It’s a fact: most startups fail. According to the Startup Genome Report, a jaw-dropping 92% fail within 3 years of launch, with most (74%) dying out due to premature scaling, or growing too fast, without a sustainable financial core.
The problem is particularly exacerbated by the “young genius” myth that movies like The Social Network propagated—it seems today, investors are all too eager to throw fistfuls of cash at any Ivy League graduate with a good pitch deck, without realizing that, at least according to one report by the Kauffman Foundation, the typical successful founder hovers around 40 years old.
In the tale of the emperor with no clothes, his subjects—buoyed by each other’s false conviction—lavished praise on the emperor’s regalia when, in fact, he was naked the whole time. So, too, have certain Silicon Valley startups gifted with an “investable asset”—a young, photogenic founder, or a charismatic sales pitch—gathered money like a snowball tumbling down a mountain, each new investor relying on the credibility of the last. That is, until the bubble bursts, millions are lost, and the product or company fails spectacularly.
Here are some of Silicon Valley’s ugliest collapses.
Color was a social media app that raised an astonishing 41 million dollars from Sequoia Capital and Bain Capital, pre-launch. This means, with no product, no sales model, and no customers, Sequoia and Bain dumped the annual GDP of a small island nation into the company. This was, at the time, the most money Sequoia ever invested in a firm, even more so than their initial investment in Google.
The app, which no one seems to have ever truly figured out how to use, was a confusing amalgam of Facebook, Instagram, and Foursquare. Although it was never able to gain real traction, Apple showed a merciful hand and eventually acquired Color for an undisclosed sum (rumored to be in the low millions).
Clinkle is one of the severe examples of post-Facebook startup hubris. Lucas Duplan, Clinkle’s founder and CEO, was a young Stanford undergraduate, who persuaded a flock of reputable investors, including Richard Branson, Andreessen Horowitz, and Stanford’s StartX Fund, into financing the largest seed round in history—a cool $25 million. He did so with the help of an impossibly sleek demo, which seemed to revolutionize mobile payments (this was 2012).
The only catch? It turned out that the demo, which had investors salivating, was never truly quite a workable app. After years of drastic layoffs, top executives resigning, and general team malaise, Clinkle folded last year. Duplan, who garnered a reputation as a poor leader, didn’t do much dispel the schadenfreude around him: in addition to acting aloof and callous towards his employees, he was rumored to blow the company’s funds on full-time maid service and an expensive personal trainer.
Duplan’s story is a warning to all would-be entrepreneurs and investors. “I don’t think it was the app that was impressive,” one former employee says. “I think it’s Lucas who is so compelling. He sells the vision of what every investor wants, which is a 20-year-old, white male, Stanford Computer Science major. He fits the bill. He appears to be the next Mark Zuckerberg, and he carries himself that way. Investors invest in people, not products. He’s articulate and he’s smart. In a limited period of time he can really win you over.” Although credit is to be given to Duplan for orchestrating his unprecedented seed round, it appears he was a better salesman than CEO.
While Clinkle and Color hail from the newest generation of tech, Pets.com is a doozy from the Clinton era. Pets.com was originally launched in the Fall of 1998 to sell pet-related products via the Internet. It seemed like a great idea, in theory: order pet supplies online, have them delivered a few days later. Unfortunately, the company had failed to do adequate market research, finding out only through experience that not enough people needed, or wanted, pet supplies delivered from an online store.
The company started with $300 million in capital, and famously spent $1.2 million on a Super Bowl ad featuring a sock puppet mascot. None of this, however, could save the floundering dot-com company, and it folded days before the 2000 U.S. presidential election.
These are just a few of the tech industry’s biggest failures in the Internet age. Despite all the financing thrown at them, and having the best engineers, designers, and marketers that money could buy, they failed in the most essential task of all companies—acquiring and satisfying customers.
However, there’s a golden lining to all of this—failure is important, and one could even argue indispensable, to an entrepreneur. Only from failure do we learn. There’s a reason why a successful founder’s average age is near 40—one can assume, after two decades in the professional world, that the founder would have already experienced a good deal of failure. Some of the aforementioned startup’s alumni, such as Julie Wainwright from Pets.com and Clinkle’s Frank Li, have gone on to do great things within the industry—presumably having learned some serious lessons along the way.
Written by: Josh Althauser is a tech entrepreneur and open source advocate specializing in providing mentorship for startups for their marketing technology.
The views expressed in this article are those of the author alone and not the CEOWORLD magazine.