START UPS

Why Start Ups Fail

Every year we are jaded by the tales of recent inductees into the unicorn club, fresh off raising millions of dollars in their series XYZ funding rounds with a billionaire valuation. Employees and founders become rich beyond their dreams. But what about all of the others? There are many reasons why startups fail, but in this article we will focus on: failure to find product-market fit.

Failure to find Product-Market Fit

Many of you will have heard of Quibi. Founded in 2018 by media legend Jeffrey Katzenberg, former chairman of Walt Disney Studios, and run by Meg Whitman, former CEO of HP, Quibi claimed to revolutionise the media streaming industry by providing bespoke high-quality content made for mobile. The company quickly raised over $1.7b in funding from investors like Disney, Goldman Sachs, and Alibaba, and  2019 they had already sold the entire advertisement quota for the first year worth $150M. 

Things were looking good for Quibi...then the pandemic broke.

Rui is an MBA candidate at London Business School, graduating in 2022. He has always been passionate about the technology industry, from the engineering and business perspective, and co-hosts a podcast on the topic. Before coming to London, he was a Senior Consultant at Deloitte's Strategy & Operations team in Lisbon and has a Masters degree in Electrical Engineering.

Rui Torroaes Albuquerque

(MBA2022)

What happened ?

1. Quibi overestimated the quality of their content and the value it generated for consumers

Streaming services can only retain viewers if they host quality content that  continues to bring a user back to the platform. This is demonstrated by Netflix’s in-house content production constantly creating new projects, trying to find the next bingeworthy show. Quibi had no shows of notice, and even with a 90-day free trial they were not able to engage users enough to keep them, converting 8% of launch trial users, compared to Disney Plus’s 11% (40% less). Such poor retention may have stemmed from the fact that not only was Quibi a paid service with some paid tiers still featuring ads, but they had no free, ad-supported, tiers to help retain consumers on the verge of staying. With multiple subscriptions competing for people’s wallets, it takes a lot for consumers to spend an extra $4.99/month for a service with no shows of notice and ads!

 

2. They did not understand their audience and didn’t change with the context

There was a fundamental mismatch between what Quibi thought their audience wanted and what they in fact did. Quibi was aimed at 18–34 year-olds, but instead of recruiting digital influencers, whose 10 minutes long content this segment already consumed, they went down the traditional media route of hiring mainstream stars, they disabled screenshots for DRM purposes which limited user’s ability ‘memefy’ their content and make it viral, and when the pandemic broke, they stuck to 10 minutes content even though most people now had hours to binge long format shows. Their inability to pivot and their narrow scope paved the way to the death of the company.  A key learning: the market does not adjust to you, you must adjust to it. 

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