Postmortems on three once promising startups

failure

As mentors we preach engagement of users as critical for success. But what happened at three companies that not only had user engagement but industry buzz as well. Crash and Burn: How Yik Yak, Fab.com, and Vine Failed to Keep the Momentum Going by Serene Chen on Medium tells these fascinating stories of once hot startups that failed to build a sustainable business despite getting off to hot starts.

Yik Yak (2013–2017)

Fatal flaw: failure was built into its unique selling proposition (USP

Since the earliest days of online services there’s been a raging debate about user anonymity. That debate seemed to have been long since won by Facebook who insisted on real identities, originally forcing their college student market to user their actual .edu email addresses to register for the service.  However, today Facebook admits to 270 million fake or clone accounts. They upped their estimate of fake accounts from 2 to 3 percent and the number of duplicate accounts to from 6 to 10 percent according to Business Insider. But back in 2013 when Yik Yak was founded they took a totally contrarian view and enabled to users to be anonymous. They had a $400 milion valuation in 2014 and their app was ranked higher on the App Store than Facebook, Twitter, and Pinterest.

What happened? Yik Yak’s key market differentiator and competitive advantage of user anonymity lead to their downfall: rampant bullying by their teenage users. When Yik Yak realized the error of its ways and required real user IDs they lost a huge chunk of their user base. Those who cannot remember the past are condemned to repeat it. George Santayana. 

Fab.com (2010–2015): premature scaling

Fab basically invented the online flash sale and did what every mentor dreams their startup will do: they not only rapidly scaled to 1.3 million users, those users were actually customers, as they were spending up to $100,000 a day on the service. Fab.com crashed because they were guilty of premature scaling. They went on an acquisition spree by buying up European clones, but couldn’t generate enough revenues. Too make matters worse Fab abandoned their market distinction in order to cut down their average shipping time. Coupled with expanding to a massive increase in the number of products they carried Fab.com was no longer unique and their customers could find these same products elsewhere on competing site that shipped faster. So a company that raised 150 million dollars at a value of $900 million burned through all that cash and ended up being sold for a rumored $15 million according to TechCrunch. So Fab.com actually committed two fatal errors: abandoning their unique selling proposition while at the same time scaling in two different dimensions: going international prematurely and vastly increasing their inventory.

Vine (2013–2017) : a product not a company

The question I always ask of founders I mentor is: are you a feature, a product, or a company? No one has yet admitted to being just a feature! But Vine was a classic case – they were purchase prior to its official launch by Twitter for $30 million. A fantastic exist if Vine realized they were just a feature or at best a product, but not a sustainable company. Their breakthrough idea was enabling users to create 6-second videos. An idea that I thought was crazy from the get-go, a sure sign of success! Vine took off like a rocket! They had no sustainable competitive advantage: Snapchat added a story function and Facebook focused on video content. Vine failed to build out the important elements of a B2C company to survive:  advertising, sponsorships or analytics.

The author summarizes the failures of these three companies:

Yik Yak, Fab.com, and Vine were able to amass a huge userbase because they had something unique their audience wasn’t able to access anywhere else.

  • Yik Yak capitalized on the desire to be in the know in a highly relevant community, by leveling the playing field for joining the conversation

  • Fab.com found the perfect formula for generating buzz through unique curation, urgent flash sales, and incentivizing shoppers to share the site with friends in order to unlock new products or parts of the website.

  • Vine was lucky to be one of the first innovators in social networks centered around short-form videos.

However, because they never articulated the why for their product-market fit, they ultimately failed to protect or strengthen their competitive advantage

I’m not sure I agree with her conclusion about not articulating the why of their product market fit. Rather I see these companies based on very weak foundations, which were highly stressed by management’s mistakes, which in each case was very different: Yik Yak abandoned its USP and lost its critical mass because they couldn’t figure out how to manage the downside of user anonymity; Fab.com abandoned their USP – flash sales -and scaled prematurely; and Vine was not a company, it was just a product.

There’s much to be learned about these postmortems which are now easily found as founders no longer try and hide from their failures but rather try to help their peers avoid their mistakes. But avoid trying to fit their mistakes into a single rubric. Learn from each one individually.

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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