Ercan Demiralay FCCA explores the reasons behind why seemingly good online business ideas have gone wrong.
For years the business world has told entrepreneurs that their main hurdle will be finding an idea that is both innovative and profitable. While this is true, in many instances the decisions made after coming up with the idea are much more influential to the organisations success.
This blog post has been written for the would be entrepreneur who has some good ideas and is examining how to turn them into a commercial operation. We've explored 4 examples of online business ideas that ended up failing despite appearing to be very forward thinking.
After all, as a budding entrepreneur you'll learn a lot from the failures of others in terms of potential challenges and the pitfalls to avoid.
AltaVista - let Google into their niche
AltaVista, a search engine extremely similar to Google, finally shut down in 2013 after 18 years of fighting. Initially this company was the forerunner of internet searches, but as competition like Google and Yahoo began to creep up, they fell behind and couldn't find a way to catch up.
Many blame their demise on their switch from a simple search engine to a web portal - think email, discussion forums and online shopping. It was a case of over diversification too soon and as the company's focus changed with the transition, so Google quietly swept up the search engine market, leaving AltaVista in its wake.
Their decision to switch into web portals, at a time when this was dominated by Yahoo, and out of their niche effectively crippled the company. They lacked the necessary resource and specialist skills to do this effectively. So while innovation is encouraged, the company failed to do this effectively in their main area of specialism while they tried to diversify too quickly. Consequently their competitors gained a dominant foothold at their expense.
MySpace - lack of vision
MySpace was one of the first successful social networking sites, being very prominent internationally for many years. They began their website initially to sell products and grew as they realized the increased traffic they could acquire by allowing users to create profiles and interact with each other.
As their popularity increased and competitors began to materialize, they changed their business vision, by adding services such as product delivery and major ad sales. Their end goal increasingly began to revolve around wealth accumulation only. Unfortunately this meant the vision for their company disintegrated, allowing competition such as Facebook to confidently pitch their clearer goals to MySpace's customers, effectively stealing them.
MySpace had its seconds of glory, but their ever-changing business goals never allowed them to acquire a loyal customer base that could've resisted their competitors.
Webvan - unsustainable business plan with poor timing
This company, which started in the 90s, had an early vision of the online shopping trends we enjoy today and believed there was a market for web based grocery shopping and delivery. As they began to invest in trucks and store locations across the country, the team's lack of commercial and financial acumen became evident as they operated continually at zero profit.
In time this becomes an unsustainable business plan. The men and women of Webvan were so enthralled by their idea that they began spending money that had not yet earned which in turn sunk the business. It went bankrupt in 2001, resulting in consumers having to wait another 14 years for Amazon to resurrect this brilliant idea and go on to make millions.
While an idea may be cutting-edge, the business' success still depends on not only an experienced business team and strict business plan, but also correctly timing the market in terms of consumers and technology adoption trends.
Emjoyment - inactive customer base
Emjoyment, a Tinder-like app for those looking for a job, began in 2013 and died just one year later. In theory, this idea seemed like a simple solution to those either stuck in their jobs or without employment, giving power to not only the employee, but the employer.
Unlike MySpace, this company had a vision and a target customer base, but failed to gauge how proactive their target market would realistically be about their unemployment or current work situation. Not only this, but finding employers who were willing to search for workers via an app centered around mutual selection was difficult at best.
This shows us how crucial it is to know not only your customer base, but also whether they see a compelling need or want in your product. Perhaps they had enough job websites to explore including LinkedIn?
What can we learn from these start-ups?
These handful of failed start-ups teach us that an idea cannot be the main component that leads a company towards its ultimate success. While important to the birth of the company, its growth and success will depend on the execution of components such as marketing, sales, product/service innovation, the finance function and customer care.
Functionality and a good product alone will simply not suffice! As James Caan, founder of VC firm Hamilton Bradshaw says 'the idea only represents 5%, execution is 95%'.
The content of this post is up to date and relevant as at 06/07/2017.
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