More money isn’t always the solution to your problems.
For most startup founders, a big cash injection can seem like the answer to all their problems.
More financial runway means more chance to find product-market fit, more budget to experiment with growth hacks, and more resources to entice talented teammates to join you.
But it’s not all golden when the cash train comes to town. As the late, great rapper The Notorious B.I.G. said: “Mo’ Money, Mo’ Problems.”
2017 has been a spectacular year for high-profile meltdowns and failures of well-funded startups. From anonymous messaging service Yik Yak, which blew through more than $75 million in funding, to one-time industry darling, Jawbone, which raised close to $1 billion since its start in the late 90s, but still couldn’t find its footing in an ever-changing product landscape.
1. Don’t let your burn rate turn into a forest fire
Beepi, a marketplace for people to buy and sell used cars that had raised nearly $150 million and had been valued as high as $560 million, pulled the plug earlier in the year after laying off nearly 200 employees last December.
The startup was burning through $7 million a month at its peak with the founders taking large salaries and buying expensive furniture for their offices, with one investor saying the company had raised ‘too much, too fast’:
“Entrepreneurs should not always be raising at too high a price because it sets you up for a failure.”
2. First to market isn’t always a guaranteed win
Quixey, a mobile search app that pivoted into making digital assistants for apps had raised $165 million from companies and investors like Alibaba on its first-to-market, proprietary technology. Yet, at the same time the company was developing its personal assistants, so were the likes of Google and Apple.
Users rarely remember who was first, but rather, who executed the best. And it’s hard to compete with the likes of established, billion-dollar companies like Apple and Google, as the company’s founders acknowledged upon announcing their shutdown:
“Being a market leader comes with challenges, and we are implementing some significant changes to our workforce.”
3. No matter your size, the market always chooses the winner
Jawbone, whose classic bluetooth headsets and speakers made it a household name, finally kicked the bucket earlier in 2017 after years of pivots, new products, and attempts to recapture their place in the market.
However, despite savvy marketing, close to $1 billion in funding from some of the best venture capitalists, and a proliferation of products, the company seemed to always be chasing fads and coming up short against the more established players.
4. Pricing beats perfection
When Pearl came out of stealth mode in 2016 with its fantastic car backup camera embedded in a license plate cover designed by ex-Apple engineers, the company was lauded for its incredible product design–and denounced for its $500 price tag.
Despite $50 million in funding, the company failed to find users willing to pay that price, especially when backup cameras were starting to become ubiquitous in most new vehicles. Pearl shut down just 1 year later.
5. No amount of good marketing can save a bad product
If there’s one spectacular 2017 fail that needs to be mentioned, it has to be Juicero–the $400 home juice-maker inspired by the Keurig-cup coffee makers. It had $118 million in funding from Google Ventures, Kleiner Perkins, and Campbell Soup Company.
On paper the device seemed perfect for its health-obsessed and affluent target market. But a Bloomberg article exposing that the company’s juice packs could be squeezed by hand, bypassing the costly device, sunk the company.