You may be aware that 90% of all startups fail, but do you know why?

Each failed startup teaches entrepreneurs valuable do’s and don’ts. Here is a list of 5 well-known startups that did business for more than 9 years and then suddenly dived into an abyss. I believe that lessons from their failure can help entrepreneurs learn what kind of stuff tanks a company.

1. ANKI

Founded: 2010

RIP: 2019

Founded by three Carnegie Mellon graduates, Anki was an AI startup and its goal was to incorporate robotics and IoT (Internet of Things) into kids’ stuff such as toys and games. The company created several sought-after products like Anki Drive and Anki Overdrive (toy cars controlled and programmed by an iOS app), and Cozmo, a robot that interacted with humans. The company’s products were doing well in the market, and yet, the company could not raise financing in 2017. This one failure was enough to trainwreck the company, making it fold up in 2019.

Lessons:

If a company cannot be profitable or generate adequate operating cash even after a decade of operations, it is likely to fail.

Novelties can fade out faster than their conceptualizers can ever imagine, and human preferences are gregarious. To succeed, entrepreneurs need to conceptualize an “evergreen” product.

2. ARIA INSIGHTS (CyPhy Works)

Founded: 2008

RIP: 2019

CyPhy Works, which was later renamed as Aria Insights, was created to make advanced drones that could fly for days, not hours, and survive in harsh weather conditions. It was a B2B business model that catered to the military, telecommunications, and the oil & gas industry.

Over time, Aria lost its focus. Its founder resigned in 2018 and the company decided to shift from manufacturing high-end drones to developing smart AI systems and drone software. Though the idea of providing these niche services seemed unique, it was ahead of the times as there was no sustainable commercial demand. The company flopped thereafter.

Lessons:

A distracted founder is no good for business.

Startups should venture into businesses that have sustainable and current commercial demand.

3. ChaCha

Founded: 2005

RIP: 2016

ChaCha was a search engine that connected browsers with human guides. Surfers browsing the internet could input their search queries, and chat with the guides and wait for one of them to deliver personalized results. At that time, search engines delivered “generalized” results and many sites that had keyword spamming/too many links (from link farms) used to show up right at the top. So, for a while, ChaCha was a tasty morsel until Google released its Panda algorithm. Then ChaCha became toast, mainly because while being a technology business that relied on humans (it employed 55,000 human guides). Google’s Panda and the salary bill tanked the business.

Lessons:

Do not underestimate the competition, especially if your competitor is a major player.

If you are operating in a sector and do not have the required strengths, think twice before starting the business. In the case of ChaCha, the company was operating in the IT sector without having the technological edge.

Technology can be more important and valuable than humans in some cases.

4. Delicious

Founded: 2003

RIP: 2017

Delicious was a social bookmarking site that allowed its users to store and share bookmarks – and access them from anywhere. It was sold to Yahoo in 2007, a giant at that time. Being a giant, Yahoo had no time, and Delicious was left to look out for itself. Plus, Delicious had a lot of bugs, which users tolerated because there was hardly any competition around that offered a better option. Slowly, competition crept up and Yahoo too lost interest. Ultimately, Delicious was sold to its competitor, PinBoard, at a throwaway price.

Lessons:

You can’t operate a buggy or faulty site/product in the tech sector where hardware and software become obsolete very quickly.

Any entity that acquires a niche company must allocate resources and time to it.

To survive in a very competitive arena, you need to develop very creative solutions – and keep adapting them to the changing needs of the consumer.

5. Fuhu

Founded: 2006

RIP: 2015

Fuhu was launched with a lot of fanfare and the company went on to create Nabi (a tablet for kids), urFooz (digital trading cards), urDrive (a software that allowed devices to run applications from a USB device), and Fooz Kids (a safe browser for kids).

Fuhu was ranked first on Inc 500 companies list for 2 years, but it crashed and burned because it had borrowed very heavily. Despite its scale of operations (over 300 employees), the company employed just one accountant. The operating costs spun out of control, and without efficient monitoring, Fuhu went bankrupt. In the end, Mattel bought Fuhu’s assets for just $21.5 million (Fuhu had raised $66.5 million in venture capital, plus it had a lot of debt (it owed Foxconn up to $110 million).

Lessons:

Too much debt is bad for business – the interest cost can cannibalize profits and cash flows.

If the owners do not control costs or do not spend judiciously, it can lead to disaster.

Summing Up

Richard Branson once said, “Do not be embarrassed by your failures, learn from them and start again.” Unfortunately, these words may apply to a startup just once or twice in its lifetime. If the founders don’t learn their lessons quickly from their mistakes, sooner or later they will be forced to wrap up their business and leave their baby in someone else’s hands.