The wake of 2022 had startup companies across the world realizing that great ideas don’t guarantee success. While it is never a pleasant sight to see great companies shut their doors, the silver lining behind such struggles is that they can act as cautionary tales to teach other up-and-coming entrepreneurs valuable lessons.
By carefully examining their missteps and strategies, aspiring business owners can arm themselves against similar pitfalls and tap into certain tactics that have been proven successful. In addition, knowing the failures of the past gives founders insight into how they can create long-term stability and set their startups on a path to long-term success.
This article is all about the reasons why some promising startups failed in 2022. A startup can come to a grinding halt for any number of reasons, regardless of its size at the time. Let’s talk about some promising names and the reason behind their failure.
Loon & Udayy – Poor Product-Market Fit
We cannot emphasize enough the importance of finding the product-market fit for your startup. Starting a business requires thoughtful planning and execution. Unfortunately, one of the most common reasons that many startups fail to make it off the ground is poor product-market fit – when your offering does not match well with customer demand or other aspects of the market. Making sure you are meeting customer needs and bringing original solutions for existing problems is essential for success. Investing time in understanding your customers and crafting a relevant business strategy will increase your chances of succeeding in a highly competitive environment.
In 2022, we saw Loon closing its door after 9 years of working on its great idea. Taking a bold new approach to internet expansion, Loon decided to forego the traditional ground-based infrastructures such as fiber optics cables and cell phone towers in favor of creating an airy network of balloons. Loon seemed to be the initial groundbreaking technology out of Google’s laboratories that could not only be profitable but also leave a lasting impact on our reality. Their balloons successfully stayed up for a record 187 days providing internet to the unreachable areas. However, it was later assessed as commercially unpractical to survive in the market.
Similarly, Udayy, unfortunately, had to close its door. The startup had a perfect product-market fit but that was only during the COVID times when the world was locked up. The startup successfully raised a Seed round of $2.5 million. Udayy an Indian ed-tech startup successfully sold live learning courses to kids but this need certainly ended as in-school classes resumed. Thus, despite raising millions from investors, the startup had to shut down.
Airlift – Cash Flow Problems
Starting any business is an intense undertaking, but startups can be especially challenging. Unfortunately, many of them fall short before they even get off the ground, burning through resources quickly and leaving minimal chances of survival. The biggest challenge often comes when it’s time to raise additional funds. Much like a game of chess, entrepreneurs must determine how much funding is necessary and when they should request additional resources while also considering outside competitive factors such as timing, market effects, and current investor demands. Investors particularly look into startups’ current traction and what the growth prospects look like. They will always want numbers and authentic stats to be sure about your startup’s progress and future.
Unlike other businesses which can simply keep trying to raise a series of funds until successful, startups often don’t have that luxury due to the rapid depletion of precious company resources like cash. This means that staying one step ahead with an informed grasp of fundraising strategies is essential for long-term success.
We lost many startups for not being able to raise rounds and burning out resources in 2022. Out of these Airlift came as the biggest surprise for all!
In July, Pakistan’s once highest-valued and funded startup Airlift abruptly closed due to a cash shortfall. Despite having raised $85 million in the country’s largest Series B funding round at an appraised worth of $275 million, their sudden collapse not only dealt a blow to employees and investors but also caused a noticeable drop in enthusiasm for Pakistani tech ventures as a whole.
Airlift gained immense momentum, garnering over 35,000 rides daily. Unfortunately, the pandemic devastated transportation everywhere in the country soon after. The startup then successfully pivoted into a grocery delivery app considering the pandemic lockdown. Yet, unfortunately, the startup had to shut down in 2022 due to cash flow problems.
Argo AI & Kitty Hawk – Poor Unit Economics
A startup’s business model is the foundation of its success. Without a strong one in place, they are more likely to fail than succeed. A weak business model can handicap a startup’s capabilities, resulting in missed opportunities and a lack of direction. It can also weaken their focus on the target market, diminishing customer loyalty and market penetration. Worse yet, it can limit their ability to attract investors if they don’t have a clear plan for earning a return on investment. Without proper funding to sustain the startup’s growth, it may be unable to make up lost ground even after revising the deficient business model. Ultimately, having a weak business model might cause startups to crumble before ever reaching any level of success.
Argo AI was launched in 2016 with the agenda to provide autonomous vehicles to the world. However, it failed in 2022 and had to shut down after the supporting companies Volkswagen and Ford realized that they were not ready to launch driverless vehicles. The companies came to realize that this business model is not as profitable as they assumed before.
Similarly, Kitty Hawk a startup that was founded with the agenda to launch commercial flying taxis failed in 2022. The startup despite having a fleet of 111 crafts had to shut down due to changes in the business model and top management changes.
Kite – Poor Timing
As a startup founder, timing is a crucial factor in determining success or failure. By launching too early or too late, a startup can be doomed before it even gets off the ground. Launching too early means being ahead of your time and running into roadblocks that may not have been an issue had you waited; on the other hand, launching too late can mean missing a big opportunity to capture market share, as competitors may already have a foothold in that space. It’s important for startups to consider the market needs and consumer requirements, and launch at the perfect moment in order for their product or service to reach its full potential and make both customers and investors happy.
Kite, a startup developing an AI-powered coding assistant, shut down in November despite securing tens of millions of dollars in venture capital backing. The product did not monetize as expected which lead to greater issues. The founder Adam Smith made remarks later that they were 10 years early than the perfect time to launch this startup.
Nice Tuan – Team Problems
Poor management and a weak team can be the root of startup failure, as any venture needs both strong positioning and execution in order to be successful. Poor management can come in many forms- not properly delegating tasks, ineffective communication, bad decision-making, or lack of financial acumen.
A weak team similarly can cause calamity: Without talents to fill the needed roles (marketing, product design, engineering, etc.) or a noncohesive team dynamic, it is difficult to keep any business afloat. It’s essential for a startup to have high-performing individuals as well as solid relationships between them in order for the venture to reach new heights.
Nice Tuan despite having funding of $1.2 Billion failed due to fraudulent practices by its employees. In a desperate attempt to lure in customers, goods were sold at prices lower than the cost of production. Furthermore, fake buyers appeared monthly with an ulterior motive – to help reach sales targets and deceive regulators. Ultimately, their deceptive tactics triggered alarm bells for authorities everywhere. The startup was also fined for false advertisements.
Neufund – Regulatory Issues
The world of startups is a tricky one, with success often determined by more than just the brilliance of a product or service. Regulatory policies can make or break a startup business, especially in areas as diverse as healthcare and finance. In more traditional markets, certain amendments to governmental policies can frequently make survival difficult for startups. For example, new regulations that increase the costs of operation could make it challenging to stay afloat. It’s imperative for entrepreneurs to stay informed about changing regulations in order to be able to adequately contend with these external factors which may contribute to their failure.
Neufund had to shut its doors in 2022 due to regulatory issues. The founders claimed that the existing environment of the regulatory system seemed not to be equipped yet to support innovative fintech companies. Throughout its existence, Neufund has completed around €20 million ($22.6 million) in transactions through its equity platform – all of which were conducted over the public Ethereum blockchain. Its investors come from a diverse and global backgrounds with tickets as low as only €100 ($113), totaling 11,000 individuals from 123 countries!
Watching a startup fail after so much hard work is never a pleasant experience. Founders put their all into the success of their new business, dedicating time, energy, and often money in order to transform an idea into an innovative solution that could bring benefit to others. And yet, sadly many startups still don’t make it and although disheartening, there are lessons to be learned from such failures. By studying why businesses went downhill, future entrepreneurs can learn what not to do and hopefully do everything differently in order to create a successful business venture.