How Do You Measure Failure In A Mobile Startup?

March, 28 2017

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Patrick Kane
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Patrick Kane

User Acquisition? Mobile Growth? What is success anyway?

Question: What are the top failed startups of 2016?

A lot of people have already given you lists of companies that closed last year.

[This question and answer were originally posted on Quora.]

It is difficult to say which of those companies were the most important. What constitutes a ‘top’ startup? Revenue? Downloads? Number of users? The importance of a startup is a tricky thing to measure.

If you choose one metric, the results, in terms of a definitive ranking, will change depending on different countries or regions or sectors. Once you start digging into the data you’ll find hundreds of additional questions. Priori Data is a company obsessed with data so we think about this stuff a lot. (Maybe too much...)

Rather than add more names to the lists, I’ll talk a little bit about how difficult it is to answer these sorts of questions.

First of all, nobody really knows how many startups fails every year. Lots of people cite a 90% failure rate, I know, but that figure appears to be a hoary old internet myth. It is very unclear what a ‘failure’ is in this context. Many companies that get acquired by a bigger player are completely shut down in the process - does that make them a failed startup? And what do people mean when they say ‘startups’? Does that category include ALL new businesses - restaurants, local accounting firms, vaping emporiums - or just tech companies? Again, different countries will have different rates of closure, as will different sectors.

Pro tip: Don't trust anybody giving out simple answers to big questions.

But it is safe to say that the number of failed startups is high, regardless of how you slice the data. It isn't easy to make a startup work, trust us!

Even if we accept that there is no definitive number of failed startups per year, we still want to read the stories. People are interested in failures because they want to learn what went wrong.

I think the best resource for that kind of learning is the founder post-mortem.

(Another approach altogether would be to analyze current market trends for big apps you want to benchmark yourself against by using download and revenue data)

Founders have a unique perspective on their apps. They lived and breathed every minute of their app's life. Every up and down. Every setback overcome. Every little spike in revenue. There are a hundred ways an app can fail and most founders will likely face dozens of them. When an app does go down, only the founders know which obstacle ended up being insurmountable. They are people who don't give up easily, so hearing them explain in their own words what finally put them out to pasture is a fantastic learning opportunity for entrepreneurs.

Here are a couple of really good ones:

You can subscribe to an online service that collates these post-mortems and parses the key reasons into a table that also displays what the app did or was meant to do. That's good for casting a quick eye over lots of post-mortems and getting the lay of the land.

There are also more systematic, academic approaches. One 2016 study focused on founders’ stories of why their startup failed. The top three reasons stated were:

  1. Business model not viable
  2. Ran out of cash
  3. Not enough traction

Funded startups most often failed because they ran out of cash. They also often found themselves outcompeted and outfunded, even if they raised substantial amounts. Another recent post-mortem study highlighted the failure to build the right team as the most common cause for failure.

Basically, successful startups have the right people and the right business model. Because they have those two things, they can raise enough of their own money to keep going when things get tough.

It’s important to remember that these results were self-reported and should be taken with a pinch of salt. Founders have a lot at stake when they tell the world why their company failed. The accepted narrative of that failure is likely to have a significant impact on their next move. In general, any research that relies on people so heavily involved in the topic of study is bound to be skewed: the founders could be in denial or don’t have all the information or have axes to grind.

I hope that gives you some context to all the other answers you've already gotten. Best of luck!

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