5 min read

Why do Tech startups go broke?

Have you ever failed the HR interview? For sure. Now imagine that instead of the interview we are talking about the multimillion-dollar project that failed because of internal struggles. There are no “too big to fail” or “too small to succeed” companies. In this blogpost let’s concentrate on the startups that have done wrong enough to go broke and analyze their mistakes.

Startups that lost big.

BranchOut – launched in 2010 as a Facebook application for professional networking, has pivoted to be a messaging platform for teams of coworkers. But in 2012 the number of users dropped from 25 million registered to 3 million monthly active users. The collapse was unexpected.
Failure reason: not focusing on retaining customers. The users have not remained loyal to the network after they have joined the community, they were not attached to the brand.

JobKatch – once a social CRM or management tool for job seekers to help them organize their job search and network with relevant contacts and even with the built-in integrations with LinkedIn failed to proceed and remained in the shadow of competitors and similar products.
Failure reason: a tool must have a clear brand what was not the case. A ridiculous name, plenty of seemingly named companies didn’t do any good.

Remarkable Hire – a company with almost 10 years of history but not and is still here to continue providing great help to many people. As we all know, it was never easy to look for jobs available especially when we don’t know where to start looking, finding information and applying for them.
Failure reason: despite the company continue to exist it can not cope with the number of job ads and important information required, so not always provide reliable and actual data.

Work Simple – worked like other social media sites where employees can share goals, capture accomplishments, get and give feedback (both at the peer and manager-to-employee levels), leave comments.
Failure reason: they couldn’t turn cashflow positive and they ran out of money. In addition to that, they were not able to compete on the social performance management market, had adoption problems with users couldn’t log in and use the product. Besides, the start-up was naked in the mirror with a much lower number of real customers than signed up ones.

Thrive.ly – a web app to make it extremely simple to exchange constructive feedback with the people you work with. It built an MVP, grew to 500+ users, and raised a bit of pre-seed funding, but didn’t have the runway to keep going.
Failure reason: many other startups in the “social/agile performance management” space have had similar challenges with product engagement.

What are the biggest failures of the tech companies in recent decades?

Easily the biggest and most impactful one is Nortel. At its peak, its daily stock price was responsible for 33% of the total market movement in Canada. And before you scoff at its Canadian-ness, the peak-market valuation for Nortel was over $280B, and the company was recently dismantled for basically about a fraction of a cent per share, split adjusted.

Together with Alcatel Lucent and WorldCom these 3 companies lost a combined $740B. That’s bigger than Apple and Google combined on most days.

Once a leader but now derided as a laggard, BlackBerry-maker Research In Motion failed to regain the confidence of its users. It has been a steep decline for RIM, which less than five years ago was the most valuable company in Canada, above Royal Bank. Affectionately called the “CrackBerry” maker, the mobile communications pioneer was Canada’s crowning achievement of the technology sector. They lost the time for an update!

Nokia used to rule the global handset business and they came up with its first smartphone in 1996, but they failed to translate their spending on R&D into sales.

Kodak and Polaroid Corporations have finally formalized what had been expected for years – they went bankrupt. The truth is that by the time they had both feet fully in the digital game, they had been outclassed by more nimble competitors with better products.

Toyota has suffered because of HR and lost $155 million per week and $30 billion in stock valuation as a result of their 2010 recall. That was a result of poorly designed practices and weak execution on the part of the human resource department! (wrong actions by senior management, lack of adequate information or job training, faulty inputs to the process, actions not in line with documented goals.)

So, the reasons for big success are different whereas the backgrounds of all failures are similar. Some of them are related to malfunctioned HR responsibilities:

/ Lack of the right knowledge in the company

/ Weak team and poor leadership

/  Slow business and innovation reaction

/  Lacking ability to adapt quickly to the market changes

Of course, there are also other business backgrounds that led to the failure: lack of execution capability, lack of marketing actions and misinterpretation of the market potential, a missing proper business structure or focus on a problem that is not ready to be solved yet, lack of stamina* to keep the whole engine running.

In the entrepreneurial world, the term “stamina” means a strong mental readiness to achieve success. You have to be emotionally stable to walk this way which is not paved with flowers. The balance between work and life is not something that startup founders often get and so the risk of burning out is high.

Fascinating fact / THE FIRST

As a technology, often the first use it finds is in the hands of criminals:
The first cars were used as getaway vehicles.
The first telephones were used to plot conspiracy.
The first telegrams were used to run long-distance mail-fraud and Ponzi schemes.
The first forms of electricity were used to run medical hoaxes and scam people.

So what’s the line on this then?

Just like the UK lost the automobile-industry race because, instead of seeing the potential of technology, they allowed fear to define their reaction, and just like countries that do not accept the cryptocurrency, claiming being weird and complicated, the modern companies lost their digital races because of the above-mentioned reasons. The most immediate takeaway from described tech falls for us is: innovating and re-inventing your company is the driving force. Innovation always goes hand in hand with improved skills. Displacement hits the ones not being able to leverage, create, optimize or replace skills​. The most successful stock companies seek the skills of the future today. So, don’t be afraid of innovations in the name of progress and success. 

Imagine how successful you could be if?…