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Brian
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Learning From the Mistakes of Others. Five Biggest Startup Failures of 2020

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As they say, it's a poor soldier that never wants to become a general. Many professional software developers see themselves founding a tech startup one day that will become a big success, making them rich and powerful. For those in software development who are entrepreneurial by nature, starting a company of their own often is the next logical step after a number of years of working for someone else. So you could say that many people in the tech industry share a somewhat romanticized take on startups. And it is not entirely wrong as startup culture can be very beneficial to overall technological and business development of the industry. Learning From the Mistakes of Others. Five Biggest Startup Failures of 2020 - 1

90% of all startups fail

But praising from-zero-to-hero market success stories of startups such as Uber, AirBnb, Instagram, and other now well-known brands, we tend to forget that general business statistics doesn’t really change with the development of the tech industry, and it says that 90% of all startups always fail. The statistics also tell us that only 80% of small businesses will survive their first year in business, and only 70% will survive the second year in business. In the case of startups, 10% of them fail within the first year, while 70% fail during the years two through five of being in the business. The most common reasons startups fail are misreading market demand, running out of funding, having a weak founding team and being beat by competition. So it’s safe to say that founding your own startup is as risky as it is exciting.

Startup failures

This is why today we decided to look at some of the most remarkable startup failures of the last couple of years. To give you a chance to learn from their mistakes and by doing that, maximize your chances to score as a successful tech startup founder. And also because it is always fun to talk about mistakes someone else has made.

1. Quibi

The amount of funding burnt through: $1.75 billion Quibi was a short-form subscription-based video streaming platform focused on content for smartphone users. Founded in Los Angeles in 2018 by Jeffrey Katzenberg, former Disney chairman and co-founder of Dreamworks Animation studio, Quibi launched its platform in April 2020. With experienced founders and “genius” business idea of rocketing on short-form content trend, formed by TikTok and Instagram, Quibi managed to score a whopping $1.75 billion from a large pool of investors, many of which were major Hollywood studios. This made Quibi’s failure especially spectacular as the service was shut down for good on December 1, 2020, just over six months after its launch. It took Quibi just about a year to burn through $1.75 billion of investments, which makes this startup flop one of the biggest in recent history. The reason for failure? It has to be misreading market demand as Quibi’s format, offering content in 10-minute bursts, was confusing, while the quality of the content they had to offer didn't impress. The rate of burning through the tremendous amount of investors’ funding also might have something to do with it.

2. Magic Leap

The amount of funding burnt through: $2.6 billion Magic Leap is a startup that has been riding on the VR/AR trend, promising to develop a lightweight, head-mounted AR display device that would show us the real power of augmented reality glasses. With such promises, the startup managed to secure overwhelming $2.6 billion in funding. Even though the company managed to release the Magic Leap One headset in 2018, the device was not a market success as the total number of sold headsets was just over 6,000. The main reasons for the market failure were: flaws in the device such as bad field of view, poor selection of available apps, and huge price of the headset, sold at $2,295 Even though Magic Leap is not dead yet, and even managed to secure additional $350 million of funding in 2020, many experts expect it to be the next big tech startup flop in the near future when Magic Leap will run out of credit in the eyes of investors.

3. Essential Products

The amount of funding burnt through: $330 million Essential is another big tech startup that was shut down in 2020, failing to find its market and customers. Founded in 2016 by Andy Rubin, one of the creators of Google’s mobile OS Android, Essential promised to deliver a smartphone that will push Apple’s iPhone and Samsung’s devices aside and conquer a considerable chunk of this market. This was good enough for investors to give Essential a total of $330 mln in just two rounds of funding, making this startup a unicorn before it even released its first product. The product, Essential Phone, was indeed released in 2017, but failed to impress and received mixed reviews, with users and professional reviewers criticizing it for camera issues and reliance on clip-on peripherals. Following that initial release, the company failed to deliver other products it was claiming to develop, including the Essential Phone of second generation (dubbed Project Gem), a new mobile operating system, and a number of accessories for the Essential Phone. In February 2020 the startup finally announced its shutting down all operations, citing the lack of “clear path to deliver Project Gem to customers” as the reason.

4. Brandless

The amount of funding burnt through: $240 million Brandless was an eCommerce startup with a business model wrapped around producing and selling various kinds of products, such as personal care and child care goods, household appliances, pet products, etc., directly to consumers. They were all meant to be a cheap and accessible alternative to branded products sold in online stores and supermarkets, with each Brandless item, at least at the beginning, sold at a fixed $3 price. The company was founded in 2016 and raised $240 million in funding from a number of investors, including SoftBank Vision Fund, Google Ventures, and other big VC firms. According to reports, one of the reasons the startup failed was SoftBank who as one of the main investors was putting a lot of pressure on the company to achieve profitability as fast as possible. It never happened though. After a series of layoffs, Brandless finally announced it’s shutting down most of its operations in February 2020.

5. Atrium LTS

The amount of funding burnt through: $75.5 million Atrium LTS was another overambitious tech startup aiming to disrupt the industry. This time, the goal was to revolutionize the way legal firms work by offering digital law firm services to other tech startups and businesses on a subscription basis. Atrium was founded in 2017 by Justin Kan, one of the founders of Twitch platform, and raised $75.5 million in investments. At first, the company had a number of in-house lawyers to provide free consultations to clients, but eventually (upon realizing full-time lawyers are too expensive) attempted to give up that idea and pivoted to being a strictly SaaS startup with a set of machine learning-based tools and applications designed to help companies digitize and automate their legal work. In March 2020, Justin Kan announced Atrium is shutting its operations down, citing multiple reasons such as hard to maintain revenue model (subscription-based instead of hourly fees like traditional law firms do) and inability to establish fruitful relationships with clients who were reluctant to abandon the traditional approach to legal work.
What else to read:
Learning From the Mistakes of Others. Five Biggest Startup Failures of 2020 - 2
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