What You Can Learn From Failed Internet Startups
Not all startups are a success, but through the failure of others there are lessons for any entrepreneur.
If you believe the maxim that success has many fathers yet failure is an orphan, the internet must be a graveyard for entrepreneurial ancestors. The majority of new businesses fail in their first 5 years of operation, with attrition rates in the digital sector hitting 90% in the first 3 months of trading alone.
Launching an online business is far easier than creating a bricks-and-mortar enterprise that generally requires detailed business plans, support from financial institutions and staff recruitment. The DIY nature of registering a business and launching a no-frills website means it’s easy to begin a doomed venture without undertaking due diligence or competitor analysis. Startup founders may be working in their spare time, without truly understanding what the market needs or how to manage related requirements and challenges like marketing and customer service.
The internet’s relatively brief 25 year history is littered with failed brands and startups, but their demise offers lessons for the next generation of online entrepreneurs:
Don’t try to fill a niche that isn’t there.
A 2015 survey published by Fortune reported that 42% of startups failed due to insufficient market need for their product or service. This was certainly the case for consumer VoIP provider SunRocket, which collapsed in 2007 after failing to convince the public that internet phone calls were better than landline calls. SunRocket was expensively promoting a technical service few people wanted at the time – a guaranteed recipe for failure.
Always monitor your competitors.
J David Kuo’s searing bestseller ‘Dot Bomb’ exposed the many pitfalls of Value America – a one-stop online retailer that could have rivalled Amazon. Instead, its dogmatic founder and blinkered staff ignored what their competitors were doing, failing to identify how limited their product ranges were until most customers had migrated to rivals offering far greater choice. Defecting to competitors only requires a few mouse-clicks, so regular market analysis is imperative to avoid being left behind or missing new trends.
Develop a robust platform.
One of the highest-profile Web 1.0 collapses involved Boo.com, a London-based sports retailer founded by three successful Swedish entrepreneurs. When their website went live, the conversion rate per visitor was a pitiful 0.25 per cent due to bandwidth and display problems. It took one customer over 80 minutes to buy a pair of shoes available more cheaply on their local high street, and the next six months were dominated by website revisions and the introduction of a low-bandwidth sister site. A company employing 350 staff at its peak failed inside two years of launch, mainly due to poor site design and backroom infrastructure.
Maintain cash reserves.
Despite building a customer base of two million people and outselling Toys R Us during the 1999 Christmas season, transatlantic toy retailer eToys went bust within months of announcing an unexpected operating loss. Investors weren’t convinced their money would be spent wisely, and a firm whose shares were valued at $84 each a year earlier was bankrupted by a lack of accessible finance.
Commit wholeheartedly.
When auction aggregator service Overto was being developed, its staff maintained their existing day jobs. That meant downtime or customer service enquiries weren’t addressed during the working week, creating a snowballing backlog which prevented further development. What should have been Poland’s answer to eBay never got past the beta testing stage, yet attempts to sell the concept on were sabotaged by an inflated selling price calculated on the number of lost weekends invested in its creation, rather than the service’s real-world value…