What Entrepreneurs Can Learn From The Failures Of These Five Startups

It was a cold evening in the winter of 2010 when the dreaded moment finally came. On this particular evening, Ibrahim Mahgoub and three other partners threw in the towel and called it quits with the event management company they had established having failed at the very first hurdle by doing a botched job of their first show – one of many instances of startup failures.

Four years on from closing shop, Mahgoub can now be seen sitting in various panels as an entrepreneurship trainer for both Injaz Egypt and Startup School; a company he went on to build in 2013 despite the failure of his previous venture.

Mahgoub’s current endeavour now sees him guide young entrepreneurs and help them steer clear of the pitfalls that ultimately dealt a coup de grace to the event management company he once co-owned. The Egyptian entrepreneur appears to have now found fulfilment in his current venture and one cannot help but wonder what would have been absent the initial disappointment.

But that sounds like a wonder for another day. Much in the same manner as Mahgoub, many entrepreneurs in emerging startup ecosystems have had to contend with the topsy-turvy, Jekyll-and-Hyde nature of today’s business world – some evidently more bruised and battered than others. And some not even able to get back up.

More often than not, we get lost in a false world where it is assumed that success is eventually the fate of every company that has managed as much as hit the ground running. More commonly, we tend to tag business success as a given for every startup that has set the ecosystem abuzz with some kind of ostentatious launch or the closing of some major funding round.

 

Reality Check; getting a business started is one thing and staying in business is quite another. Thriving in business is, in fact, in a whole different league of its own.

 

And the sad truth is that not very many startups are built for the long haul from the outset. Having blitzed their way through the initial sprint, they tail off and eventually faze out when the race eventually shapes into a marathon.

So there was the idea, and then the invention before the investments rolled in, but things didn’t quite pan out in the end. Like it or not, stories like that are quite common as they happen more often than not. They just don’t get as many mentions as the much-celebrated ‘success stories’ that virtually everyone likes to jump at.

But perhaps that shouldn’t be the case as even though research suggests that 9 out of 10 startups eventually hit the rocks due to many factors, there should be more to this piece of information than scaring people out of their wits. But I bet everyone wants to be that one startup that holds its own in the end.

So instead of freaking out, it does seem like a much better prospect to view failures from a different perspective as teachable moments from which important lessons can be learned. With that mind, let’s look at lessons that can be learned from these five Egyptian startup failures.

Le Planneur

What better way to kick things off than with the already-mentioned event management company that Ibrahim Mahgoub launched alongside three other colleagues of his in 2009.

Le Planneur was the name of that company and the whole idea was to build a brand dedicated to organizing events and gigs, as well as renowned for delivering only the best. But perhaps the company set itself up for a fall from the off when it decided to make a splash with its debut project.

In what was an ill-judged, kamikaze approach, Mahgoub and his partners decided to go big at the first time of asking with an ambitious project – a massive folk concert. They terribly miscalculated the rave they thought they had by investing all their resources into the kickoff event.

The plan backfired as the whole thing ultimately proved a fiasco. They had to call off the event and close shop a year later after failing to recover from the debacle – they didn’t even sell up to 10 percent of the tickets they had expected to sell.

Their failure can be attributed to falling for the ‘big launch trap.’ They were guilty of having gone all in on a business model that was not even exactly their creation. By doing this, they were flying in blind since they were putting in so much into something they didn’t exactly have a good grip on. It was their first foray into event management and perhaps, a more cautious and reserved approach would have done them a solid.

Cirqy

Cirqy came to the fore in 2012 on the backs of support from Flat6Labs; one of Egypt’s leading startup accelerators. The startup was an eCommerce platform for designer products such as apparel, jewellery, and home accessories.

This innovative idea did get good reception initially from the Egyptian market as an ‘Etsy-like’ business model in MENA seemed to have gone down well with the locals. There were some good vibes and fruitful results but all the buzz was to eventually die out. And why?

Well, the reason is not far-fetched. The business was rocked by the challenges of a niche market and the lack of follow-on funding. Throw those in with lack of seller sustainability and you may have just come upon that dreaded Waterloo.

Stacked up with the already-present challenges in the eCommerce industry, all those factors saw the company eventually grind to a halt just a little over 18 months after its launch.

As Kareem El-Shaffei, the startup’s Co-founder famously revealed in an article, there were also contributions from poor spending decisions. According to him; “We had all that it takes to build a solid financial model, seamless business operations and a creative marketing plan; but our decision-making on spending sucked.”

Between a funky office we didn’t need, paying 25% of our capital on an overqualified developer and skipping entirely the concept of an MVP [Minimum Viable Product], our cash burn rate was shooting through the roof. This was when our inexperience shone,” he further revealed.

From his words, it is clear how a combination of both internal and external problems may have contributed to the failure of the startup. And you might want to be wary of those pitfalls as a startup founder.

Pluto

Egypt’s history with the onslaught of coworking spaces may be incomplete without any mention of Pluto as the community hub for entrepreneurs, freelancers, and student initiatives took the scene by storm in 2014.

Pluto was intended as an effective, innovative, and collaborative work environment for entrepreneurs, and it did have a decent start with a collection of private offices for early-stage enterprises to expand, amongst other features.

The coworking platform also appeared to be on track with a diversified scope which incorporated activities and events with a social angle – aimed at fostering networking and growth amongst startups.

Some ten months down the line and the company found itself scampering to keep the lights on. The funds were drying up and Pluto seemed to be in the way of a gigantic asteroid that was approaching at searing pace.

As a last ditch effort, the company made a desperate attempt to raise funds by launching a crowdfunding campaign on Zoomaal; a Lebanese crowdfunding platform. But there was not going to be a last hoorah as the company shut down in 2015 having reached only 6 percent of the targeted figure.

The company was hampered by the lack of funding and its inability to place its social offering on the same wavelength as the financial implications.

As offered by Mohamed Ezz El-din; Co-Founder of Pluto, in an interview; “Our successful marketing strategy came from having various partnerships and long-term agreements with youth initiatives and identities concerned with entrepreneurship. This helped to brand Pluto as a community hub for entrepreneurs and youth, but we had no financial support from any organizations or investors, thus we relied on self-funding,” And this ultimately did a number on the company’s chances of success.

Hedma

Hedma came with good tidings; by combining Egyptian culture with fashion trends, the startup came with a unique proposition. And it did seem well-positioned to become a world-beater in the long run initially.

But that was not to be as the startup was looking to grab a share of an Egyptian market that is already dominated by already-established brands whose vice-like grip on the market leaves little room for startups to get in on the act unless propped up by a flawless plan and sufficient capital investment. And that proved too much to ask. Granted; they did have a unique product, but maybe having a unique product is no use if you can’t sell it.

And perhaps the startup was taking the idea of being ‘different’ a bit too far. The startup is known to have a had a number of designs that were too different and would have been better understood with catalogues. This could imply that the startup didn’t do its homework satisfactorily in the area of getting feedback on the designs.

In addition to the lack of funding and poor market research which could be cited as some of the faulty points that sunk the ship, perhaps a far greater cause of the startup’s failure is the lax attitude and part-time nature of the founders’ dedication to the company.

The startup’s founders may have spread themselves thin as they had their hands in too many pies at the time.

From serious academic commitments to running other businesses, it proved too much to handle and it wasn’t long before the roof caved in and the entire structure crumbled and came crashing on the weak foundations.

It remains to be seen whether the young entrepreneurs will have a second-coming but if they do make a comeback, it is hoped that they have learned some important startup business lessons from the ultra-competitive Egyptian market, even though it had to be the hard way.

Jarayed

This newspaper distribution company kicked off operations in January 2011. The company was looking to carve a niche for itself in Maadi; a residential neighbourhood in Cairo, by promising consistency in an area where regular and prompt delivery is hardly ever the case.

However, the company closed shop a little over a year after its launch having been challenged by a cultural barrier that it failed to find a way around.

During the company’s heydays, it was the toast of all and sundry with its signature punctuality. Jarayed had distinguished itself by focusing on the delivery of local, Arab, and international magazines on a daily with clockwork precision and punctuality.

Jarayed made it possible for clients to specify their newspaper preferences through a form on a weekly basis, instead of subscribing to a single newspaper. It delivered these dailies in a special kind of wrapped plastic.

The company even had plans to launch a goods delivery company in the long run and it seemed to be pretty much on track as the delivery service was posting continuous growth. At some point, the company’s subscribers even rose to 800 and around one thousand newspapers are said to have been commercialized by the platform on a daily. The bottom lines were, thus, looking pretty.

But things didn’t stay rosy for long. The storm came when complaints became rife that Jarayed was putting individual newspaper delivery men out of work and threatening their livelihoods. Those complaints soon fell on the ears of sympathizers, one of which happened to be Al Ahram; one of Jarayed’s main suppliers.

For some reason, Al Ahram took sides with the local delivery men and breached their agreement with Jarayed by becoming tardy with orders. This caused things to take a nosedive as having lost its signature punctuality, Jarayed pretty much went downhill from there.

While the whole saga may have not been entirely of the company’s making, a different approach may have seen the company survive. It was problem enough that the company kick-started operations without seeking to incorporate the local delivery men into its roster. And even when the complaints were still grumblings, Jarayed failed to act to quell the brewing trouble. Instead of dousing the flames, they came across as a defiant – perhaps too engrossed in their burgeoning repute.

Simply put, in coming to reorganize or disrupt an industry that is known to be the subject of some sort of local, cultural or social bias, best practice entails carrying along the people which constitute the foundational elements.

People are more likely to accept a new and better way of doing something if it doesn’t roll the old ways about in the mud. Change is better embraced as an improvement and not an advertisement that highlights the impairments of the status quo – especially when the status quo has served people for years.

You may want to play up your product but always remember that products are worthless without people. So even though you have built something better than the Taj Mahal, eschew any situation that might put you at loggerheads with ‘the people’; and that’s because there is going to be only one winner at the end of the sparring and it most certainly won’t be you.

 

Feature image courtesy: TED.com