Poor business or product strategy can affect all types of companies. It's not just limited to starry-eyed startups, nor are tried-and-true brands safe from it. The reality is that, across all industries, somewhere between 25 and 45 percent of products fail. Of course, it’s tough for business leaders to foresee every snag their company might encounter. While hindsight is 20/20, some of these missteps may have been avoidable. Here are eight instances where some very well-funded products were forced to shutter.
Poor user retention strategy
At first, it looked like Homejoy had struck gold. It raised $40 million, which it used to place ads on discount sites like Groupon and LivingSocial. While Homejoy’s strategy helped it expand into new cities and snap up thousands of initial users, it also meant 75% of customers booked introductory services at bargain rates. Then, once the discounts dried up, Homejoy’s customers cleared out, unwilling or unable to pay the company’s standard rates.
To avoid Homejoy’s snafu, create a customer retention plan for your product that isn’t reliant on top-heavy discounts and incentives. Instead, use rapid prototyping to identify which aspects of your product will keep customers coming back for more.
Being the first but not the favorite
Although Uber and Lyft now dominate the space, Sidecar introduced many of the innovations of ridesharing to the market, including shared rides, driver directions, and upfront pricing. Ultimately, these didn’t help Sidecar stand out amongst competitors Uber and Lyft. The clash became a race to the lowest prices, which doomed Sidecar, the least funded of the three. While Uber burned through capital to stay afloat, Sidecar slashed driver payouts to make ends meet. This made it bleed drivers, who were key to its business model.
Sidecar is a great reminder of the power of differentiation. Uber targeted high-end riders, while Lyft advertised its affordable, friendly service. If Sidecar had differentiated its service, perhaps by pivoting to deliveries earlier, it may have had a chance to cut into Uber’s and Lyft’s profits.
Putting profitability before user acquisition
Rdio was the first modern music streaming service in the US, but its business model made listeners tune out: It was subscription-only. When Spotify launched in the US a year later, it attracted users with an ad-supported service that didn’t require subscriptions. Many of Spotify’s listeners later converted to paid subscribers. Although Rdio eventually offered ad-supported listening, it was too late to upend the competition.
For funded companies, it's more important to consider how your product will acquire and retain users. Only once you've demonstrated solid growth and user retention should you start thinking about sustainability. For Rdio, this would have meant building an ad-supported product to secure more users earlier, ensuring users wouldn't jump ship when Spotify came around.
Poor resource management in an expensive industry
The music industry is a behemoth. While established players like Apple can afford streaming deals with record labels, many streaming startups can’t. Before the Turnable.fm adventure was over, founder Billy Chasen had spent a quarter of the startup’s cash on lawyers, artist royalties, and supporting services. Chasen spent years chasing streaming deals with record labels — time which could have been spent improving the product and acquiring more users.
Turntable.fm underestimated just how badly licensing fees would cut into its resources. The music service should have spent its dollars on marketing initiatives; more users would have given it greater clout to secure the record deals it sought.
Launching a social product without any users
Color hoped to reinvent social interaction when it splashed onto the scene in 2011. But there was one problem: it didn’t have any users. People quickly ditched the app after they realized nobody else around them was using it.
For social products, it makes sense to expand in segments. Consider how Facebook opened its service to one university at a time, slowly building hype along the way. That’s your social product’s ticket to a thriving community.
Waiting too long to release a product
Created by four New York University students, this social network sought to change how people shared their content online. It had a good chance to do so: Diaspora offered a promising alternative for users concerned with Facebook’s privacy policies. But even after beating crowdfunding targets twentyfold, Diaspora let its momentum fade. Prior to Diaspora’s delayed launch, Facebook had fixed its privacy issues and competitor Google+ had arrived.
Diaspora was fighting an uphill battle from the start against social giant Facebook, but it might have stood a better chance if it had been released sooner. Remember, build a minimum lovable product to get it to market sooner, and then release iterations to improve a product users love.
Anonymous social networks without moderation
Secret, which raised $35 million in a year, was an app that let users share anonymous posts with friends and friends of friends. But Secret lacked strong moderation, and was quickly flooded with erroneous and incendiary content. People opened the app to find inflammatory comments about people they knew, and without a respectful community Secret struggled to maintain users.
The concept of Secret is still alive in Yik Yak, a competing anonymous social app. Yik Yak went to great lengths to remove offensive content by banning middle and high schools all across the US. While it did remove 70% of its userbase overnight, it was able to clean up its reputation and secure another $61 million in funding. So what's the secret to building a successful anonymous social network? Adequate moderation so the community can learn what type of behavior is appropriate for the service.
Focusing on an unprofitable market
Dropbox previously had two consumer apps, Mailbox and Carousel, that were separate from their primary file storage service. These products were designed to better manage email and photo collections. While the products may have been beautiful, they certainly weren’t profitable. In the meantime, Microsoft targeted enterprise companies with their own cloud storage solution and stole a profitable slice of the market from beneath Dropbox’s feet.
In hindsight, Dropbox should have monetized the service for enterprise clients while continuing to service everyday consumers. Google does a great job of this - it operates YouTube, Gmail, and Google Maps, which don’t make money on their own. Rather, they all drive users further into Google’s highly-profitable, ad-based ecosystem. In short, go where the money is.
Failed products can mean millions of dollars down the drain. Yeti's product design team can sniff out these problems and more prior to launch, ensuring your product the greatest chance of success.
Image credit Lifehacker, Mashable, Fastcompany, Slashgear, Chantal Souaid