Why Start Ups Fail – Overestimating the Product Delivery
Whenever a new start up fails, there is an obvious post-mortem that is essayed by the community around it. It is said that nine out of ten start ups end up failing. A failure post-mortem reveals the issues that led to the failure of any start-up. According to a poll by CB Insights – a tech market intelligence platform, 42% of the start-ups believed that inability of a start-up to deliver a great product according to the market needs, is an important reason behind the failure of many start-ups.
This sounds simple enough that if the product is not at par with expectations, or simply, if the product isn’t good enough, it would not succeed. However, many investors and entrepreneurs believe that even when a potential customer is not likely to buy a product, there is a latent need in him and that they will convince the customer to buy the product eventually. Investors generally overlook the entrepreneur’s ability to deliver the product, and only focus on sales, market fit, valuation etc.
However, not every market is as large as mobile phone market that can arguably accommodate “average” products, with some marketing and at the right (low) price point. In its early days, when the mobile phones were dismissed as a novelty, Steve Jobs famously commented that a lot of people do not know what they want until they are shown. However, not every company is Apple, but many entrepreneurs and investors have made his words their mantra.
Not only entrepreneurs, even investors sometimes end up under estimating the value that a product will provide to the end customers. Or even when they know that the promised product delivery is difficult to provide, they still tend to focus on other business parameters like bringing together the core team and strengthening the business model, instead of focusing on the progress being made in the core product offering. In fact, several start-up investments are committed without a thorough evaluation of the product delivery capabilities.
Product delivery is a crucial element in the jigsaw of any start-up’s success. Undermining of this element by the investors or the entrepreneurs can prove to have disastrous consequences. It has to be remembered that product delivery is the result of an amazing idea put to excellent execution for the right customer at the right time. These are too many balls up in the air, some may argue, but the difference between the fledgling start-up and a successful one is the amalgamation of several elements done right.
A striking example of product delivery gone wrong is Juicero. In 2013, Juicero aimed at delivering juicing perfection to their customers through their $699 wi-fi connected juicer that required proprietary juice packs. The founder, Doug Evans compared himself to Steve Jobs and called his product – a Keurig (a high-end coffee brewer) for juice. While Juicero tried to convince the public that it was more than a simple juicer, they disagreed. Soon after, Bloomberg released a video of how their juice packs could be squeezed by hand faster than the machine could squeeze them, the consumers were convinced of Juicero as a useless product. Investors quipped that the machine was in fact bulkier than the original plan. Responding to the negative news, the price of the machine was cut down to $399. It was a pointless exercise as Juicero shut shop sixteen months post launch. The aftermath of poor product proposition and untested pricing led to Juicero’s demise.
In 1996, at the beginning of internet, Ask Jeeves was the first of its kind natural language search engines. Curious readers could ask long format questions and find answers. It has a variant called AJKids which was a safe search engine for kids. It was subsequently purchased in 2005 and its name changed to Ask. In 2007, the site was declared a failure. Clearly, the product failed to meet market needs of that era as Quora.com, a website based on question and answering format is hugely popular and successful.
Product delivery is a function of what you are selling and to whom. No business can scale without good underlying products. Failure to meet that requirement leads to an inadvertent failure. It is crucial to building a winning team and have a strong and sustainable business model. However, all these crucial elements ride on the strength of the product proposition and its steadfast delivery within the right product-market fit. By focusing on all the elements start-ups can gain the necessary edge to sustain in a competitive market.