Regularly we hear about startups and businesses which gain success or about those enterprises which are constantly developing and thriving on the market. It is assumed that every day we can observe three to four startup launches – thus, it seems there’s a lot of new products and services being introduced to the market. Meanwhile, the statistics aren’t that optimistic as it might appear to the ordinary people. In fact, many startups fail and remain forgotten – to make it more precise, 9 out of 10 startups fails after launching the idea. The rule that the more, the merrier doesn’t seem to work in this case.
All in all, there are no discount tariffs on the market, even for the very beginners for whom the initial phase seems to be extremely hard. As an evidence for that, we can take the statistics which say that in 2016, we’ve witnessed a lot of layoffs and shutdowns. What were the primary reasons for this? And which startups announced the closure last year?
Reasons Why Startups Close Down
It is hard to find an idea which people will desire and follow, but it gets even more difficult when it comes to managing a business. It is a hard work to find investors and to create perfect pitch which will make them believe in your project. According to that, the primary reasons for the startups’ failures are:
- lack of funds – there is no need to beat around the bush; if there won’t be enough resources it gets incredibly hard to launch the product, service, and to kick off with the promoting campaign – in the end, your project ends in the shuffle;
- plummeting sales – sometimes people are so overwhelmed by the idea that they are ready to follow and go for your plan. Most recently, it happens at the very beginning when sales go up very fast, and after some time people stop to support your offering;
- rising competition – statistics are unanimous, startups multiply constantly, and so do the competition on the market.
Check out brilliant ideas which failed the test of a variable market and didn’t manage to make it through 2016.
It was an on-demand grocery delivery, based on Gurgaon in India; a great example of a startup which was bound to succeed. PepperTap was launched in 2014 and stood for online shopping for groceries and household items, which also included shopping via the PepperTap application. Young enterprise was thriving and constantly developing; starting with only one online grocery store in 2014, it expanded its activity to 18 cities. Sounds like a dream. So what went bad?
The PepperTap’s grocery delivery service decline was attributed in part due to lacking technological resources after the company’s significant growth. The company’s co-founder admits that too many stores online emerged too quickly and they couldn’t handle them all – eighteen – without the technological background. What is more, the market was getting full of similar companies. Consumers admit that, regarding PepperTap, there was too many discounts and offers but not as much value – it lost the big chunk of money in every delivery and didn’t gain the trust of clients.
The name of this startup is full of warm associations, and so was the idea by itself. It was an enterprise that helped to connect people who wanted to have clean homes with house cleaners who could make the job done. The project got funding from Y-Combinator and plenty of venture capitalists – that helped its founders to raise the total sum of 38 million dollars. Things were doing so well that the company was able to expand overseas! How could it happen that a promising and decent business shut down last year?
The reason for that was a poor customer retention rate which made growth difficult to maintain. When it comes to people who worked in Homejoy, it was hard to say whether those who used to work for the company were employed or worked as an independent contractor – it made it hard to remain profitable. There have been some insinuations that an overseas expansion put a high pressure on the company and may have contributed to its failure. All in all, after four years of activity, it finally shut down in 2016.
Rdio was a music streaming service that offered ad-supported free streaming and ad-free subscription streaming services in 85 countries. It was a great product and idea that people followed eagerly. It was available as a website and an app – for Android, Blackberry, and Windows Phone mobile devices – which could stream music from Rdio’s servers. Sounds like a brilliant product, and indeed it was. So what happened, why was the business shut down?
The biggest problem was an oversaturated market – Rdio certainly had a massive potential, but faced lots of competition from applications like Spotify or Napster. Many blame the company’s demise on its failures with marketing and distribution. All in all, Rdio gave up and left the place for adversaries like Spotify, the biggest and best-known music hub in the world.
As well as PepperTap, it was an online food-delivery startup. It is remembered as the youngest business which raised an enormous funding of 27 million dollars from investors at the beginning phase of fundraising. It was present in more than 11 biggest cities in India, but finally stopped to work in all of them. The only exception is Mumbai. Even though it was backed by investors who believed in the idea, it didn’t manage to develop further.
The reason of TinyOwl’s failure was also an oversaturated market. There was plenty of similar businesses on the market at that time. In this case, it seems like the management was also a factor that triggered the ripple effect. At the beginning, TinyOwl’s management over-hired employees, which led to the massive dismissal – it is an often mistake for startup businesses. Forthermore, company’s workers admit that it was rare to meet its founder in the office. Which can also be a problem or maybe the source of all the problems.
Frankly.me was a video blogging portal with an ambition to become India’s first video-only social network. The idea seemed to be brilliant, because it encouraged not only the ordinary people to use it, but also celebrities, who were ready to share their videos and interact with their fans. The execution of the project was also smooth; founders raised 600,000 dollars via seed funding and launched their platform easily.
Despite all the achievements that they’ve gained and an enormous support, they haven’t been able to achieve a sustainable product that would fit the market. Although the market seems keen on adopting all kinds of videos such as those depicting events and happenings, the video creation remains a challenge and probably Frankly.me was launched a little ahead of its time.
The company was based in the United States. In its offer, there was a cloud-based software as a service that was offered to companies managing their human resources, with the particular focus on helping them with their insurance coverage. Seems like a useful and noble idea, especially for small businesses and startups which rarely have the means to hire an H.R. department – all of these circumstances created a huge market for Zenefits. When it comes to funding, it also gained success. The company raised more than half a billion dollars from venture capitalists, and at its peak, it was valued at 4,5 billion dollars. So what contributed to its failure?
Founder overlooked incredibly needed positions within the company, like an office manager, IT workers, and even receptionist. The disorganization within the company led to the illegal selling of the insurance and, according to that, Zenefits started falling short of its revenue goals in 2015. In early 2016, its founder resigned amidst much outside pressure.
According to the name, it is not hard to guess that this company was connected with fashion. Indeed; it was one of the largest Indian fashion apparel and lifestyle stores. The business was based in Bangalore, and it was launched in 2012. Fashionara succeeded in fundraising – it raised 4 million dollars from venture capitalists. What happened that the promising e-commerce service shut down in May 2016?
The company failed because it had a large competition on the market. It was extremely hard to spot the consumer while being accompanied by bigger services of the same profiles such as Jabong, Myntra, and Yepme.
According to the examples above it’s not hard to admit that the brilliant idea and even well-designed fundraising process isn’t enough when it comes to succeeding on the market. Beginning entrepreneurs need to have eyes in the back of their heads and think not only about money and the product, but also to consider management process, what’s going on the market, and many more factors than it may seem at the beginning.