5 signs your startup is screwed

The founders of failed startups share lessons learned along the way -- and signs of impending doom they wish they'd spotted sooner

Building a startup is risky business. For every Facebook, Google, or Uber, there are hundreds of once-brilliant-seeming companies that entered the tech landscape with great fanfare -- only to fizzle out and fade away a matter of months later.

We tend to hear about these failures far less frequently than the successes -- that's a shame, because there are important lessons to be learned from those who tried and fell flat on their faces. Lucky for us, a venture capital database company called CB Insights took it upon itself to track and compile the many postmortem emails, blog posts, and interviews startup founders have shared over the past couple of years. Boy, do those missives contain fascinating insights.

I sifted through all the tear-shedding, blame-shifting, and self-flogging to find some of the more telling themes from these sorrowful tales (setting aside the obvious stuff like running out of money or building a product that people flat-out rejected). You might recognize one of these signs from a startup you know today. Or, given that IT projects are often like microstartups within an organization, you might learn a lesson or two about how not to steer your project straight into the ground.

Failure sign No. 1: You don't have a strong and consistent focus

Knowing what a business is all about means everything -- especially in the critical early months when a startup is working to find its footing. If you see a startup without a strong focus -- or with a focus that keeps changing or expanding -- it might be time to start worrying. It's a lesson numerous founders have learned the hard way.

"We were trying to do everything for everybody," writes Yash Kotak, founder of the failed startup Lumos. "We were making switches that could automate your lights, fans, ACs, and water heaters. We would have tried to automate your TV, fridge, oven, and car as well, had it been feasible to do so."

The issue, Kotak says, isn't that it's inherently bad to pursue multiple angles; it's that you can spread your resources only so thin before they get tight -- and that's when something is bound to snap. Sound familiar?

"As a startup, you are constrained in resources," he reflects. "So it is always better to identify and solve one problem very well instead of solving n problems in a so-so way."

Thor Fridriksson had similar struggles at his now-defunct startup, Pumodo. As he recalls it, he and his cohorts got "tangled in the hype machine" and made the same mistake of being mediocre at a bunch of things instead of being exceptionally great at one.

"Our business plan was changing every week," Fridriksson writes. "We went from focusing only on football to becoming [an] app for all sports."

Pumodo's mantra, according to Fridriksson, was "think bigger" -- a plan that also didn't pan out for Jeanette Cajide, founder of folded mobile app Blurtt (yes, Blurtt).

"Ideas are a dime a dozen; the difference is in the execution," Cajide notes. She should know: Her startup went through four different business models before finally calling it quits.

That brings us to our next sign that something might be amiss...

Failure sign No. 2: Your vision's been twisted out of your control

Blurtt started out as a place where you could pay two bucks to create a custom physical postcard from your phone and have it sent to someone in the mail. A year later, it shifted its model to being a free service supported by ads on the back of each printed postcard.

A year after that, the company pivoted again and became a "mobile platform of micro-gifting and greeting cards" -- whatever that means. Soon thereafter, it tossed that idea aside and tried to convince people to download its app for creating digital "blurtts," which were basically images with text-based captions stamped on top. (Where have we seen that before?)

"In the end, the passion and magic was lost," Cajide says. "Remember why you started this in the first place and never lose sight of it, because once it becomes something you are not happy doing, you shouldn't be doing it."

Speaking of which, remember Secret? It was an anonymous message-sharing tool that was all the rage among Silicon Valley insiders for a few minutes in 2014. It was also a startup with serious money under its belt: a valuation of more than $100 million at its peak.

But all that cash couldn't keep the train a-chuggin': After struggling to deal with complaints of bullying and baseless rumormongering (gee, who woulda thunk on an anonymous message-sharing app?) -- and simultaneously facing a troubling trend of declining use -- the company shut down and returned its money to investors after a mere 16 months on the market.

Secret went through several evolutions along the way, shifting its design and philosophy to try to address complaints and keep everyone happy. In the end, its co-founder, David Byttow, said the startup was no longer the entity he had set out to build.

"Secret does not represent the vision I had when starting the company," he wrote, "so I believe [shutting down is] the right decision for myself, our investors, and our team."

A loss of original vision was also blamed for the collapse of ProtoExchange, an outsourcing marketplace for hardware engineering, as well as for the downfall of Digital Royalty, a social media strategy startup that underwent "sizable shifts" in the months leading up to its shutdown.

"Some of these shifts were in our control and some were not," its founder, Amy Jo, eulogized. "In order to honor our core values, which have been the epicenter of our culture, we have decided to hang up our crown."

Pour one out for our crownless homies.

Failure sign No. 3: You aren't ready for success

Some startups have stellar ideas but lack the resources or know-how to execute them. And -- you guessed it -- that dangerously spicy combination doesn't exactly create a foundation for long-term success.

Ask Martin Erlić, whose startup UDesign went from promising new concept to kaput old company in the span of a single year.

The idea sounds solid: UDesign was an app that'd make it simple to create your own pattern and use it on a custom piece of clothing. Neato, right? But instead of hiring experienced programmers, Erlić and his partners in crime decided to "wing it" and do the dirty work themselves.

"What ended up happening was that we spent everything we could have spent on polishing the product ... on marketing instead," he explains. "We thought we could trick people now and make up for it later. Wrong."

Flash without function -- an age-old tale. It's one Attila Szigeti, founder of startup flop ratemyspeech.co, also knows well.

"We only had a crude prototype but no amazing product, and we couldn’t attract [a] considerable number of users," he recalls.

Some startups don't even get that far. Jeremy Bell's former company, Wattage, was supposed to make it easy for anyone to come up with an idea for an electronic device -- dragging and dropping components like buttons, sensors, speakers, and displays into an online creation tool -- then have the gadget manufactured and delivered in a matter of days.

Yet again, it was a cool concept without the legs to hold it up.

"When I looked at the various prototypes we’d created, the quality simply wasn’t there yet," Bell admits. "We were heavily using laser cutting as our means of fabrication, and while it allowed us to produce something close to our vision, it wasn’t good enough. What we really needed was a hybrid of laser cutting and 3D printing, but unfortunately, 3D printing is still far too slow and expensive to be realistic."

As it turns out, not being realistic is a pretty big hurdle to overcome.

Failure sign No. 4: You've built your business on a legal landmine

Play with fire, and you're bound to get burned. It may sound obvious, but man -- an awful lot of startups have disintegrated in heat-generated meltdowns.

The most prominent examples revolve around rights-related woes. Take Grooveshark, a music discovery startup that managed to last an impressive 10 years before its legal oversights caught up with it.

"Despite [having the] best of intentions, we made very serious mistakes," the company conceded in an unsigned shutdown memo. "We failed to secure licenses from rights holders for the vast amount of music on the service. That was wrong."

Grooveshark's settlement agreement with record companies forced it not only to shut down the service and wipe all the company's servers clean, but also to turn over everything it owned -- the website itself along with all apps, patents, and copyrights -- to the rights-owners it had wronged.

Things weren't quite so dire for Exfm, another music discovery service. But while the company didn't get clobbered in the same way as Grooveshark, legal issues definitely played a key role in its decision to go dark.

"The technical challenges are compounded by the litigious nature of the music industry, which means every time we have any meaningful growth, it’s coupled with the immediate attention of the record labels in the form of takedowns and legal emails," the company's founders stated in an email to subscribers.

Once-trendy "social streaming" startup Turntable.fm suffered a similar fate -- and even noted that it should have paid closer attention to the troubles its predecessors had faced.

"Ultimately, I didn’t heed the lessons of so many failed music startups," founder Billy Chasen says. "It’s an incredibly expensive venture to pursue and a hard industry to work with. We spent more than a quarter of our cash on lawyers, royalties, and services related to supporting music."

Failure sign No. 5: Your product depends on someone else's service

Call it the "single point of failure" fragility: If your business relies on someone else's service to exist, you're pretty much asking for trouble.

We've seen sob stories from several startups that hitched their wagons to Twitter only to have the virtual rugs pulled out from under them with little to no warning. The most recent high-profile example is Twitpic: The once-vital image sharing service clashed with Twitter's growing ambitions and found itself immersed in a battle it couldn't win. According to the company's bye-bye missive:

Twitter contacted our legal [department] demanding that we abandon our trademark application or risk losing access to their API. This came as a shock to us since Twitpic has been around since early 2008 and our trademark application has been in the USPTO since 2009.

Other founders found themselves facing an about-face with Facebook, like Lookery -- a marketing company whose currency revolved around social network data.

"We exposed ourselves to a huge single point of failure," co-founder Scott Rafer muses. "Predictably and reasonably, Facebook acted in their own interest rather than ours."

Rafer says his startup "could have and should have" used its resources to establish some level of independence instead of investing further in Facebook's platform -- a similar sentiment to the one expressed by PostRocket, a company that set out to help customers reach more fans in Zuckerberg's virtual backyard.

"We should and could have done much better in bringing you a reliable product that expanded as quickly as the landscape of Facebook marketing changed," co-founder Tim Chae confesses. While informing customers of his company's demise, Chae actually suggested they turn to Facebook's then-new analytics service as an alternative, saying the product "blows any other service out the water" -- a perfect summary of the danger associated with trying to fill a hole in an existing service.

Even if a startup doesn't get shut out entirely, trying to keep up with a fickle step-parent's evolving requirements can take significant resources -- which is especially challenging when funding is limited. Social media marketing firm Argyle Social cited that factor in its failure, as did song sharing service This Is My Jam.

The single point of failure can even come from a detail as seemingly innocuous as search: A startup called Tutorspree put all its consumer-attracting eggs in the basket of search engine optimization -- and when the tides one day turned, it found itself lost at sea without a life preserver in sight.

"We were single channel-dependent, and that channel shifted on us radically and suddenly," co-founder Aaron Harris explains. "There is a chance that a single channel can grow a company very quickly to a very large size, but the risks involved in that single channel are large and grow in tandem with the company."

You don't have to be a scrappy startup to sense the danger in that arrangement.

Related articles

Join the TechWorld newsletter!

Error: Please check your email address.

More about American ExpressFacebookGoogleTwitterUberUSPTO

Show Comments
[]