreneur must plan who the product is good for and how the business can reach the target audience in the most effective way at the minimum cost. Not planning for marketing can prove disastrous for a business.

Kinly was a startup which was trying to be a ‘Facebook for your family’. Given the dislike of a lot of users for Facebook, the product got a good initial review from its earl users around and got selected into an incubator as well. The mistake made by the startup was that because of this irrational optimism, the founders decided not to take on any investment, which they required to market the product. The product eventually died a slow death.

Advice – No matter how good a product, it cannot succeed if not visible to customers. Scaling beyond a certain level requires investment in marketing.

Learning from Failure – Business is for Profit

The first rule of business is that we are in it to make a profit. If we cannot, it will not sustain. There exist a lot of areas where real problems do exist, though making money is difficult. We need to clearly analyse and research whether the sector we are entering is monetizable and to what extent.

Poliana was a startup which faced a harsh reality about the sector it was operating in, Politics. It was a political startup aiming to make the communication between political parties and the citizens easier through the use of technology. The team’s entire focus was on making Poliana a great product by solving the problem they had identified, and not on making it a business. What they realized was that owing to the nature of concept they had and the space they were operating it, it became very difficult for them to make money out of something which deserved to be free.

Advice – A startup should definitely be based on solving a problem. However, care should be taken in assessing whether the problem is in a space in which the business can generate profits.

Learning from Failure – Negative Unit Economics

Peppertap was a pioneer in the hyper-local grocery delivery space in India. By October 2015, they were one of the top 3 grocery delivery companies in India, doing slightly more than 20,000 orders per day. It just announced a few days back that it is closing down.  

One of the biggest reasons for its closure was the negative unit economics the business model faced. In India, discounting has been the most commonly used tool by startups to attract customers. Peppertap was also using the lure of cheaper prices to attract customers. Also the committed delivery time (of less than 2 hours) meant that company was having to spend money to create spare capacity in its logistics and supply chain. This too had a significant cost.

The startup was effectively bearing a big loss on every sale owing to discounts and the logistics costs. Since this loss was not visibly looking to come down drastically even in the longer term, the founders decided to close the startup.

Advice – A startup can bear negative unit economics in the short term. However in the longer term, positive unit economics are a must for the business to sustain.

Learning from Failure – Have a Robust Business Model

EverythingMe was a popular Israeli third-party app launcher which shut down in October, 2015. Despite having raised over $40 million till date and having over 15 million downloads, the founding team of the startup had to shut down it’s doors due to the lack of a robust business model.

The closing down of a startup like this clearly indicates how important a business model is. Having seen amazing traction and being on e of the most loved apps once could help the team convert these numbers into a successful and sustainable business.

Advice – Go for growth. Growth is what drives a startup. But also have a plan to monetize this growth once you have reached certain milestones.

Business Ideas Likely to Fail

There are certain kinds of business ideas which I feel are more likely to fail than others. These are generally not able to create substantial value which can help them sustain in the long run.

The ‘Amazon for a Niche’ idea: A lot of new entrepreneurs tend to look at ideas like this. I had a friend who was able to create a successful ecommerce store for dog food in India. Once Amazon entered this space, it’s sales was at par with this startup’s within a period of 4 months. Similar examples can be seen in other online spaces as well.

The ‘Craiglist for a City’ idea: Similar to the above, some entrepreneurs feel they can create a ‘Me-too Startup’ in their city. Unless their scaling is commendable, surviving once a big player enters is difficult.

At the end of the day, I feel the true valuation and survival chance of a startup is totally dependent on the value it is able to add to the ecosystem as a whole.