There are many reasons that young, emerging and even established businesses fail. Finance, fundraising and capital strategy continually feature, but corporate governance and strategic planning breakdowns often play a part, too.
Lothbury can help your business avoid such difficulties or assist in identifying pinch points years ahead of them crystallising.
Examples of businesses closing for preventable reasons are becoming ever-more prevalent – just see some of these cases – don’t let poor planning and a lack of focus on core business practices result in your company joining the list.
High-competition,
low-margin
PepperTap, which operated in a high-competition, low-margin market, decided to shut down its main e-grocery business after months of rapid expansion showed no signs of profitability. When announcing the closure, the company stated that “losing cash on every order, no matter how small or how controlled, meant one day it was a mathematical certainty that they would run out of cash. Raising $52m doesn’t help when every order costs the business money. PepperTap is a great example of just how critical it is to get your business model right in the early stages of development.
Raising too much,
too soon.
Riding on the hype of transportation start-ups and marketplaces, Beepi may have raised too much, too soon. As is too often the case with start-ups, the business was just being run to raise money. The founders were too aggressive in pushing for higher valuations, eventually leading to its collapse.
Corporate governance
not up to scratch
“The general consensus of the employee base is that there was mismanagement of finances,” said one former company executive. The day after the shutdown of Mode Media, one manager commented that, “It was the most unprofessional, unethical experience imaginable. No one can believe it.” You can raise hundreds of millions, like Mode, but if your corporate and business governance policies are not up to scratch, your business can still fail even in a strong market.
Overspending on finding
product-market fit
Despite raising over $100m in funding, this still wasn’t enough for Airware, who will forever serve as cautionary tale of start-up overspending in the hope of finding product-market fit. Had the business been more frugal, saved cash to extend its runway, and given corporate clients more time to figure out how to use its products, Airware might have stayed afloat. Sometimes, even having the most prestigious investors can’t save a start-up from mismanagement.
Scaled too fast and size
outweighed the demand
Webvan Group raised $275m, but their business model just didn’t stack up - They spent so much money on infrastructure, but what they hoped was going to be their advantage turned out to be their downfall. They got big fast, but size turned out to be an albatross when the demand wasn’t there.
No USP to set them
apart from competitors
Edgix is another example of an organisation that never had a sound business model to begin with. Despite raising £65m, the company was fundamentally a carbon copy of Cidera and other ISP-caching solutions, with little new to offer. They just launched a platform and went into business believing they would quickly generate revenue. Unfortunately for companies such as Edgix, when you continually say to investors, ‘There is a market out there and we can own it,’ you start to believe it yourself.
Poor financial planning
and strategy
While IgnitionOne seemed to have turned a corner and had the best year for percentage growth, revenue and EBITDA, liquidity was severely hampered by their inability to renew their line of credit from existing lenders. So, despite a $40m raise, this business also failed, evidencing the value in investing in high-quality financial planning and strategy early.
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