A Good Reminder that Startups Fail (and Thoughts on Infrastructure)

Posted on Sep 30, 2016 in Work | No Comments

During a stage of significant growth at The Iron Yard, several executives had a conversation about how to quell what had become the insanity of our heavy travel and meeting schedules. The CEO asked me to test out a virtual assistant that could spend a few hours a week booking transportation and wrangling calendars. After a bit of research, I decided to try a service called Zirtual.

The service worked incredibly well. After a successful pilot myself, we signed up for a team account and a virtual assistant became a part of several executives’ workflows on a daily basis, helping with everything from research to managing inboxes. For a handful of people flying around the country working what seemed like several jobs each, the administrative support was extremely helpful.

Then one day, Zirtual shut down. Actually, it wasn’t during the day—it was in the middle of the night and hundreds of people lost their jobs instantly. The response from both employees and reporters was harsh, headlines declaring, “A startup dissolved overnight and laid off its 400 employees via email with no warning,”1 which, of course, spawned much vitriol and ‘expertise’ on Twitter.

Because the tech and financial new cycles give darlings of success so much attention (think Slack, Uber, Tesla, Jet.com, Airbnb, etc.), it’s easy to forget that startups fail all of the time. Zirtual may have fumbled on timing and communication, but their story is more the rule than the exception. There are lots of statistics out there (some are misleading), but according to US Census data, only half of all businesses live past 5 years2.

The risk of building infrastructure on startups

One difficult balance that companies face as they scale is building reliable infrastructure in a cost-effective way. Often, startups will rely on the services of other startups because limited feature-sets and hunger for new customers mean affordability (as opposed to the sunk-cost of building tools yourself or the high price-tags of enterprise software). That’s a good thing—lightweight, inexpensive tools allow you to move and test quickly—especially if they are open to feedback and building features that benefit your business. It’s been fascinating to see services that we found and used when we first started The Iron Yard3 grow from months-old startups to established, venture-backed businesses. (We still use some of them, like Front4 and Typeform5.)

As businesses scale, though, so does the risk of building infrastructure on services that might not be around. The example about Zirtual that I gave above had relatively minor consequences, but in other cases the stakes are much higher. Rdio, the streaming music service, is a great example. Less than a year ago, I bought a Roku TV that included Rdio streaming radio as an option in the TV software and the controller hardware. Two months after we made the purchase, Rdio announced that they were declaring bankruptcy and selling what was left of the service to Pandora6. (For those keeping score at home, they never had a marketing lead for more than a few months at a time.) The thought of losing that type of money by investing in a partnership that fails makes decisions to use ‘stable enterprise software’ at the expense of user experience much more understandable.

rdio-startup-failure

Conclusion

There isn’t a right answer when it comes to decisions on the how and why of using startup services and building infrastructure and even when everyone agrees on the right decision, things can still go wrong. It’s no wonder that so many businesses fail. But the challenge of navigating the right course is extremely exciting for entrepreneurs, which continues to fuel the cycle of the birth and death of businesses.


1. You can read the Business Insider Article, “A startup dissolved overnight and laid off its 400 employees via email with no warning,” here.2. You can read about US Census data on business failure in The New York Times. 3. I lead the marketing team at The Iron Yard. You can learn more on our website.4. You can check out Front, an app that provides shared inboxes for teams, on their website. I’ve talked with their CEO personally several times. They are great people.5. You can check out Typeform, which, in my opinion, is the best tool for building forms, on their website.6. You can read about Rdio’s demise on The Verge.

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