Learning from Mistakes - Tech Startup Failures

Did you know nearly 90% of all startups fail? In this episode, we look at a few tech startups that didn't cut it and explore some of the reasons that contribute to failure, and how to avoid them.

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Episode Transcript

Speaker 1 (00:04):
Welcome to Tech Stuff, a production from I Heart Radio.
Hey there, and welcome to tech Stuff. I'm your host,
Jonathan Strickland. I'm an executive producer with I Heart Radio
and I love all things tech. And those of you
who have listened to my show for a while have

(00:24):
heard me talk a few times about the infamous dot
com crash that happened around two thousand, two thousand one.
And one of the factors, and there are lots of factors,
but one of them that contributed to the problem was
that you had a lot of companies popping up that
were based around novel and potentially awesome ideas, but they

(00:46):
had no real way to generate revenue. And that's a problem.
A company might be centered on a fantastic idea, one
that appeals to a lot of people, but if there's
no way to monetize the bis no, then you're living
on borrowed time. You can only operate for as long
as you have the money to fund it, which means

(01:07):
you're hustling for investments from venture capitalists or you know,
even better, for some bigger company to come along and
scoop you up in a lucrative acquisition. Now, perhaps that
larger company will actually find a way to monetize your idea,
or maybe integrate your idea with other existing products and
services that that company already has. Either way, for some companies,

(01:31):
this ends up being a pretty dangerous game. It doesn't
always pay off. While a company like Twitter might manage
to hang around for years before developing a viable revenue model,
others will fade away. So in this episode, I want
to look at some tech startups that didn't survive and
not really focus on the dot com crash because that

(01:52):
was a particularly rough time that that affected a lot
of companies, both good and bad. I'm going to look
at stuff outside that era. Now. To be clear, I
don't necessarily think that all the companies I'm going to
talk about today were bad, or that the people who
are working on them weren't working hard enough or anything

(02:13):
like that. Like I said, good ideas can fail, and
on the opposite side, bad ideas can sometimes really take off.
A business is financial success isn't necessarily tied to how
good an idea it is, you know, which is kind
of frustrating, But that's capitalism, baby. So let's talk about

(02:36):
a few companies that made a go of it but
came up short in you know, more recent years. To
set the stage, it is very easy for us to
assume that a tech startup is one of the best
bets to get rich quick. We see reports in the
news all the time about companies where the valuation skyrockets.
I mean, you hear about unicorns all the time in

(02:59):
tech news. Those are startups that reach a billion dollar valuation,
and most of those companies at least well many of
those companies are in the tech sector. Right. It's not
just tech sectors that are billion dollar unicorns, but that's
typically the way I hear about it. Then again, I

(03:19):
also cover technology for a living, so I'm already biased.
But the fact of the matter is that, according to
the Harvard Business School, nearly nine out of ten startups
actually fail. So for every big success we hear about
in the news, there are nine companies that didn't survive.

(03:39):
And heck, I'm not even sure that this takes into
consideration companies that initially appear to be a monumental success
and then like a decade later, completely implode when it
becomes clear that it's all, you know, built around a fantasy.
Cough Faroness Cough and of course more rea. Suddenly we've

(04:00):
had the COVID nineteen pandemic playing a major role in
all factors of our lives, including business startups that were
tied to activities that were meant to bring a lot
of people together in a physical space. Suddenly they found
their use case eliminated. You know, when I did my
episode about the video service Quimby, I talked about how

(04:25):
the pandemic has played a part and pulling the rug
out of the use case for that service. And if
you don't know what Quimby is, the original idea was
to create a short form video content platform and they
would serve up high production value videos like think TV
level production value to subscribers, and each of those videos

(04:47):
would be around ten minutes in length or shorter. The
idea was that people would watch these videos on their
mobile devices well, you know, like waiting on stuff like
let's say you're in line at the coffee shop or whatever.
Because the pandemic meant that the use case scenarios kind
of went away because people were spending greater amounts of
time at home. Quimby is still around right now, and

(05:10):
the company has tried to pivot a bit by offering
up the service on platforms beyond mobile devices. But you
get my point. So let's talk about some big and
maybe a few not so big. But you know recent
tech startup failures, and one of the ones I want
to cover existed for more than a decade, it received
an enormous amount of financial backing, and yet it's still

(05:34):
ultimately failed. That company was General Magic, and I should
really do a full episode about this company, as it
was incredibly innovative and important, and yet for years, not
that many people outside the computer and telephone industries and
Silicon Valley really knew much about it. Now that has

(05:56):
changed over the years. There's a documentary that came out
about this company, and that documentary came out in and
so that's a great resource to learn more about it
if you want to. But the founders of General Magic
were incredible. They saw the writing on the wall before
pretty much anyone else did. Heck, you might even argue

(06:16):
that they saw the writing on the wall before there
was a wall there. They were looking beyond the PC
to see what was coming next down the pipeline, like
what was going to be the next big revolution in computing,
And they were convinced that the future would be centered
around communications devices and mobile devices. So they got to

(06:37):
work developing technologies that would converge into a form factor
that we would recognize as sort of a proto smartphone.
And keep in mind the company actually formed around n
and that was before there was even a worldwide web.
General Magic would do a lot of pioneering work that

(07:00):
would later be intrinsic in smartphone design, both from a
hardware standpoint and a software and user interface standpoint. The
company itself had spun off from Apple, which, of course,
Apple would go on to execute on many of the
ideas General Magic kind of came up with and do
it with enormous success. So what happened? I mean, if

(07:24):
General Magic's ideas were so radical and transformative, why isn't
the company around today? I mean, why didn't it stick around?
There's not just one reason that I can point to
to explain all this, but there's a collection of issues
that contributed to its ultimate failure. For one, when the

(07:45):
company started working on an operating system called magic Cap.
They were doing that for an announced project. It was
sort of a partnership project with Sony and A T
and T was involved to feature creep became a huge issue.
Feature creep is what it sounds like. During the design
and development process for a product, people begin to add

(08:08):
more and more features to the original concept, which causes
that concept to bloat, and more importantly, it creates delays
as the development teams have to figure out how to
turn those ideas into reality. That's not easy to do.
Feature creep often originates as a well intentioned idea, kind

(08:30):
of a wouldn't it be cool if this thing we're
working on could also do this other thing, but it
can frequently lead to disaster or to halfhearted implementations where
the product just doesn't seem very good because too much
was going into it. That was a big problem for
General Magic. Worse than that, though, is that when the

(08:53):
Sony Magic Link, the product that was using this operating
system they had developed. When that finally came out, hardly
anyone bought it. The Magic Link was a p D,
a personal digital assistant in a sort of tablet form,
a small tablet form like the screen was about the

(09:14):
size of a big smartphone, but it was a very
clunky device is very thick, and this was not a
knock against Sony I don't blame the company. I don't
blame General Magic because the state of the art of
technology in the early nineties meant it would have been
impossible to make something as sleek and sexy as the

(09:36):
smartphones of today. Keep in mind, this is more than
a decade before the iPhone would come out, and it
got some good reviews from you know, to tech writers
of the time, but that didn't translate to actual sales.
So despite having some really super smart and creative people
working on and creating innovation in a space that hadn't

(10:00):
seen it in ages, and it had the backing of
big companies like Sony and A T and T, General
Magic ultimately failed to get a foothold in the market.
The general consensus is that it was just too soon
for those technologies to gain traction. Now, you could argue
that it's kind of like virtual reality, which also tried

(10:22):
to establish a place in the market in the nineteen nineties,
but it failed to do so and it almost totally
faded away from public consciousness. However, we could actually argue
that smartphones are not just here, they dominate the technology space,
whereas VR is still kind of trying to find a

(10:43):
place today. I mean, there's a niche market for VR,
but it is not what I would call a mainstream technology,
certainly nowhere near as ubiquitous as mobile tech. Now I'm
gonna let off of general magic for now. That's just
an overview of what happened, but if you guys want
to hear a full episode on it, let me know. Next,

(11:04):
I want to talk about a company that I'm guessing
most of you probably have never heard about, and it
was called Atrium Legal Technology Services, Incorporated, and the idea
was to pair legal services with software. The original concept
for the business was to create a law firm that
could offer basic legal services at lower fees than the competition,

(11:29):
partly through the use of software which would help automate
certain processes and make things more efficient. When I say
legal services, I'm mostly not talking about litigation. I'm talking about,
you know, other stuff that you typically need to employ
legal services for in order to get it done. So
in early twenty twenty, the company actually completely shed the

(11:52):
technology part of that business. They laid off nearly a
hundred people, and they slimmed down to a more traditional
law firm, again, one that's not pursuing litigation, but rather
providing other legal services to tech companies in particular. In
the end, while the idea to use software to help
streamline things seemed really promising, the company just couldn't find

(12:15):
a way to fit the software and the legal services
together in a way that made sense. And that's sometimes
the case. You'll hear of a business that has an
idea that, at least on the surface level, seems like
a great idea. Right, it seems like a no brainer.
Let's take this traditional process, will inject technology into it

(12:38):
and will make it more betterer. But there's not always
a logical or helpful way to integrate technology into a process.
Or it might be that the technology itself has to
reach a new level of adaptability or capability before it
will really be helpful. Like it's just too early to
bring that tech in. It's going to cause more problems

(13:00):
and it'll solve. So it might not even be a
quote unquote bad idea. It might just be one that's
not viable under current circumstances. It could be that we're
gonna see something like Atriums Technology Division emerge in a
few years, and at that point it will work great.
This kind of reminds me of when I was a
kid in high school and at that time, computers were

(13:23):
just starting to become, you know, like a high school fixture.
But it was one of those things where everyone recognized
the value of technology, but not everyone had a good
way to implement it into the educational process. So you
would have classrooms with computers in them, but not really
a meaningful way to use those computers for any good purpose.

(13:47):
They just kind of took up space. And that was
a real issue and continued to be an issue well
through my high school years, where schools were competing to
get funding to buy stuff like computers and ultimately not
finding good ways to use it, which then turns into
a perception that schools are wasting money, even though no

(14:09):
one wanted to waste money. People wanted to make the
computers be a part of the educational system. It's just
that we didn't have all the pieces in place to
make that a reality. You know, teachers didn't have the training,
the software wasn't fully there yet. So it wasn't one
single person or institution's fault. It was a collection of

(14:31):
issues that ultimately made it a painful process. Now, the
Atrium story also makes me think of a totally unrelated
one of the Apple Newton, which I talked about a
little bit in a recent episode. The Newton is the
device that led to the coining of the term personal
digital assistant or p d A. Now, granted, we don't

(14:52):
really talk about the Newton anymore because or even PDAs anymore,
because smartphones have emerged to take that spot. Right, p
d a's aren't needed. Smartphones do pretty much everything the
PDAs used to do. But before we had smartphones, the
p d A was a high tech way to manage
calendar appointments, to take notes, to build out a contact list,

(15:15):
and you know, other business e business type of things.
The Newton was one that really captured a lot of
attention when it was being promoted, and its most anticipated feature,
I think, was that it would be able to interpret handwriting.
So you could use a stylus and you could write
on the Newtons screen and the Newton would detect your

(15:37):
handwriting and interpret it and convert the script you're writing
into text, which would mean you could just jot down
notes and the Newton would build out a text file
for you. There was one teeny tiny problem. The handwriting
recognition technology was completely unreliable. There were numerous reports of
people having issues with the Newton's ability to detect or

(16:00):
understand their handwriting, and what had been a huge selling
point for the device morphed into more of a punchline,
and it really ended up hurting the Newtons sales, even
after Apple attempted to fix the issues. Now a couple
of decades later, we have devices that can do what
the Newton was trying to do more reliably, or we

(16:23):
have devices that use alternative approaches to handwriting recognition, you know,
like swipe keyboards to make it really easy to take notes,
or you can even skip the physical note taking entirely
and use a voice to text app to dictate notes
directly into text. The problem with the Newton wasn't the

(16:43):
idea necessarily, but rather that the ability to execute that
idea wasn't fully mature when the product launched. Moving on
to another product that failed to find a place in
the market, let's talk about the Uh Yeah, Oh you
y A. This project, which originated back in two thousand twelve,

(17:04):
aimed to bring a video game console device that would
run on the Android operating system, you know, the OS
that runs on Android phones. The company's Kickstarter was one
of the most successful of all time. They raised more
than eight million dollars on Kickstarter, and unlike another entry

(17:24):
that I'll get to on this list, the Yeah was
actually a real thing. Backers started receiving their consoles and
two thousand thirteen, and the console went on sale to
the general public not long after that. And it worked.
You could download games to the console, you could play
those games on a television. It was a lower price console,

(17:47):
too much lower than the competition. It was at dollars retail,
but despite the initial interest from backers, it failed to
catch on with a wider gaming audience and sales were blackluster.
The company tried to stay afloat, but it was clear
that the Uyah was going to be a disappointment and
there wasn't enough money to fund the development of a

(18:09):
successor that would keep up with future versions of the
Android operating system. Because, of course, the danger is if
you build out physical hardware that runs a specific operating
system and the operating system gets more advanced, the hardware
may not support the later versions. In Razor acquired Uyah's
software assets for an undisclosed amount of money, and developers

(18:32):
on Uya moved over to Razor. Not long after that,
Razor announced the discontinuation of the console, which wasn't a
big surprise. The company did commit to supporting the existing
consoles that were on the market for the time being,
but in twenty nineteen that support finally came to an
end when Razors shut down all of Uyah services, including

(18:53):
the app store. Many of the apps for Uyah would
stop working as a result, effectively killing the consoles off completely.
I think with Uya, the reason for this company's failure
is largely due to a lack of interest in the
general gaming market. The tech worked, it did what the
company set out to do, It just didn't find a
home in the marketplace, and ultimately that led to the

(19:15):
demise of the company. When we come back, I'll cover
some more failures and the lessons that we've learned from them.
But first let's take a quick break. Okay. One business
that I have done episodes on was movie Pass, a

(19:38):
company that had some major ups and downs and appeared
to be quote unquote dead more than once. The company's
business was about offering up a subscription based service in
which for a monthly fee, a user could go to
the movie theaters and see a certain number of movies
per month. The number of films you could see per

(20:00):
month changed throughout the history of the service. At one
point it was three films a month, and another point
it was you can see a film every single day
of the month. To really get a sense of how
crazy the story of movie Passes, you should go find
the episodes of tech stuff I did about them. Movie
theater chains at large resisted movie Pass, and they made

(20:22):
it really hard for movie Pass to actually put its
service into reliable operation. Movie Pass was trying to build
out a new approach to going to the movies, and
to capitalize on that approach by gathering data about moviegoers habits,
which in turn could become really valuable information for various advertisers.

(20:43):
The revenue side of the business seemed, at least on
the surface, to make sense, but the opposition of movie
theater chains, which were already struggling in many cases, meant
that there was a huge hurdle to get over. Movie
Pass never quite managed to do that. Perhaps at the
company had instead become a software company that could develop

(21:03):
products for the movie chains themselves, such as developing apps
that a movie chain like AMC could use to offer
up to its own subscription service. That might have worked,
but we just didn't see that happen. The cost of
operation was great enough to necessitate a shutdown. In two
thousand eighteen, the company just shut off for like a

(21:25):
day while they tried to figure out more financing, and
it continued to limp along for another year, but in
late twenty nineteen, movie Pass shut down its ticketing service.
This was after numerous changes and how the service was
being operated, which was a source of constant frustration for
movie Pass customers, and then in early twenty the parent

(21:50):
company that owned movie Pass itself went bankrupt Sad Trombone Today,
after we have had more than six months of dealing
with COVID nineteen in the United States, I think it's
pretty safe to say that movie Pass would not have
survived much into twenty twenty. Even if there hadn't been
so many problems towards the end of twenty nine, maybe

(22:13):
movie theaters would have been eager to strike deals with
movie Pass in the wake of COVID, hoping to you know,
make up some cash with concession sales and stuff. But
the drastic drop in theater attendance would likely have spelled
doom for a movie Pass, even if it had made
it further into the year. That being said, it's not
like you can anticipate a once in a century pandemic,

(22:36):
So I wouldn't hold movie Pass at fault if that
had been the case. But it's a moot point because
the company had sunk well before we really had an
inkling about the scope of what was to come. The
next company I want to talk about is one that
I actually have kind of a personal history with, and
it's a personal history I really regret, but I feel

(22:58):
it's important to be honest and front with you guys. Also,
it could serve as a warning for some of you
to help avoid the same mistakes that I have made.
So it's time to talk about yik Yak. Yik Yak
was a regionalized like a localized and anonymized messaging service.

(23:19):
So essentially, the idea was that users could post messages
to a localized forum to talk about what's going on
in the area, with particular focus on targeting college campuses.
So in other words, the idea was that it could
serve up as sort of the rumor mill for a
region like a college campus, users would be able to

(23:40):
see the posts that were relevant to whatever area they
were in at the time, like what's going on. But
the fact that it was anonymous meant that there was
also a prime opportunity for people to abuse the service
and other people. There were numerous issues with a person
being called out on yik yak by anonymous accusers, right Like,

(24:01):
you could get a bunch of people saying so and
so is, you know, cheating on their significant other, or
so and so is cheating on tests. I mean this
was a college campus after all, or just so and
so is a total scumbag. Reputations could be ruined and
people could be harassed, and vulnerable populations could be ostracized

(24:24):
and hassled, or even worse, it could get seriously ugly. Now,
let's talk about my personal connection to this. That happened
at a south By Southwest several years ago. I was
put in charge of moderating a discussion with the founders
of yik yak, and all of my questions had to

(24:45):
be vetted beforehand. I couldn't just ask them anything I
wasn't supposed to anyway, so I had to work with
them to create a list of questions, and I was
told by others that I should be really fair and
really go after them right, like really nail them down
for answers. But at the same time I was getting
a lot of indicators from others that were saying that, no,

(25:07):
you really don't want to do that. So I was
in a bad position. There was really no way for
me to succeed. It was just a bad idea for
me to agree to do this in the first place. Now,
as it turns out, when I asked these questions, and
I had drafted a pretty long list of questions, the
founders were really short with their answers, Like I was.

(25:29):
It was like trying to get blood from a stone.
I couldn't get them to give me longer answers, and
before long I had run out of questions. I still
had like twenty minutes to go with that speaking engagement,
which meant that the audience Q and A session was
much longer than anyone had intended it to be, and

(25:49):
the audience did not have the same restrictions that I
was working with. One of the first people to ask
a question was Bartunde Thurston. If you do not know
who it is, look him up. Because he's brilliant. He
also hosts a podcast on our network called how to Citizen,
highly recommended. Anyway, Barrettunde got right to the point and

(26:12):
started to grill the founders about the problems that came
along with anonymity, particularly harassment of vulnerable populations, and how
it's incredibly easy to abuse the service, and it got
super uncomfortable up on that stage. To this day, I
regret that I agreed to moderate that panel, as I

(26:33):
kind of felt complicit in supporting a narrative that I
just didn't really believe in. And I'm really thankful for
the audience who didn't let anyone up on stage get
away with that, including myself. Right. So, yeah, that's just
a warning out there for all of you that not
every opportunity that's offered to you is necessarily a good opportunity,

(26:55):
and it is okay to say no to stuff. Take
it from me. I wish I had said no to
that anyway. Yik Yak, while it received some very enthusiastic
initial investments, eventually tried to address the harassment problems that
were mounting up. People were really concerned about this, and

(27:17):
the company decided to change things and forced users to
abandon the anonymous approach. You had to make an account
that was linked to your actual identity. That in turn
caused the user base to revolt and a lot of
them left the app. And you could say that the
well had been poisoned, and yik yak would end up

(27:38):
getting scooped up at by Square for a million dollars.
Now a million dollars, that's that's no chump change, right,
that's a princely some however, and its height, yik yak
had reached a valuation of four hundred million dollars, so
it was a huge drop off. Now. I've seen at
least one analyst say that the company had made a

(28:00):
mistake in pivoting away from its original use case. But
I would respond to that with I don't think an
app that enables abuse is one we really want to
see become incredibly successful. Besides, we already have stuff like
that like Twitter and Facebook that are allowing for ridiculous

(28:20):
amounts of harassment. Okay, that's enough of that. Our next
startup failure is another example of a great idea that
turns out to not actually be possible. We could categorize
these businesses as having fallen victim to wishful thinking. So
in this case, the company was called Mark One and
the product was called the Vessel, but spelled v E

(28:44):
S S y L. I first heard about this back
when the company was holding a crowdfunding campaign in order
to get enough money for the development of the Vessel.
I heard about it actually on another podcast, the Rooster
Teeth podcast, where Rooster Teeth foul under Bernie Burns mentioned
he had backed the campaign. He had intended to get

(29:04):
a Vessel cup for fellow Rooster Teeth employee Gavin Free. Sadly,
that gift was never meant to be and Mr Free
has never received a Vessel cup because nobody did. The
fundraising campaign was a success, with Mark One receiving a
few million dollars from other ventures to boot, so they

(29:26):
had some good startup money. But it turned out that
making a cup that can identify the liquid poured into it,
because that's what the vessel was supposed to do. No
matter what you pour into it, it was supposed to
tell you not just what it was that was inside
the cup, but the nutritional value as well. It turns
out that's actually pretty difficult. Now it's not as simple
as throwing a sensor in with a microprocessor and maybe

(29:48):
some Bluetooth capability. After numerous delays and numerous complaints from backers,
the company tried to make the best of an increasingly
bad situation, and one solution was to offer up an
alternative product, one called Prime spelled p R y m E,
essentially a water bottle that kept track of how many

(30:08):
times you refilled it during the day. But there were
widespread reports that these promised replacements just never arrived too
many backers, and things turned even uglier. After a few
sporadic updates on the official company blog, the company apparently
shut down. Now. I say apparently because it's actually really

(30:29):
hard to find definitive information on what happened or when
it happened, but certainly by two thousand eighteen, the company's
website and their social media handles were all shut down.
Vessel remains one of the big cautionary tales for those
who would otherwise, you know, fund hardware early on rather

(30:50):
than just wait for a finished product. So sometimes things
just don't work out. I have a lot of unanswered
questions about the Vessel thing for examp Couple. A writer
for The Verge one named Ellis. Hamburger wrote a piece
that talked about how a prototype of the cup was
able to detect with great accuracy whatever was being poured

(31:13):
into it, including being able to tell the difference between
two different types of gatorade. But I can't find much
other information to back that up, and it really makes
me wonder what was going on now. I'm not trying
to say that Hamburger was inaccurate or trying to mislead
the readership or anything like that. I mean, I just

(31:34):
wonder where the problems ultimately were. And it's entirely possible
that they did develop a working prototype, but that the
working prototype was just way too expensive to turn into
a production model, Like it could have been like, yeah,
we got it to work, but it would cost five
dollars and no one's going to spend that on a cup.
I just don't know what actually happened. Now, if we

(31:57):
want to go with a spectacular or public failure, one
that was kind of a head scratcher even when it
was available for purchase, we have to talk about Juice
a Row. This started off in two thousand thirteen, again
as a crowdfunding campaign, and the goal was to create
a smart, high end luxury juicing machine, as in a

(32:20):
machine that makes juice, and it would have a persistent
Internet connection to give it some kind of smart capabilities.
And it would also have a really high price tag.
And the price tag was around four hundred bucks sometimes
quoted as high as seven hundred bucks when it came
out Home My Goodness, where people disappointed or enraged or

(32:46):
just amused. The actual Juicer Row came out in By
then the company had raised nearly a hundred twenty million
dollars and then the problems started to roll in. See
this cold press juicer would squeeze plastic bags from juice
a row that were filled up with cut up fruits

(33:07):
and vegetables. So you would put these juicer ro bags
in the juicer Ro machine, close the machine, push a button,
and after a few moments you'd have your juice. And
I imagine the packages were really meant as a way
for the Juicy Row company to build in recurring subscriptions,
like a recurring revenue model, because he would pay one

(33:29):
big upfront fee to buy the juicer, but then you
would have a recurring fee in order to buy the
packages that could work inside the juicer. Because you couldn't
just you know, like put slices of fruit or or
vegetables into the machine. It had to be in these bags.
But the real headaches for the company came when folks

(33:50):
started posting videos of themselves just squeezing the bags by hand.
They were making juice as effectively and in fact faster
than the Juicero machine itself. The videos showed that the
machine was totally superfluous, it was expensive, it was slow.
The company offered up a fairly weak defense, saying the

(34:12):
Internet connectivity meant that the machine could avoid using packets
that were past their expiration date, but that expiration date
was already printed on the packages, meaning you just had
to look at the package to see if it was
good or not. As you can imagine, things did not
go well, and by the company had shut down. Juicero

(34:34):
became a mascot for companies that offer up solutions to
things that turned out to not actually be a problem. Okay,
how about we look at a company that appears to
have failed largely because of bad leadership. For that, I
submit the startup that was called BP. That was spelled
B E E p I. So what was BP? Well,

(34:58):
the concept was kind neat. It was like a peer
to peer market for used cars. And here's how it
would work. BP the company would create the online platform
through which buyers and sellers could find one another. The
company promised a cell price of a certain value for
every car. And if you were selling your car on BP,

(35:20):
and after thirty days you were unable to sell your car,
the company BP would buy the car from you at
that agreed upon price, you know whatever. It might be
the low end of what you were hoping for, but
you would still be able to sell your car and
the company would take it over. Presumably the company would
then sell it later down the line. As for buyers, well,

(35:44):
BP would handle the inspection of the vehicles and delivery
of the vehicle to the buyer's home, and even fill
out the paperwork for the buyer's local d m V office.
The proposition was really phenomenal. I mean, convenience was built
in and buyers would suddenly be able to look at
cars that they might not ever consider because of local scarcity.

(36:06):
Like just imagine you're out in the boondocks somewhere and
you really have your heart set on this particular type
of sports car, but there's no place near you that
has them. Well, this service could potentially be a solution,
and it sounds too good to be true, right, Well,
it's not that the company was running a scam, because
that was not the case, and it's not like they

(36:28):
didn't get investors either. The company raised nearly a hundred
fifty million dollars in funding, which gave the company a
valuation of more than half a billion dollars. The company
geared up in fourteen, but it went off road and
ultimately crashed by twenty sixteen. So what the heck happened?
According to numerous reports, the big issue was that BP

(36:53):
was burning through money at a pretty incredible rate. According
to one of tech crunches sources, someone that the site
said had been working for BP for at least a
while before talking to tech Crunch, the company at at
one point was turning through seven million dollars a month yauza,

(37:13):
and most of that, according to that same source, was
going to cover big salaries for the top management team
or to cover unnecessary costs. So, in other words, it
sounded a lot like the sort of stuff we saw
in the years leading up to the dot com bubble
bursting a decade earlier. A couple of decades earlier, companies

(37:35):
flush with cash start spending that cash irresponsibly and that
leads to an unsustainable situation. BP attempted to find a
solution in the form of a buyer. The company itself
tried to find another company to purchase them, but there
were two failed attempts to do that. Two different companies
considered it and ultimately backed out of the deal, and

(37:58):
eventually BP had to resolve and its assets were bought piecemeal.
It was a rather shoddy into what could have been
a fairly bold move on the market. And just to
be clear, BP had some other challenges apart from hemorrhaging money.
I mean, there was a big trust issue to overcome.
For the purchase of something as important as a car.

(38:20):
It's a lot to ask consumers to hand over the
duties of inspecting the vehicle to someone that they would
never meet or even speak with, without knowing if the
inspection is trustworthy. It's a huge request to have someone
put down the thousands of dollars it would cost by
a used car. Now, perhaps if BP hadn't been spending

(38:42):
so much money, it could have built up that trust
needed to become a viable business and it would still
be around today, but due to mismanagement and out of
control costs, it just beaped right the heck off. I've
got a little bit more to say about failures in general,
but before that, let's take a quick break. Why do

(39:11):
startups fail? Well, as we've seen, there's not really a
single answer for this, and in fact, in most cases,
there are several contributing factors that can lead to failure,
but there are a few patterns that tend to emerge
if you look through enough examples. C B Insights did
that when looking at postmortem reports. They actually talked with

(39:32):
people who founded companies that failed and got really insightful
information about what caused the failures, and they aggregated a
top twenty reasons list as to why companies fail, and
I want to give you a few highlights. So at
the very top, the number one contributing factor was no

(39:55):
market need, with of failures having that as one of
the attributed causes for their failure. So what that means
is that someone came up with an idea, they formed
a business around it, and then ultimately discovered that nobody
really wanted the thing they were offering. Actually, and this

(40:16):
is a tough one. Now, on the one hand, you
don't want to launch a company that's super similar to
existing ones, because I mean, you're already behind, right. Your
competitors might be really well established, Some of them might
be really big companies, and they might have market tested
products and services that people are familiar with. Now, unless
those companies have a reputation for lousy products and services

(40:40):
or customer service, it can be really hard to gain
a foothold in those markets. Though. Sometimes consumers are just
hoping that a new company will enter a field and
shake things up, so it's not impossible, it's just really
hard to do. Typically, the stronger poll is to come
up with an idea that isn't already present in the market,

(41:01):
something that's new and innovative and exciting and there are
no competitors out there for you to have to worry about.
But on the flip side, the danger of that approach
is that, yeah, you might find out the idea is
new and stuff, but you might also find out no
one really cares. And that is a tough pill to swallow.
I mean, I experienced this myself. I once tried to

(41:24):
get funding for a video series a superhero comedy series
that I wanted to do, and I promoted the crowdfunding link.
I worked really hard. I got a lot of people
who lent me their expertise and their their talent. We
all put together a pretty compelling pitch and I failed

(41:45):
to get it funded, which really indicates that either I
didn't reach enough people or and this is the part
that really hurts, I reached enough people. They just didn't
care to see the finished product. And that happens. And
it can feel awful when you pour your heart into something,
but it doesn't mean that people made the wrong choice.

(42:06):
It just might mean that you put more emphasis into
something than other people do, and that happens. It stinks,
doesn't feel great, but that's life in a distant second
place to the no market need factor. CB Insights identified
ran out of cash as a top contributor to business failure,

(42:28):
with of the businesses they looked at listing that as
one of the reasons they failed. We've seen that in
some of the examples I've talked about in this episode,
and it's what I was alluding to earlier in the podcast. Startups,
particularly those with steep operating costs, are really operating under

(42:48):
a ticking clock scenario. They need to establish a revenue
generating business, you know, one that can cover operating expenses
before investment money runs out. They might be able to
keep things afloat by raising multiple rounds of funding or
you know, securing some loans and if the idea is
attractive enough, and that could work for a while, but

(43:11):
ultimately they need to make revenue off the business or
the cash will eventually run out. Investors aren't likely to
pour endless amounts of money into a failing business, even
with the sunken cost fallacy. That's the illogical belief that
you're too invested in something and you can't walk away

(43:31):
from it, so instead you just keep pouring more cash
in with the hope of at least breaking even. The
sunken cost fallacy is what casinos thrive on. They depend
upon it, running up in third place as a contributing
factor to failure with twenty three percent of startups you

(43:51):
know listing it would be not the right team, which
is true. If you've got a bad leadership team and play,
it's really hard to succeed. I mean, you might succeed
despite your team, but you're not going to reach the
same heights as you would if you had a really capable, nimble,
and knowledgeable team. This can happen a lot with tech startups,

(44:14):
where you might have a founder who has a really
strong background in engineering but not in business management, so
they might have a great idea for making technology that works,
but not a great idea of how to market and
sell it and fund it. Likewise, you can also hit
this point if you've got someone who has great business
sense but they have a really weak grasp on what

(44:37):
is actually technologically possible. And I'm not gonna do the
cough joke again, but thoroughness leaps to mind. Now. I
won't go through all the other factors, but I do
want to name a couple more. Sometimes companies fail because
some other company manages to do what they're doing, but
you know, successfully. Sometimes it comes down to pricing or cost.

(45:02):
The product or service ends up being too expensive for
the market, but there's no real option to reduce prices
because the operational costs of the company are themselves too high.
Sometimes the company fails to pay attention to customers entirely
and lose his focus. And usually again it's a combination
of these and other factors that ultimately lead to failure. Now,

(45:25):
the reason I wanted to do this episode in the
first place was not for some sort of shot in
Freuda as we examine the shortcomings of various companies. It
was rather to illustrate the sort of lessons we can
learn through these failures. I mean, honestly, failure is a
better teacher than success is. Through failure, we learn what
mistakes to avoid and where to put our focus. So,

(45:48):
if you're ever going to work on a startup idea,
you know some of the pitfalls that you need to
be aware of. You need a good team in place.
You need strong people on both the business and the
products side. You need short and long term business plans.
You need to test your ideas and make sure there's
a place in the market for those ideas. Personally, I

(46:08):
feel people should avoid the whole fake it until you
make it approach, where you know, you pitch an idea
that you think might be possible, but you don't really
know that it is possible, and then it just becomes
a race to see if you can make your idea
work before the money runs out. That doesn't work out
well most of the time. Also, if you are looking

(46:30):
for investment opportunities, or you see a crowdfunding campaign that
catches your eye. It's good to ask some really tough questions,
even if you're just asking yourself before you contribute your
hard earned cash to that endeavor. Now, I've done episodes
about crowdfunding failures as well as outright scams and hoaxes.

(46:51):
The hoaxes and scams tend to be slightly easier to avoid,
I think, because there's usually at least some indicators that
things are not on the up and up. Looking into
the background of the people involved is always a good idea.
Examining their goals and what they're promising is a must,
And as the old saying does go, if it sounds

(47:11):
too good to be true, it probably is. These scenarios
are for the most part avoidable if we really employ
critical thinking and we don't fall in for stuff that
just sounds like wish fulfillment. But the other failures, the
ones that are not based off misdirection or scams, those
are harder to avoid. Right These can be people and

(47:34):
companies that have sincere legitimate goals, and they might even
achieve some of those goals. As we've seen failure does
not necessarily mean having nothing to show for your work.
Plenty of these companies failed after bringing a product to market.
It's just that the market, for whatever reason, didn't receive

(47:54):
the product with open arms. It's a lot harder to
predict that kind of thing unless you hear of an
idea and say, I don't understand why anyone would want that.
I mean, if that's your reaction, that might be a
red flag. It could be something that a lot of
other people are also thinking. But then again, keep in
mind that's coming from a guy who was pretty sure

(48:16):
the iPad was going to be a total failure. I
had seen so many tablet style devices failed to get
a place in the general consumer market. And also I
thought the name was pretty dumb, and I was pretty
sure that was gonna be a flop, and I was
obviously a billion percent wrong. So, as I said, figuring

(48:36):
out if a product or service has the potential to
be a big hit requires a lot of insight and
maybe a little bit of luck, and I definitely didn't
have enough of either one of those when I dismissed
the iPad. Personally, I'd kind of like to see a
readjustment to how startups get funding and support in the
tech world in the first place, I feel there's way

(48:58):
too much speculation going on, and it means that some
things that could be great ideas don't get the support
they need, while others that are far more far fetched
or have limited value end up getting pushed into the stratosphere.
There are some startup incubators out there that try and
help founders create a strong base for their companies, complete

(49:20):
with things like making up business plans and networking opportunities.
I think that's a good step, but in some cases
these can turn into what feels like a tech oriented
fraternity and less of a genuine effort to help good
ideas flourish. Now, these problems are not unique to technology.
We see it in business across multiple industries, but tech,

(49:43):
with its cool appeal and how it expands into every
aspect of our lives, is particularly visible in this regard. Well,
I hope you guys learned some interesting stuff in this episode.
I barely scratched the surface of tech startup failures. I mean,
the list of failed companies is hundreds of companies long.

(50:05):
So if there are particular instances you would like me
to cover, either companies that promise big things but fell short.
Maybe there's some hoax or scams that you specifically want
to know more about, or you want to know about
some success stories about companies that started off in a
humble way and grew into something truly spectacular. Let me know. Also,

(50:28):
if you have any other requests for topics on tech stuff,
reach out to me. The best way to do that
is on Twitter. The handle is text stuff, h s
doubable and I'll talk to you again really soon. Text

(50:48):
Stuff is an I Heart Radio production. For more podcasts
from my Heart Radio, visit the i heart Radio app,
Apple Podcasts, or wherever you listen to your favorite shows.
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