There’s a thin – and I mean, very thin – line between unprecedented success and unanticipated failure. One misstep, one wrong move, can make your business go down as a legend in history books as one of the greatest booms or busts in the world of business.
We’ve seen this happen, time and time again, in the startup space. Ventures that once shone brightly as unicorns, captivating the world with revolutionary ideas and sky-high valuations, only to fall down – and sometimes even get back up again. This article isn’t meant to scare you. It’s a mere acknowledgment of reality when a brand overlooks the importance of strategy, transparency, and financial management.
Even the most mythical creatures (in this case, companies) aren’t immune to stumbling.
WeWork: Workspace Revolution to Financial Disaster
The WeWork saga is perhaps the most prominent example of a startup’s meteoric rise and dramatic fall in recent memory.
WeWork began as a promising company that reinvented the concept of an office space – one that’s community-based and flexible – capturing the imagination of investors, freelancers, and global corporations. However, the dream swiftly soured as corporate mismanagement and financial missteps came to light.
The company’s high burn rate, coupled with its eccentric and, at times, reckless leadership, sent alarm bells ringing. The financial documents released ahead of its planned initial public offering (IPO) in 2019 revealed a disastrous financial situation: burgeoning losses and an unsustainable business model. This led to a dramatic decrease in WeWork’s valuation, and eventually, the IPO was withdrawn.
There’s also a lesson here about the value of hype and storytelling in startup culture. WeWork was an incredible storyteller, crafting a compelling narrative of transformation and revolution in the office space market. This narrative secured the brand billions in investment.
But at the same time, while the company had its unchecked ambitions, this fiasco also serves as a poignant reminder for venture capitalists and other stakeholders to be rigorous in their due diligence processes.
Theranos: The Darling of Silicon Valley
This is the perfect case study about over-promising and under-delivering. Founded by Elizabeth Holmes, Theranos promised to revolutionize the medical industry with a device that could run comprehensive tests from just a few drops of blood.
Imagine that – with just one injection, you can find out which diseases you have and could possibly have in the future.
This value proposition was unprecedented. No wonder the company was able to attract massive investments, pushing its valuation to a staggering $9 billion at its peak.
However, behind this compelling facade was a dysfunctional reality. It was all a lie.
The company’s proprietary technology was fundamentally flawed and didn’t work anywhere near as advertised. It could not detect the vast majority of diseases from just a few drops of blood as promised.
This was kept secret through a culture of fear and intimidation, with employees threatened with lawsuits if they spoke out. When the truth was finally exposed, the company crumbled and the once-respected unicorn became a symbol of corporate deception and fraud.
While a closed-curtain culture is obviously a red flag, there’s another lesson to be learned about being the founder of a company: You have to have an undeniable charm. Elizabeth Holmes was dubbed as the darling of Silicon Valley – not to mention her obsession with imitating Steve Jobs. Her aura and ambitious vision distracted many investors from performing the necessary checks on the company’s claims.
Related article: Always keep the purpose of your innovation in mind
Pets.com: The Icon of the Dot-com Bubble
Founded in 1998, Pets.com was one of many e-commerce businesses that found success during the height of the dot-com era. Its business model was simple: Sell pet supplies directly to consumers via the internet. You may even remember its one-of-a-kind sock puppet mascot.
But, as it turned out, the company’s fundamentals were unsound. The company was selling products at a loss. They had high hopes – and understandably so – that they would eventually achieve profitability by scaling. The thing is, if there’s anything I’ve learned from my business classes, it’s that blind faith isn’t the most sustainable business model.
In the case of Pets.com, customer acquisition costs were high; customer retention was low; shipping costs eroded the company’s margins. After a disastrous IPO in early 2000, the company collapsed by the end of the year.
Pets.com’s rapid rise and fall is a cautionary tale about the over-reliance on venture capital funding. While capital can help fuel growth, it can also create unrealistic expectations and pressure to grow at unsustainable rates. Venture capital is a tool. It should never be your end-all, be-all solution. It shouldn’t even be a bandaid to a flawed business model.
Juicero: Hype Fuel and Valuation Inflation
Where do I even start with Juicero? How this brand was once the toast of Silicon Valley still leaves me dumbfounded.
So one of the pain points of health-conscious consumers is having to squeeze pulpy citrus with their bare hands every morning to make their fruit juice.
Enter Juicero. The company’s flagship product was a $400 WiFI-enabled juicer – which sold for $700 at launch – that could deliver fresh fruit juice with a mere push of a button (akin to the coffee pods you put in a machine).
In terms of marketing, it seemed like they took a page out of every marketing playbook, and successfully advertised their “farm to glass” subscription service. Say goodbye to the hassle of buying, cleaning, and cutting up your own fruits and vegetables. Welcome to the premium world of high-quality, fresh juice in the comfort of your home.
They had the hype. They had the customers. And they received $70 million in Series B funding.
But then they also had Bloomberg looking over their shoulder. It turns out that Juicero’s produce packs were just overhyped ketchup sachets; you could squeeze these juice packs just as effectively by hand.
$400 dollars for something you could do with your hands in 10 seconds. Now that I think of it, maybe I’m just not the target market of Juicero.
Nevertheless, the startup didn’t solve a pressing problem for many consumers. They weren’t exactly innovative nor entirely useful for their target market. They just had really good marketing.
This is also a call-out to investors: Resist the lure of hype. Maintain a critical eye when evaluating a startup’s actual potential and substance. Don’t base your decisions merely on persuasive storytelling, but on a thorough assessment of the business model, product-market fit, price point, and the practicality of the offer.
In the end, the most successful startups tend to be those that offer not just clever innovations, but practical solutions to real problems that consumers face – and do so in a way that is economically sustainable.
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To reiterate, this article isn’t meant to scare you. It’s just the reality of doing business in the startup world which is both exciting and challenging. Looking back at the downfalls of the aforementioned companies, one thing becomes clear: They could’ve used better guidance and support.
That’s why we created the Embiggen Group. Our team of venture capitalists, industry experts, and innovation consultants have the capability to spot problems early on and help your business avoid risks. We understand how the startup world works – being one ourselves – and we’re to prevent you from becoming another cautionary tale. You don’t have to build a VC team from scratch. Learn how we can help your startup succeed today.