We dove into the annals of the interwebs and decided that these eleven companies as the most spectacular startup failures of all time. We profiled based on the money raised, the total level of hype, and the impact of the fall from grace. So which startups failed most spectacularly? Let’s dive in.
General Magic‘s was a Silicon Valley-based hardware and software company whose main product was the operating system Magic Cap. It launched in 1994 and was used by the Motorola Envoy and the Magic Link PDA by Sony used in 1994. The reason it’s mentioned here is that it is an excellent example of a startup being overcapitalized, with incredible partnerships in place, that can fail due to bad timing which made it impossible to achieve product-market fit. I largely believe it was the inspiration for the original iPhone. If you have a chance watch the documentary. its informative, and great to see the innovators from this company to on to become powerhouses in today’s tech landscape. .
AYDS was a diet pill/candy that acted as an appetite suppressant. It grew to prominence in the late 1970s and early 1980s, but as irony would have it, the mid-1980s saw the height of the AIDS epidemic, and the rest is history. It was timing and bad luck that led to a near-complete loss of sales of AYDS. Still, looking back at the product now, anorectics probably aren’t good for you anyway.
MoviePass is dunzo as of September 14, 2019, and collapsing with millions upon millions of users is definitely a spectacular failure. In less than a year MoviePass saw its subscriber rolls plunge from a peak of more than 3 million to just 225,000. That’s an exodus of over 90% of paid subscribers. Ouch!
The problem was in the company’s business model. Giving in to pressure from studios, and cinemas, MoviePass scaled back their offering, added various restrictions, and users left in droves. There was no way that revenue would ever cover costs, especially considering the minuscule margins. The major reason we’re considering this a failure is a total lack of foresight from management. The pressure was bound to come and they were bound to capitulate to it, but looking from the outside in, it just seems like they lacked the business creativity to mitigate risks and pivot.
MoviePass would have been better off licensing the software to theaters and cinema brands like AMC, who eventually created their own competition products to Moviepass and helped put a final nail in the coffin.
Takeaway: If your startup is doing well, start laying out and crafting scenarios well in advance of needing them. Markets pressures change. Be ready to innovate on a dime. Especially if you’re a single product company.
This one comes compliments of a user on Reddit.
The CueCat had even less chance of succeeding than many other startups in this post. Back in the ancient days of 2000, people didn’t have cell phones with cameras, and webcams weren’t very common. Also, QR codes didn’t exist yet.
The CueCat was a hardware peripheral that was essentially a QR-code reader. It could scan barcodes and turn them into URLs. Now get this, the only bar codes to scan were advertisements in print magazines. 🤦 It was a hardware device for being advertised to.
No one without a degenerative brain condition is going to go out of there way to scan a barcode from a print add in order to visit a website. People sure as shit aren’t going to do it if you make them register your device with your name and email before you allow them to let you advertise to them.
Let’s have Joel Spolskey (who himself ran a successful startup) take down the :CueCat, because he’s amazing at it.
The best part about the CueCat other than for whatever idiotic reason it also looked like a cat: is that the Linux community reverse-engineered the protocol and a zillion useful apps sprang to life. For example, you could index your book collection by just scanning all the bar codes.
Then CueCat tried to block all those apps because people were “misusing” the product. Thing was, the scanner was free, and their business model was to make money off the scanning service. Having free apps out there that used the scanner wrecked their business model. Never mind that it was wrecked in the first place. Seriously, who were the geniuses behind this one?
Takeaway: Business model design is so important. The product had a market, but the product’s management didn’t see it, instead focusing on one of the most asinine strategies in any company to date.
#9 Yik yak
YikYak was a great “anonymous-post app” that quickly grew to prominence across colleges and universities in the U.S. They received over $74 million in VC, and at its height, were valued at $400 million (almost 1/2 unicorn status). It eventually exited to Square in an acquihire for a measly $1 million bucks.
What went wrong? It tried to become Facebook. With millions of users, they decided that the best way to monetize was to take away the one thing that made it successful, anonymity. They forced profiles on users and tried to make it into fb2.0. Here’s what one former user had to say about it.
“I kinda loved it for the shitliness of it. I posted a lot there for the last three years of its life. Ended up being a sorta local 4 chan. It was a great source of current events in college.”YikYak User
Takeaway: Understand your core value proposition and when you have product-market fit, don’t pivot away from it.
Quirky was founded in 2009 and in a handful of short years raised a whopping $169.5 Million in venture capital, got an investment form and partnership with GE, had a reality TV series titled Quirky on Sundance, and in 2012 was featured on CNN. Three years later GE hated it and it was filing for Chapter 11.
In late 2015 the company was bought for $4.7 million despite GE objecting. It eventually relaunched in 2017, I’m going to submit a kitty litter box concept that I built with an Arduino a few years back to it and see what happens.
The reason for the failure, another bad business model and sub-par product quality. Turns out bringing to market too many products too soon is equivalent to “spreading the peanut butter too thin.” Instead of having 2 or 3 really good products like a slew of successful startups, you get lots of mediocre, untested products, which are hard to manufacture overseas. Nothing like $170 million down the drain to get you into 8th place on this list.
There’s this funny interview of Quirky’s founder Ben Kaufman where he talks about how the company failed. He was fired 10 days after that interview dropped.
Takeaway: A good idea, but the business model wasn’t designed very well in Qurky 1.0, they also scaled too fast without creating the proper foundation for AAA product delivery and didn’t invest enough into customer support.
With headlines like “This clever cup knows exactly what you’re drinking (and could change your life)” and “This Smart Cup Knows What’s Inside of It” there’s a reason blogs and media outlets went “Ooooh!”
Using a series of sensors the Vessyl cup promised to identify the contents poured into it and display those contents in a mobile app. The hype got so big that even Intel invested in the thing. Why anyone needed a cup to tell them they were drinking coffee eludes me, but it was 2015, a simpler time.
After the company couldn’t pull off cup-based matter analysis, it revealed that the killer feature was in fact… and get this… I mean drumroll seriously.
You scan the product using the Vessyl mobile app, it pings the manufacturer’s site to download and display the exact same information that’s on the nutritional label. Epic!
After realizing that matter analysis was impossible using a cup in 2015 and burning through their Kickstarter funding they pivoted to the Pyme smart bottle that would count how many times it’s been filled to keep you on top of your hydration level – because counting to 8 is so damn hard.
A lot of those orders were never delivered and the company, Mark One, is out of business. You can read complaints from disgruntled customers here, who arguably kinda deserve to have lost their money, all $3.6 million of it? Enjoy this funny verge writeup here and yes it’s also about the Vessyl, or ponder what state the world is actually in because there are in fact smart water bottles out there. 🤦
Takeaway: 🤦Riding the hype train is not running a company.
Initially described as a “Yelp for people and “potentially” inspired by one of many dystopian episodes of Black Mirror, Peeple was an app where you could rate and review people. Yes, real live breathing human beings. Capitalism’s answer to China’s Social Credit System?
At first, Peeple wasn’t opt-in, I guess kind of like MyLife (PSA: great article on how to remove yourself off MyLife), but due to criticism, the founders made a scaled-down version, rendering it just another one uninteresting social network.
Fun fact: One of the lowest-rated people on Peeple was the owner.
Takeaway: Understand your market.
Iconic sock puppet, Super Bowl ad then bankrupt like six months later. Yeah, this one actually hurts a little. The idea of an eCommerce platform for pet goods is absolutely spectacular, what wasn’t was the execution.
Pre-bubble internet companies were terrible at making money, Pets.com was not one of them, sales were strong, and the company exploded to prominence across America. What did it in was rampant mismanagement. For example. During its first fiscal year (February to September 1999) Pets.com earned $619,000 in revenue and spent $11.8 million on advertising. It was selling merchandise for approximately one-third of the price it paid to obtain the products.
It IPO’d at $11 per share in February 2000, to $0.19 the day of its liquidation announcement (November 2000). Just total, rampant, mismanagement and terrible business savvy.
Takeaway: Learn how to read financial statements, and make decisions based on them.
Like another company on this list, OUYA was funded on Kickstarter, and this time to the tune of $8,596,475 at 904% of the project’s goal, which to date is still the 9th highest crowdfunded project on the platform.
Since the project had a working prototype and ran on Android OS at funding it took less than a year for the console to get to backers and get a general public release. All looked legit, but soon reality started settling in. Sales of the console were lukewarm at best. To improve these the company made two promises.
First, it was going to release an updated console the following year. Secondly, it was starting a new games program that would give the console exclusives for 6 months. Both plans failed. A poorly defined go to market strategy for the console stifled sales, and the games program was a mismanaged debacle. As someone called it
The OUYA company kinda set up a games program that they really didn’t think through and big titles that were promised to OUYA owners were scams that took the money and ran.Random OUYA console owner.
The real reason for it failing, however, was that no one really cared about an Android device that could play a few games. OUYA couldn’t compete with SONY, Microsoft or Nintendo, it lacked both the resources and knowledge to do so. It also failed to carve out a niche, it existed, but it didn’t know what it wanted to be.
In 2015 it was sold to Razer and in June 2019 discontinued.
Takeaway: Find product-market fit and establish a strong user base before investing heavily in product delivery
Remember Juicero, the $400 wi-fi connected juicer that literally just crushed a packet of juice into a glass (which you could easily cut open and pour yourself). Yup. The Startup received $120 million in startup venture capital starting in 2014, from investors including Kleiner Perkins Caufield & Byers and Alphabet Inc (Google).
What did all that money go to? Overengineering a juice press. It would do things like scan juice pack QR codes to see if they were real Juicero juice packs, basically Juice DRM! And it wouldn’t operate without a connection to the internet because it had to check the DRM.
The $400 release price was not only ridiculously high for this juicer, but the company also took a hit on every unit sold, then after the company failed, the guy behind it, Doug Evans, went on to hock “raw water“, too.
Takeaway: Overcomplicated products will always fail, as will business models that are predatory, they don’t provide value to the customer.
Unless you’ve been living under a rock for the past six months, you’ll likely have heard about the WeWork IPO debacle. To summarize, WeWork was going to IPO with a $47 billion valuation, but after real business people took apart WeWorks model and financials, and discovered some unorthodox business practices, like leasing your own buildings to your own company the valuation was slashed by $20 billion, the CEO Adam Neumann “stepped” down, it required a bailout from Softbank who eventually bought the company for 8 million. The WeWork disaster has been covered to ad-nauseam, and if you haven’t read about it, the WSJ does a pretty good job, and for a bit more history on coworking spaces, their rise during the Great Recession of 2008 and WeWork, the Atlantic has a great piece.
Looking at the company from the point of view of this article however we can deduce a couple of things that led to this catastrophic failure.
The business model wasn’t sustainable. WeWorks were losing money hand over foot. To maintain growth, Neumann & Co. needed additional capital to invest in growth, the result of the new growth would lead to more losses, and the cycled continued. The model was flawed, WeWork would need capital injections in perpetuity to subsidize its operations. The company had been a house of cards from the get go. Dodgy, conflict of interest ridden deals, didn’t help brighten things either.
The business model is old and proven to be highly volatile. WeWork has a huge fixed expense block while the income is volatile. Comparatively speaking, Germany‘s biggest competitor Regus, has become bankrupt 4 times over the past 15 years.
A friend who wound up with some stock resulting from an acquisition WeWork made said the following
I knew it was going to be a shitshow two years ago when that company sold to WeWork and told me I was getting WeWork stock. I wrote it off then.Anon investor in WeWork
Which was in many investment circles in NYC at least the de-facto sentiment on WeWork as a company, it was for all intents and purposes, a shitshow.
Nepotism. Neumann’s wife Rebekah Paltrow Neumann (yup related to Gwyneth) was the Chief Brand Officer and apparently had her influence stripped starting September 2019 after filing to public in August. She was removed from succession planning in the event of Adam’s death, and the board banned her and members of the Neumann family from serving on the board, a document filed with the Securities and Exchange Commission September 13 shows.
What Neumann was spectacular at however was negotiation, he grew a company to multiple billion in valuation retaining ownership, built a “drink the kool-aid” culture where WeWork was seen as the next Google, made a killing of deals that were arguably considered conflicts of interest, and walked away a hell of a lot richer than when he came in.
But we often talk about these companies apathetically without looking at the human impact of the decisions made. He did this at a cost to his employees, many whose net worth suffered substantially due to the company’s failure. He impacted businesses that relied on WeWork as their primary customer (more on this later) and screwed over the following pension funds for his own benefit:
– Co-Op Retirement Plan, a multi-employer group for farm supply companies;
– National Automatic Sprinkler Industry Pension Fund;
– UNITE HERE Retirement Fund for the 300,000-person, multi-sector labor union.
Takeaway: WeWork’s story is sad, but we can always learn something from it, an founders, business models have to work. They have to. “We’ll fugue it out” isn’t a good strategy and I don’t care how many west coast investors disagree with me.
As investors, we have to do a better job of not getting on the hype train. We work’s business model was flawed from the get go, and otherwise sophisticated investors, either didn’t want to, or refused to see this, and put money into this company.
Touted as a breakthrough technology company to have invested blood tests that required only a drop of blood, Thernaos raised over $700 million from VCs, leading to a $10 billion valuation at its peak in 2014. It was supposed to be a breakthrough for the $70 billion blood testing market, but instead of delivering on its promises, Theranos will go down in history as one of the top corporate frauds.
We’re not going to go into the history of the company, Wikipedia has a good write up, ABC did a two part series, HBO released a documentary (recommended), and there’s a movie called Bad Blood starring Jennifer Lawrence coming out in 2020 about the company.
What’s fascinating is, no one caught on. Here’s an actual quote from Holmes.
“A chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel.”Elizabeth Holmes, CEO, Theranos
Wait, she actually said this? Yes. But no one called the bluff, no one said, wait a minute this doesn’t make sense, where’s the data, what are the processes?
On Sept 4th 2018, Theranos announced in an email to investors that it would cease operations and release its assets and remaining cash to creditors after all efforts to find a buyer came to nothing. This rendered the $700 million it had received in VC utterly worthless.
On June 15, 2018, Holmes was indicted on multiple counts, including, wire fraud, conspiracy to commit wire fraud, stating that investors, doctors and patients were defrauded. It is alleged the defendants were aware of the unreliability and inaccuracy of their products, but concealed that information. If convicted, they each face a maximum fine of $250,000 and 20 years in prison. The case has been assigned to Lucy H. Koh, United States District Judge of the United States District Court for the Northern District of California. The jury selection for the trial will begin on July 28, 2020 and the trial will commence in August 2020.
I remember reading about Holmes in Forbes and admiring her, now, it hope she and her partner Balwani get the maximum penalty for their actions.
Takeaway: There are so many takeaways here. But I thin the one that speaks most prolifically is that this is another spectacular example of people buying into the hype train. Underneath it all, Theranos had nothing, yet somehow managed to score $700 million in funding, this is more than the GDP of Dominica. Don’t ride the hype train. It’s bad investing. Period.
Did we forget anything?
Should there be another company on this list that wasn’t mentioned? Should we make a list of “The Second 11 Top Fails in Startup History?” Someone else should have been #1? Do you have facts that may have been omitted? Let us know in the comments below.