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The Top 5 Startup Failures of 2020

2020 was a rough year for startups. Here's why.

By:

Jessica Hamilton

A rocket plunges downward, suggesting failure

The year 2020 was a challenging and unprecedented one for many businesses, especially startups.

The Covid-19 pandemic, the economic downturn, and the social unrest disrupted markets, customers, and operations of many new ventures.

Some startups managed to survive and even thrive in the crisis, while others struggled and ultimately failed.

Let's have a look at the top 5 startup failures of 2020, based on the amount of funding they raised, the reasons they failed, and the lessons we can learn.

Quibi

Quibi, now often referred to jokingly, as the offering was limited and didn't attract enough users. Source: Quibi

Quibi was a mobile streaming platform that offered short-form videos, or “quick bites”, of 10 minutes or less, designed for on-the-go viewing.

Quibi raised a whopping $1.75 billion from prominent investors, such as Disney, NBCUniversal, and Alibaba, and launched in April 2020 with a star-studded lineup of original shows, featuring celebrities like Chrissy Teigen, Liam Hemsworth, and Kevin Hart.

However, Quibi failed to attract and retain enough subscribers, who were not willing to pay $4.99 or $7.99 per month for its content, especially when they had other free or cheaper alternatives, such as YouTube, TikTok, or Netflix.

Quibi also faced technical and legal challenges, such as the lack of support for TV screens, the inability to share or screenshot its videos, and the lawsuit from Eko, a rival company that accused Quibi of stealing its technology.

They announced that it was shutting down in October 2020, after only six months of operation, and returned $350 million to its investors.

Quibi’s founder and CEO, Jeffrey Katzenberg, blamed the failure on the pandemic, which changed the viewing habits and preferences of consumers.

Many analysts and critics argued that Quibi’s failure was due to its flawed product, strategy, and execution.

Essential

Essential had a solid plan, but the reality is, they were up against the juggernauts of the industry. Source: Essential

Essential was a consumer electronics startup founded by Andy Rubin, the creator of Android, the most popular mobile operating system in the world.

Essential aimed to create innovative and premium devices, such as smartphones, smart speakers, and smart home products. They wanted to compete with the likes of Apple, Samsung, and Google. Essential raised $330 million from investors, such as Tencent, Amazon, and Foxconn, and launched its first product, the Essential Phone, in 2017.

However, Essential failed to deliver on its promises, and faced multiple setbacks and controversies. Their phone? It received mixed reviews and poor sales, due to its high price, delayed shipping, and technical issues.

Essential also cancelled its smart speaker and its second smartphone, and scrapped its plans to launch a new operating system. Essential also faced a sexual misconduct allegation against Rubin, which tarnished its reputation and led to an internal investigation.

Essential announced that it was shutting down in February 2020, after failing to find a buyer or a partner for its next product, Project Gem, a new kind of smartphone with a long and thin design.

Essential’s founder and CEO, Andy Rubin, did not offer any explanation or apology for the failure, and simply thanked his employees and customers for their support.

Brandless

Unable to scale, stiff competition and rising costs undermined what Brandless set out to do. Source: Brandless

Brandless was an e-commerce startup that offered a variety of consumer goods, such as food, beauty, and household products, for a flat price of $3 each.

They claimed that its products were of high quality, organic, and eco-friendly, and that it eliminated the “brand tax” that consumers pay for the marketing and distribution of other brands.

Brandless raised $240 million from investors, such as SoftBank, Redpoint, and NEA, and launched in 2017.

However, Brandless failed to sustain and scale its business model, and faced fierce competition and rising costs. Struggling to differentiate itself from other online and offline retailers, such as Amazon, Walmart, and Target, that offered similar or lower prices, wider selections, and faster deliveries, the writing was on the wall.

Brandless also had to deal with the challenges of managing its inventory, supply chain, and customer service, as well as complying with the regulations and standards of different product categories.

They also had to cope with the changes and conflicts in its leadership and vision, as it replaced its co-founder and CEO, Tina Sharkey, with a former Walmart executive, John Rittenhouse, in 2019.

In February 2020, after laying off most of its staff and receiving a notice of default from its lead investor, SoftBank they closed doors. Brandless’s co-founder and former CEO, Tina Sharkey, expressed her sadness and gratitude for the failure, and said that Brandless was ahead of its time and that its mission and values would live on.

Atrium LTS

Atrium LTS’s founder and CEO, Justin Kan, admitted that he made many mistakes.

Atrium LTS was a legal tech startup that aimed to provide faster and cheaper legal services for startups, by using software and automation to streamline and simplify the legal processes.

It was founded by Justin Kan, a serial entrepreneur and the co-founder of Twitch, the popular live streaming platform. Atrium LTS raised $75.5 million from investors, such as Andreessen Horowitz, General Catalyst, and Y Combinator, and launched in 2017.

No surprise given the title of this article, but Atrium LTS failed to achieve its vision, and faced operational and strategic difficulties.

Atrium LTS realised that its software was not able to replace or improve the work of human lawyers, and that its customers still preferred and needed the personal and professional touch of traditional law firms.

They also found that its business model was not profitable or scalable, as it had to subsidise its legal services with its software revenue, and compete with the established and reputable players in the legal industry.

Undergoing several pivots and layoffs, they tried to find a viable and sustainable way to deliver its value proposition. But Atrium LTS announced that it was shutting down in March 2020, after returning some of its remaining capital to its investors.

Founder and CEO, Justin Kan, admitted that he made many mistakes and learned many lessons from the failure, and that he was proud of his team and grateful for his customers and partners.

Quantopian

Quantopian announced that it was shutting down in October 2020

Quantopian was a fintech startup that offered a platform for users to create, test, and trade algorithmic trading strategies, using data and tools provided by Quantopian.

They also ran a hedge fund that selected and allocated capital to the best algorithms submitted by its users, and shared the profits with them.

They raised $48.8 million from investors, such as Andreessen Horowitz, Spark Capital, and Bessemer Venture Partners, launching in 2011.

Failing to deliver on its promise, they faced performance and competition issues. Quantopian’s hedge fund did not generate consistent or impressive returns, and lagged behind the market and its peers.

Their platform also faced the challenges of maintaining the quality, security, and reliability of its data, tools, and algorithms, as well as the satisfaction and loyalty of its users.

Quantopian also faced the competition from other platforms and firms that offered similar or better services, such as Numerai, Quantiacs, and QuantConnect.

Quantopian eventually announced that it was shutting down in October 2020, after being acquired by Robinhood, a popular online brokerage platform. Quantopian’s co-founder and CEO, John Fawcett, said that he was proud of what Quantopian had built and achieved, and that he was excited to join Robinhood and continue to pursue his passion for democratising finance.

Learning from Mistakes

Starting and running a successful startup is not easy, and that there are many factors and risks that can lead to failure.

These failures also provide valuable lessons and insights for founders, investors, and customers, who can learn from the mistakes and successes of others, and apply them to their own ventures.

Failure is not the end, but an opportunity to learn, grow, and try again.

About The Author

A rocket plunges downward, suggesting failure
Jessica Hamilton
https://wearefounders.uk

Jessica is a seasoned writer with a startup flair, crafting stories that ignite innovation and inspire the entrepreneurial spirit.

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