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Why These 4 Startups Failed

If you’re the founder of a mobile startup, there’s a good chance you’re going to fail.

According to a Wall Street journal, only 60% of startups survive to age 3, while only 1 in 10 make it for a decade or longer.

At Startup Digest, we usually focus on businesses that we think have a chance of becoming a part of that 10%, either because of their unique value proposition, features, or business model.

Today, though, we’re going to take a break from speculation and focus on some of the many apps that didn’t make it. Hopefully we’ll all learn something from their experience and avoid some of the missteps that got them into this article.

Hailo: Failure to Launch

Hailo failed in New York

O.k., so Hailo isn’t exactly a failure, but it did make a few epic mistakes when it tried to enter New York’s taxi services market in 2013. So many, in fact, that it was forced to leave the U.S. market altogether.

For those of you who don’t know, Hailo is a British startup whose app looks, acts, and feels a lot like Uber. Users can use Hailo to hail cabs and pay for services in over 33 cities worldwide “from Barcelona to Tokyo.”

When Hailo decided to open a branch office in New York it already had 2.5 million users and 30,000 drivers, not to mention over $100M in funding from backers. Success in the Big Apple must have looked like a sure thing, only better.

So where did Hailo go wrong?

If Uber recruited new drivers for their service, Hailo was supposed to take the yellow cab market by accustoming existing drivers to use Hailo's mobile app. For starters, the company assumed that cabbies in New York were just like their British counterparts, when in fact they were less likely to see the value in using a smart phone application to get fares.

According to Fortune magazine, Hailo managed to attract only a small fraction of New York’s 40,000 Yellow Cab drivers, without whom the app would basically be useless.

Technical problems followed shortly thereafter when Hailo discovered it would have to redesign its payment processing component to integrate with New York taxi companies’ outdated software.

The lesson here is simple. If you’re thinking about entering a new market, do your research. Know your users, their tastes, and how they will likely interact with your product. Understand what technologies your app will have to integrate with, and hack accordingly.

Read also: Taxi-booking app development

Spork: Beaten to the Punch

Spork failed app

You’ve probably heard that line about how every fantasy you could possibly think up has already been recorded and posted online. The same is true for mobile apps, as Spork founder Dan Cheung unfortunately learned when his startup went bust.

The idea behind Spork was simple: friends can use the app to review local restaurants and rate their favorite dishes. Part discovery app, part social network, Spork had everything . . . except money.

Sure, money isn’t everything, but it goes a long way in a competitive market. Though Spork managed an impressive 100,000 downloads in its first year (keep in mind 60% of apps are only ever downloaded exactly once), that wasn’t enough to compete with larger companies like Foursquare and FoodSpotting who had enough cash to pay for App Store optimization, Facebook advertising, or Google AdMob.

The lesson here is a little harsh: in a competitive market, companies with a bigger advertising budget have a better shot at dominating the field. That’s not to say that your awesome idea can’t prevail by virtue of its being better than its rivals, just that it’s important to have a marketing strategy so that potential users know that your platform is out there.

For more on Spork, as well as advice from mobile app companies that made it big, check out this article by the Wall Street Journal’s Ben Fox Rubin.

Read also: What you can learn from these 3 finance startups

Everpix: Monetize or Die

everpix failed startup

Everpix was awesome. For just $5 a month users could back up all their smartphone pictures on a secure server. A feature called “Flashbacks” sent users snapshots from seasons past, which kept users engaged with both the app and their photos.

Founded by a pair of graphic designers in 2011, Everpix never wanted for style or substance. All this attention on the technology and aesthetics did, however, take a toll on the team’s fundraising efforts, leading to a crippling shortage of cash on hand when it came time to pay Amazon Web Services for the servers it was using to store some 4 million photos from its 55,000 users.

Despite desperate, last minute attempts to either raise more funding, Everpix ran out of money and had to shut down in 2013.

Here’s the lesson: even if you have a brilliant product that users love, you still have to think about the business side of the equation. Keep an eye on cash flow, monetization, and the kind of rapid growth that will enable you to keep the lights (or at least the servers) on.

You can read a longer account of the Everpix saga here.

99 Dresses: 99 Problems

99dresses failed

99 Dresses wasn’t a mobile app, but its story is so illustrative that it’s worth including on this
list. By the way, awhile back we included 99 Dresses in one of our startup digests.

Founded by Australian Nikki Durkin when she was just 19 (19!!!), 99 Dresses offered users a
platform for trading, buying, and selling lightly-used articles of clothing for a small fee based on the value of the item. It’s a great idea, and one that we see echoes of in companies like Twice and SnobSwap.

Despite the brilliance of the idea, 99 Dresses was beset by major problems even before it really had a chance to get off the ground.

For starters, Nikki’s technical co-founders bailed shortly after an initial funding round, resulting in a loss in investor confidence and the $1.2 million which had already been raised. New funding rounds netted 99 Dresses only about half of what it had lost.

The next hurdle in the 99 Dresses gauntlet was acquiring new users, which proved surprisingly difficult despite enthusiasm from early adopters and long-term users, the most active of which were making dozens or hundreds of trades yearly on the platform.

To attract new users, the startup introduced a digital currency called “buttons” which traders
could use in lieu of real cash. The idea was to give new clients 100 “buttons,” encouraging them to get sucked into the application enough to start spending their own, real money.

There’s a law in economics that “bad money drives out good,” meaning that in a given market fake or worthless money will be used more often than currencies deemed more valuable. That’s exactly what happened to 99 Dresses, who saw the average value of a given trade, and thus their cut, plummet.

By the time Nikki had realized the problem, it was too late to arrange more funding and the app went under.

The two big lessons to learn from 99 Dresses: be sure you can trust your co-founders, and think through your business model.

Read also: Fashion app development

If you want to avoid some of the pitfalls that these startups found themselves stuck in, reach out to our team of developers and business analysts.

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