Lack Of Positive Differentiation Is At The Root Of Many Start Up Failures

Written by Mike Shapiro | | September 14, 2017

There are lots of reasons assigned for the failure of start ups. Bad management, tech problems, labor problems, running out of funding and competition head the list.

A closer look reveals that a common theme of many failures* involved a combination of:

  • Entry into a crowded space
  • With an intention to disrupt an existing, entrenched business model, but
  • Without a differentiator over competitors’ offerings that customers would experience as a meaningful advantage or benefit.

Used cars. What did Beepi offer that was really different and better than garden-variety used car dealerships that dot the landscape of virtually every community?

Home services. Home Hero walked into a virtual blizzard of a marketplace of relative newcomers with little or no difference in their offerings like, Home Care, Visiting Angels, Right At Home, Always There, Harmony Home Care, BrightStar Care, Comfort Keepers and many more.

Auctions. Yes, Auctionata’s model intended to offer “the excitement of the live auction,” but online auction enthusiasts had already become quite comfortable with the pace of dominant incumbent eBay’s virtual auction. It was a big leap to assume a significant number of them would want to switch out of that model and commit the full attention required by a real-time auction. It’s significant that Sotheby’s and Christie’s haven’t had better luck capturing any of this market, perhaps for similar reasons.

Social media. Yik Yak offered the differentiator of anonymity, but that proved to be more of a disadvantage than a plus because it attracted cyber bullies and nasty content.

Home delivery meal kits. Sprig put an emphasis on health conscious ingredients, but in a very crowded market where the jury is still out on its ultimate potential, with Home Chef, Hello Fresh, Martha’s Mail Meal Kit, Green Chef, Blue Apron, Plated, Terra’s Kitchen and others all vieing for position.

Wearable technology. Again, Jawbone got crowded out in a field with little differentiation. Android Wear 2.0, Fitbit, Pebble, Apple Watch all struggling in a crowded space.

The really unfortunate part of these failures is that deeper inquiry in the early stages by investors and more candor from founders could have prevented wasted capital, loss of jobs and disappointed customers.

*It’s important not to lump these stories in with some others with different fact patterns, such as Hello’s sleep tracker, where the technology simply became available in other products with multiple features, and Pearl’s back-up camera, which has become available from the factory in most recent car models. Juicero’s mechanical squeezer has become a favorite citation in stories about “differentiators that never were.” since the value proposition that was touted as a “Keurig for juice” was undone by the embarrassing discovery that its juice boxes can be squeezed just as well by hand.


USE IT NOW: Don’t get so caught up with the idea of “disrupting” some existing “inefficient” business model that you lose sight of the basic need to offer customers a tangible feature, advantage or benefit they’re not currently getting anywhere else. Read our previous article in which we describe the right kind of collaboration between founders and investors in the early stages of new companies.