Startup Failure Unconvention
28 July 2014

Greatest Startup Failure of All Time

Unconvention 2014 is all about how to embrace failure on your way to the success!  One of the sessions will be “Why startups fail”! Make sure you register!

“We tend to fawn over the few billion dollar exits and hear little of the failures. As a result, there is less data out there about startup death”. The quote isn’t ours. It comes from a report by analytics firm CB Insights titled “The RIP Report – Startup Death Trends”. After collecting data of startup failure they shared their insights.

“Companies typically die around ~20 months after their last financing round and after having raised $1.3 million”, continues the report. Although some founders anonimously confess anxiety – “My biggest mistake was trying to be an entrepreneur when I should have continued on with my current job”, quotes The Guardian – it has also become increasingly popular in the last couple of years among startup founders to share mistakes and metrics once the project shuts down.

That’s why, following their RIP Report, CB Insights was able to list 76 startup post-mortems (the kind of philosophical term in which Silicon Valley culture describes the closure of a company). As the culture of embracing failure spreads over the Valley technology hub and, to some extent, the european ones, there is more literature about closed companies and more to learn on that.

In a world that celebrates success, what about those 9 out of 10 companies that, according to most estimates, fail? Today we are looking at one company that had everything to succeed, but did not. It even teach us another lesson: you can succeed one time, then fail another and then repeat success. It is the case of one of our most well known entrepreneurs in Europe, of who we have talked before here: Skype’s founder Niklas Zennström.

Joost was an internet TV service launched in 2007 that had everything to succeed. After making millions when Skype was acquired by eBay, its founders started coding something called The Venice Project which was later re-named as Joost: they intended to be a P2P video platform combining the TV experience with the web one. The project shut down in 2012.

They had everything.Known founders, proven technology, pure buzz!, famous partners – they started working with content providers such as Viacom, CBS, Warner Music… – and a lot of money, because Joost raised $45 million in funding. What happened? Om Malik, writer at Gigaom, examined the failure of a company he had been following since the starting point.

  • Joost did not behave like a startup. In other words, they grew too big too fast, hiring a lot of people from the beggining and opening headquarters in various locations (NYC, London, Leiden, in The Netherlands, and Toulouse, in France). If startups succeed, it is normally because they start little, focusing in solving one concrete problem, a pain for a group of people in which they specialize and become the best.
  • Loss of focus? The company was based in various countries, as mentioned, and approached different markets – US, Western Europe, China and a “few other” Asian markets. Global market ambitions can have, at the beginning of a company, the same downsides of this “world-revolutionary-products” that some startups think they have. “Don’t try to save the world on your first day”, an entrepreneur told us once. “Focus on what you do better and understand pretty well your early adopters”.
  • Trusting on viral.Joost founders came from succesful products – Skype and Kazaa – and that generated a lot of buzz before releasing. Not only in press and coverage: also in sign-ups. Almost 250.000 people signed up for the beta version. But then there were technology problems, so the buzz… was killed. According to Gigaom, there were also some other “basic” mistakes like not having a SEO strategy in favour of a viral growth.
  • Competition and context. Founder Zennström has recognized that Joost was not “timed correctly”. It was born as a client, not as a web browser service, and realized later that the customer did not want another download but to go to the web (like you go to Youtube). At that time a similar product called Hulu started working as browser-based video service and became much more popular, which led content owners to publish there. If they had focus and listened to their early adopters (and they had a lot!) they would have understand this.

According to Zennström, the product was needed, but “the players that needed to make it work weren’t interested.  They could never get the distributors to commit to letting Joost have the rights to the big content because they didn’t want to create a third party within video distribution. Additionally, bandwidth costs plummeted which made the P2P aspect of Joost less significant”.

Joost shut down in 2012. Zennström has recognized failure and written a post-mortem analysis on it, due to appear in the book When Founders Fail. He now runs the technology investment firm Atomico and he still embraces the culture of failure as a part of the startup process. As he told in this interview in TechCrunch Disrupt, in which he spoke on his career as an entrepreneur, “sometimes things happen overnight and sometimes it takes 10 years for that overnight success to happen”.