Mistakes and Solutions: 5 Lessons From 10 Failed Unicorn Startups

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 :

1. Solyndra raised $1.2 Billion
2. Arrivo raised $1 Billion
3. Jawbone raised $929.9 Million
4. The Verge raised $305 Million
5. Beepi raised $149 Million
6. Juicerro raised $118.5 Million
7. Yik Yak raised $73.5 Million
8. Shyp raised $62.1 Million
9. PepperTap raised $51.2 Million
10. 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:

1. How to launch,
2. Where to get the initial traction,
3. How to convince your first client,
4. How to deliver the service that you promised
5. What is your operational cost,
6. How much should you charge
7. 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:

1. Founder’s Salary, company’s salary, Employee’s Salary, and your profit are all separate entities,
2. Employee Birthday celebrations, Festive celebrations, etc, are all your monthly costs,
3. Meeting with clients
4. Travel and food expenses
5. Daily tea and coffee expenses
6. 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:

1. Minimizing surprise factors by studying the new market,
2. Discovering the key roles and people capable to handle those roles,
3. Breaking growth in measurable matrixes,
4. Defining a process to keep track of the matrixes,
5. Frequent communication and constant support to the team
6. 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.

1. Commit X days to the client and give a target of X-30% to your team for finishing the task.
2. Discover your expenses and make a custom formula to calculate the project cost,
3. Make dependencies for signing the contract so that at least 1 more person validates the deliverables and timeline.
4. Clearly tell the client about the limitations and challenges
5. Keep everything documented and signed,
6. 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.

1. Prove your quality before taking client’s money, Free Demos
2. Create a name in the market,
3. Showcase your portfolio,
4. Create processes to ease communication and tracking
5. Keep transparency
6. Not everyone can afford you so learn to let go,
7. 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.

The Psychology of Failed Startup Investments

Investing in startups can be an exhilarating endeavor, offering the promise of substantial returns and the thrill of being part of the next big thing. However, for every success story, there are numerous tales of failed startup investments that haunt investors and leave them questioning their choices. The psychology behind these failed investments is a complex interplay of emotions, biases, and decision-making processes. In this blog, we’ll delve into the intricate world of startup investments and explore the psychological factors that can lead to disappointment.

• Overconfidence Bias

One of the most common psychological pitfalls in startup investing is overconfidence bias. Investors often overestimate their ability to predict which startups will succeed and which will fail. This bias can lead to rash decisions based on gut feelings rather than solid analysis. Overconfident investors may disregard warning signs or due diligence, believing that they possess a unique insight that others lack.

To avoid falling into this trap, it’s crucial to acknowledge the limits of your knowledge and expertise. Seek advice from experts, conduct thorough research, and remain open to the possibility of being wrong.

• Fear of Missing Out (FOMO)

The fear of missing out is another potent psychological factor that can influence startup investments. FOMO can drive investors to hastily jump into opportunities without proper evaluation, especially if they perceive others benefiting from the investment. This rush can result in investing in startups with weak fundamentals or unrealistic growth expectations.

To counter FOMO, it’s essential to maintain a disciplined approach to investment. Carefully assess each opportunity, consider your investment goals, and resist the urge to follow the crowd blindly.

• Anchoring Bias

Anchoring bias occurs when investors fixate on a particular piece of information, such as the initial valuation or the success of a startup’s early stages. This fixation can cause investors to make decisions based on outdated or irrelevant data, ignoring critical developments that may indicate a change in the startup’s prospects.

To combat anchoring bias, stay updated on your investments and be willing to adjust your expectations and strategies as new information emerges. Don’t let initial valuations or early successes cloud your judgment.

• Loss Aversion

Loss aversion is the tendency to feel the pain of losses more intensely than the pleasure of gains. When a startup investment starts to underperform or show signs of failure, investors may cling to hope, unwilling to accept the loss and sell their shares. This behavior can lead to further financial losses as the startup’s value continues to decline.

To overcome loss aversion, establish clear exit strategies and stick to them. Accept that not all investments will be winners, and cutting your losses when necessary is a crucial part of smart investing.

• Confirmation Bias

Confirmation bias occurs when investors seek out information that confirms their preexisting beliefs while ignoring or dismissing information that contradicts them. In the context of startup investments, this can lead to investors downplaying red flags or only seeking out positive news and ignoring warning signs.

To counter confirmation bias, actively seek out diverse sources of information, including critical opinions and data that challenge your assumptions. Encourage healthy skepticism and a willingness to reevaluate your investment thesis.

Impact of Failed Unicorns on the Tech Industry

When a unicorn fails, it sends shockwaves throughout the tech industry, reminiscent of the bursting of the dot-com bubble in the early 2000s. Failed unicorns often serve as harbingers of market corrections, reminding investors and entrepreneurs that not every idea can achieve stratospheric success. This sobering reality check encourages a more cautious approach to investment and business strategies.

• Investor Caution

One of the immediate consequences of a failed unicorn is a heightened sense of caution among investors. They become more discerning, scrutinizing startups’ business models, growth projections, and potential risks more closely. This caution can lead to a slowdown in funding, making it harder for even promising startups to secure the capital they need to grow.

• Regulatory Scrutiny

Failed unicorns often attract regulatory attention, especially if their demise involves issues of financial mismanagement, data privacy violations, or unethical practices. This scrutiny can lead to stricter regulations within the tech industry, impacting everything from data handling to mergers and acquisitions.

• Talent Migration

The collapse of a unicorn can result in the dispersion of talent. Employees, often disillusioned by the experience, may leave to join more stable companies or even launch their startups. This talent migration can have far-reaching effects, as the loss of skilled workers can hinder innovation and growth within the tech industry.

Strategies for Investing in Failed Startups

Investing in startups can be a lucrative venture, but it’s not without its risks. Many startups fail within the first few years of operation, leaving investors with losses. However, for savvy investors, there can be hidden opportunities even in failure. In this blog post, we’ll explore strategies for investing in failed startups and how to turn setbacks into successful investments.

• Conduct Thorough Due Diligence

Before considering an investment in a failed startup, it’s crucial to conduct thorough due diligence. This process involves researching the startup’s history, reasons for failure, financial statements, and market analysis. Understanding why the startup failed is essential to avoid repeating the same mistakes.

• Assess Intellectual Property and Assets

Failed startups may possess valuable intellectual property (IP), patents, trademarks, or technology assets that can be repurposed or sold. Investigate whether these assets can be leveraged in other industries or if they hold value for other companies looking to acquire them.

• Evaluate the Team

Sometimes a startup’s failure isn’t due to a lack of talent but rather external factors or mismanagement. Consider whether the team has valuable skills or experience that can be redirected towards a more promising venture. You might find that the team is worth investing in for a different project.

• Explore Pivot Opportunities

A failed startup may have had a strong concept or product that didn’t resonate with its target audience. Analyze if there are opportunities to pivot the business model, rebrand, or target a different market segment. A fresh perspective can sometimes turn a failed startup into a success.

• Negotiate Favorable Terms

Since failed startups often face financial difficulties, investors can negotiate favorable terms when acquiring equity or assets. Bargain for a significant ownership stake, preferential liquidation rights, or other protective measures to minimize risks and maximize potential returns.

• Provide Strategic Guidance

Investors who actively participate in turning around a failed startup can offer strategic guidance and mentorship to the existing team. Your industry knowledge and connections may help the startup navigate challenges more effectively.

• Seek Co-Investors or Partnerships

Consider partnering with other investors or established companies who see potential in the failed startup. Co-investing or forming strategic partnerships can provide additional resources, expertise, and support needed for a successful turnaround.

• Diversify Your Portfolio

Investing in failed startups should be a part of a diversified investment portfolio. Diversification helps spread risk and ensures that potential losses in one venture can be balanced by gains in others.

• Patience and Long-Term Vision

Turning around a failed startup can be a time-consuming process. Be prepared for setbacks and understand that it may take years before you see a return on your investment. Patience and a long-term vision are key to success in this endeavor.

• Learn from Mistakes

Lastly, investing in failed startups is a learning experience. Analyze what went wrong and apply those lessons to future investments. Mistakes can be valuable if they lead to better decision-making and improved investment strategies.

Investing in failed startups is not for the faint of heart, but with the right strategies and a discerning eye, it can yield substantial rewards.

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. Strong leadership and management: Having strong leadership and management can help startups navigate challenges and make strategic decisions that align with their goals.
8. 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.

How Top 5 Successful Startups Found Their First 10000 customers

The aim of sharing these stories/growth hacks is to help you realize that no one is an exception to the journey of startups. Even these, today’s world, behemoths have once struggled to tractions and a steady customer base on their platforms. Even if they have faced the problems that you are or might face in the future. However, what differs is how they choose to fight against the odds.

It may be tough to imagine that these startups could ever face such a crisis. But they did and they still do. The challenge of having more and more active customers on the platform never fades away. When you are at 1,000, you want to reach 100,000. When you are at 100,000 you want to reach 10 million and then you want everyone on board. Once you have everyone then you want to find new ways to get them more and more engaged.

5 Biggest Startups WorldWide

1. Facebook:

Facebook is arguably the biggest social media platform that there is on the internet today. Before the launch of “Facebook”, Mark had already made a name with “FaceMash” so instead of “Facebook”. We will see how FaceMash got its first users. However, Facebook only made use of some word-of-mouth publicity and email campaign to gain its first users since the platform was already set.

*FaceMash

FaceMash started as a “Hot or Not Game” for Harvard students. Since the game was already popular it did not require any explanation. Mark first gathered the data of all the students from the existing Harvard Site which had a student database. Then he showed it to his friends and took them to a bigger gathering. The link quickly started circulating to several campus groups in a closed network. It was a matter of time before students from other colleges wanted to try it. Although FaceMash got shut down pretty soon. Mark had already created trust, credibility, and brand image. Since it was a closed group Facebook got full advantage of the platform set by FaceMash.

2. Alibaba:

An e-Commerce startup giant, its recent Single’s Day sale, signature annual sale, broke all records to report a rise of 27% y-o-y growth to revenue of $31 Billion. Unlike Mark, Jack Ma was a complete failure without any strong background. But he was a fighter and an ambitious man, nonetheless.
After the launch, Jack Ma hired an army of sales executives and sent them to every Manufacturer in China. Given that China is the world’s Largest Manufacturing Country you can imagine the scale and brute force required. Manufacturers were not internet friendly at that time. Hence Jack had to really motivate the salespeople to first believe in the idea and second convince manufacturers about the impact Alibaba can make.
Salespeople showed manufacturers different ways in which the platform could be used. And how it could grow their business multi-fold. Once Manufacturers started using the platform they even became its customers.

3. Uber:

One of the most valued startups of the era, the ride-hailing app Uber, had not just 1 but 2 smart strategies. The first strategy was applied in 2013 when bus workers in Boston went on strike. Uber offered free service to the stranded kids of Boston Public School for which it got massive publicity and word of mouth, and the bookings shot overnight. More than offering free-ride the thing to note is the cause and timing.
Second, a brilliant move was a simple campaign, on National Cat Day. Uber delivered Kittens to its customers who would agree to a 15-minute Kitten petting session. The cause was focused to raise money for kitten shelters and it raised $14,268 in a single day. The campaign was a massive success. It enticed customers to try Uber services.

4. Airbnb:

Airbnb today may be very popular and widespread but just think about it. A concept where the website let’s owner rent their rooms/houses to “strangers”. How tough would it be for people to accept that and how long would it take to become comfortable with the concept? No one likes to share their personal space and we are talking about space in their own house. And yet Airbnb cracked it brilliantly.
The founders went door to door to every person who showed interest and used professional photographers to take pictures of the property. They even stayed at the guest’s houses to make them understand the concept and become comfortable with the same. Instead of doing a bulk user acquisition they focused on a handful of people and made sure that they get the best experience.

*Airbnb chooses good targets as well,

like New York at the time on DNC, it hosted parties and meetups in the Spring Break and Christmas to build trust and loyalty. They knew that if they could convince a few then a spree of word of mouth would start. Which would be organic and at 0 costs. And it did work out to be that way for them.

5. Tinder:

Tinder’s growth hack is something that is the most fascinating to me. It went from 5,000 users to 15,000 users in just 1 trip. It is not the numbers that amaze me but the way Whitney Wolfe, the co-founder, came up with this strategy and it’s execution. She was bang on in identifying her target audience and the places to find and interact with them.

*Target Audiences

The obvious target audiences were college-going students and the most common place to find students were parties. Hence Whitney organized Parties at different places on the campus with 1 simple rule everyone has to download Tinder and use it once. Now, this idea would have been a complete flop. But Whitney knew that in order to attract users she needed attractive girls and boys. Before throwing a party Whitney would go to Sororities to convince girls to create a profile. And then to fraternities to create a buzz about the app and then the parties, acting as the container for the explosion. Where things got into action. The idea was phenomenal and the result was a hockey stick growth.

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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