The startup success rate is less than 10% this is probably the one stat that every Entrepreneur knows. However, most of entrepreneurs think that once a startup raises funding things become smoother and their success is inevitable. I studied these 10 successful Unicorn Startups that raised funding and even got amazing traction from the start and yet they failed. There were 5 traits that each one of these startups shared, not sequentially but somewhere between their run.
The 10 Unicorn Startups That Failed Are :
- Solyndra raised $1.2 Billion
- Arrivo raised $1 Billion
- Jawbone raised $929.9 Million
- The Verge raised $305 Million
- Beepi raised $149 Million
- Juicerro raised $118.5 Million
- Yik Yak raised $73.5 Million
- Shyp raised $62.1 Million
- PepperTap raised $51.2 Million
- Doppler Labs raised $51.1 Million
And this is what I found. I will go in sequential order to the importance and the magnitude of the effect it has
Reason:
“Startup is like a Marriage proposal it is best when it is well planned”
Imagine you are going to propose to someone or someone is planning to propose to you and the complete day goes as a disaster. Doesn’t makeup as a good story to tell your kids, does it?
In the same manner, before you even decide on the name of your startup you have to plan the next 2 years for your startup. You need to be crystal clear on the road map and everything in between. Of course, you won’t be accurate but at least you will be close and aware which will help you learn better.
What Happens?
Most Unicorn Startups do a lot of theoretical research which leads them to untested hopes and assumptions. The real test begins once you start your work, If these assumptions stand then it is a fairy tale story if they fail, which is the case in 90% of scenarios then you enter into serious trouble.
Solution:
As we prepare for our exams, we need to do the same preparation for our startup. MOCKUP TEST. Before you enter full-fledged into your Unicorn Startups try to do the same business as part-time or after office hours.
Practicality holds more importance than theory. You need to find a balance between both before you go ahead. Here are a few questions that these startups didn’t answer before starting:
- How to launch,
- Where to get the initial traction,
- How to convince your first client,
- How to deliver the service that you promised
- What is your operational cost,
- How much should you charge
- How much savings will you need? (Worst case scenarios)
“Money to startup is like petrol to a bike. It is not the most important thing but it is damn important.”
Improper Cost Calculation is by far the most common reason for all the failed Unicorn Startups around the globe. There are many founders who completely overlook the cost calculation matrix while the smarter ones highly under-calculate the expenses. In simple terms ‘Money = Business’, however, the reverse may not be true.
What happens?
In a startup, there are many more expenses than what meets the eye. Due to a lack of experience or guidance founders often miss many expenses which a startup inculcates. As a result, all the follow-up calculations prove to be ineffective and the startups end up missing the targets by a huge margin.
Solution:
Practically it is not possible to come up with a perfect number for your expenses as there are many variables and many other unexpected expenses. Hence the idea is to be as close as possible and unearth as many possible expenses as possible. Some of the most missed expenses are:
- Founder’s Salary, company’s salary, Employee’s Salary, and your profit are all separate entities,
- Employee Birthday celebrations, Festive celebrations, etc, are all your monthly costs,
- Meeting with clients
- Travel and food expenses
- Daily tea and coffee expenses
- Rent, electricity, Office cleaning, etc
“Expanding a startup is like a ball rolling downhill; It won’t take long before it runs out of control.”
Unless you keep a check on the ball you may soon lose control over it. Expanding is something that is always there in the TO-DO list of the founders. Every day they contribute some effort to make sure they are reaching out to new potential customers and expanding their reach.
What Happens?
While trying to expand we make a lot of decisions and the workload on everyone in the team increases which creates pressure. Each market and each customer is unique in itself and if the founder expands too rapidly, they have too many decisions and too much data to analyze in a very small time. Resulting in decisions made in haste and unplanned growth, which results in mismanagement and loss of many and quality of service. Eventually, the customers will take notice and stop using the company’s services/products. Hence showing a great initial response, followed by operations being shut down completely within months.
Solution:
Good management is a very crucial part of keeping any business successfully operational. To set up good management you need 3 things Right People for the Delegation of the task, Time to Absorb Market Trends, and a Pre Planned Road Map. Some of the executable strategies for rapid growth are:
- Minimizing surprise factors by studying the new market,
- Discovering the key roles and people capable to handle those roles,
- Breaking growth in measurable matrixes,
- Defining a process to keep track of the matrixes,
- Frequent communication and constant support to the team
- Last and probably the toughest, not being greedy, knowing when to slow down and say a NO.
Learn from Dominos and always deliver your “pizza” on time. Damn, I miss my Free Pizzas.
It might come to you as a surprise but about 74% of projects miss their deadlines across domains around the globe. Things are always easier said than done. In order to convert a lead or kick-start the project, the companies often agree to the demands of the clients without ensuring that the company will be able to meet the client’s expectations and deliver on time.
What Happens?
Each client is new and their demands vary in some form from one another. For one reason or another other Salespeople at times agree to things that may be out of scope or for lower prices. These decisions impact the product/services at the later stages which creates a hostile environment for the client and company both. Clients’ launch plans are now seriously affected and the company is now starting to deplete their profits and sometimes even inculcate losses. Possible reasons for such a scenario are the Unrealistic Sales target, lack of awareness/knowledge of the people closing the deals, and improper management.
Solution:
As a founder, you need to make sure a concrete process is put in place which ensures that appropriate features, costs, and timelines are being assigned to each product/service. There are quite a few ways to do so.
- Commit X days to the client and give a target of X-30% to your team for finishing the task.
- Discover your expenses and make a custom formula to calculate the project cost,
- Make dependencies for signing the contract so that at least 1 more person validates the deliverables and timeline.
- Clearly tell the client about the limitations and challenges
- Keep everything documented and signed,
- Setting realistic Targets, in case of failure try to understand the reason,
You can’t charge for copper and deliver gold
Most Unicorn Startups/companies struggle to charge the right price for services/products. No 2 startups/companies delivering the same service/products could have the same cost. Cost depends upon a lot of factors like City, location, management, process, team, etc.
However, clients have a habit of comparing your cost with the other vendors.
What Happens?
Clients compare your cost with other competitors and make you look bad for the rates you are charging. It can be tough to explain to them why you are charging them these higher/lower prices and the effort it takes to deliver the quality you offer.
Solution:
Clients generally don’t have a problem paying you good money if they are sure about your services and quality of work. So all you need to do is win their trust. The best example is Apple’s iPhone, everyone knows that if the manufacturing cost of an iPhone is $400 then it will be sold for $1200 in the market, yet customer stands in line and waits for days to get their hands on it.
- Prove your quality before taking client’s money, Free Demos
- Create a name in the market,
- Showcase your portfolio,
- Create processes to ease communication and tracking
- Keep transparency
- Not everyone can afford you so learn to let go,
- It is better to have 1 client at the right cost rather than 3 clients with under margins
Why do Unicorns Fail?
Unicorns, which are startups valued at over $1 billion, have been the darlings of the tech industry in recent years. But what happens when these unicorns fail? What causes them to go from being a successful startup to a failed one?
We’ll explore why some unicorn startups fail and what we can learn from their mistakes. We’ll look at some of the most famous unicorns that failed and analyze what went wrong.
Some of the most common reasons include poor market fit, lack of a sustainable business model, intense competition, inability to scale, and poor execution. Additionally, many unicorns are overvalued and rely heavily on fundraising and acquisitions for growth, making them vulnerable to economic downturns.
How Many Unicorns Failed?
It is difficult to say exactly how many unicorns have failed, as the definition of a “unicorn” can vary and the term is often used informally. Additionally, some companies that were once considered unicorns may no longer meet the criteria for being a unicorn but are still considered successful companies. That being said, it is estimated that a number of unicorns have failed or struggled in recent years, particularly during the COVID-19 pandemic, which has had a significant impact on the global economy and startup ecosystem. In 2020 and 2021, there have been several examples of unicorns that failed or struggled, such as WeWork, Juul, and Uber.
How can other startups learn from the failures of these unicorns?
Other startups can learn from the failures of unicorns by studying the mistakes and challenges that led to their downfall. They can identify potential risks and develop strategies to mitigate them. They can also learn from the failed unicorn’s approach to scaling, competition, leadership, and market adaptation, and develop their own strategies accordingly. Additionally, startups can seek out mentorship and guidance from successful entrepreneurs who have navigated similar challenges. By learning from the failures of unicorns, startups can increase their chances of success and avoid making the same mistakes.
What can be done to ensure that similar failures are prevented in the future?
There are several steps that can be taken to ensure that similar failures are prevented in the future:
- Conduct thorough market research: Startups should conduct extensive market research to understand the needs and preferences of their target customers, as well as the competitive landscape. This can help them identify potential risks and develop strategies to mitigate them.
- Develop a robust business model: Startups should develop a business model that is sustainable, scalable, and adaptable to changing market conditions. This can help them navigate challenges and capitalize on opportunities.
- Have a solid execution plan: Having a clear and detailed execution plan that outlines the steps to be taken to achieve the desired outcomes will help the startup to stay on track and avoid mistakes.
- Focus on the long-term vision: Startups should focus on the long-term vision and not just the short-term gains. This can help them to stay focused on the big picture and make strategic decisions that align with their goals.
- Seek out guidance and mentorship: Startups can benefit from seeking out guidance and mentorship from successful entrepreneurs who have navigated similar challenges. They can learn from their experiences and avoid making the same mistakes.
- Flexibility and adaptability: Being flexible and adaptable to market changes is key, startups should be able to pivot their strategy if needed and adapt their business model to changing market conditions.
- Strong leadership and management: Having strong leadership and management can help startups navigate challenges and make strategic decisions that align with their goals.
- Be aware of industry trends: Keeping an eye on industry trends can help startups anticipate market changes and adapt accordingly, avoiding being caught off guard by sudden shifts in the market.
Conclusion:
After studying the Rise and Fall of this startup it became evident that your products and your services are always the backbones of your company while other things like Resource Management and cost calculation are the supporting pillars.
Here are some of the most popular ways to estimate your cost and Finances
1) Create an excel sheet with the monthly cost for each employee,
2) Make a list of all the expenses and break it to monthly. Include salaries, tea, coffee, client meeting bills, office celebrations, everything.
3) Break down your service in working day (not Calendar),
4) Add markup to your base cost. (profit)
5) Profit, your salary, your company’s salary, and your employee’s salaries, they all are different don’t mix it up with your markup.
How to decide markup:
It depends on your experience and how well have you proved yourself in the market. Don’t be greedy. Don’t fill your personal bank from the company’s extra cash. This cash will help you sustain on bad days. Lastly, you won’t be perfect in the calculation but the aim is to be closest. Let’s increase the startup success rate.
If money is the only thing that makes startups successful then none of these Unicorn Startups would have shut down. Hence focus on your delivery and commitments. Happy clients are the real reason for success irrespective of being funded or otherwise.
I hope it helps, let’s improve the Unicorn Startups’ success rate together.
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Frequently Asked Questions
1) What are “unicorns” in the context of failed startups?
Unicorns refer to privately held startup companies that have reached a valuation of over $1 billion. In the context of failed startups, “unicorns that failed” are companies that, despite once being highly valued, ultimately faced significant challenges and ultimately did not achieve long-term success.
2) Why did these unicorns fail?
Unicorns can fail for various reasons. Some common factors include poor business models, mismanagement of funds, fierce competition, changing market conditions, legal or regulatory issues, lack of market demand, internal conflicts, and failure to adapt to evolving consumer needs.
3) Are failed unicorns exclusive to any particular industry?
No, failed unicorns can be found across various industries. They span sectors such as technology, e-commerce, finance, transportation, and more. Each industry has its own unique challenges and factors that contribute to the success or failure of startups.
4) Can you provide examples of well-known unicorns that failed?
Certainly! Some examples of well-known unicorns that failed include Juicero, Theranos, Jawbone, Quibi, and Fab.com. These companies were once highly valued and hyped but faced significant obstacles that led to their downfall.
5) What can we learn from these failed unicorns?
Failed unicorns provide valuable lessons for entrepreneurs and investors. They emphasize the importance of sustainable business models, proper market research, effective leadership, and adaptable strategies. Understanding the reasons behind their failures can help entrepreneurs make better-informed decisions and investors identify potential risks.
6) Can failed unicorns ever make a comeback?
While it is rare, failed unicorns can potentially make a comeback. In some cases, failed companies have been acquired and restructured, allowing them to re-enter the market successfully. However, the chances of revival are relatively low, and it requires a significant shift in strategy, leadership, and market conditions.
7) What impact do failed unicorns have on the startup ecosystem?
Failed unicorns can impact the startup ecosystem in several ways. They may lead to decreased investor confidence, especially in similar companies or industries. However, failures also provide valuable lessons and insights, contributing to the overall learning and growth of the ecosystem.
8) How can entrepreneurs avoid the fate of failed unicorns?
Entrepreneurs can increase their chances of success by conducting thorough market research, validating their business ideas, building a strong and experienced team, seeking mentorship, being adaptable to changing circumstances, managing funds prudently, and staying focused on long-term sustainability rather than short-term hype.
9) Is the concept of unicorns still relevant despite failures?
Yes, the concept of unicorns as highly valued startups is still relevant. While some unicorns fail, many others have achieved tremendous success and become significant players in the business world. Failed unicorns should be seen as cautionary tales rather than an indication that the concept itself is flawed.
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