We as a country have had our failures comprising of major businesses, companies, and startups that failed in Australia in the last few years.
In this blog, we will discuss – what led to those failures and lessons learned from failures.
I know you hate us when we write articles like these but all is not dark and gloomy, i have also recently published a blog with the list of most successful businesses and startups in Australia. You can straight away head to the article if you are looking for “positivity” 🙂
In this article, the positive stuff you will find is “learning from failures”.
We will be listing the learning from these failures, and you can (probably) use the learning to run your startup or business better.
We live in an era where – “the conventional us” have all our trust placed in companies or traditional businesses. Startups for us is a cool business started by a youngster who plans to get rich very soon.
However, some stats could dispel such a belief.
- “Australian startup firms less than two years old were responsible for driving the 1.6m net new jobs created between 2003–2014, while on a net basis, large firms made a little contribution” – Dept of Industry, Innovation and Science, 2016.
- In 2017, LaunchVic identified 1600+ startups in Australia alone.
- In 2018, Startup Muster reported that Victoria accounts for 14.4% of Australian startups.
- According to PwC, the Australian tech startup sector (companies with <$5m in annual revenue) has the potential to:
- Contribute $109bn (4% of GDP) to the Australian economy; and
- Generate 5,40,000 jobs by 2033.
All the above stats were from the medium account of airtree ventures. (Source: https://medium.com/airtree-venture/its-all-about-jobs-b0794040f43d)
To all the naysayers – startups are more than just an enthusiastic kid’s dream of changing the world. They do contribute positively to the economy.
However, the failure rate is 90% in startups in Australia. If the stats are to be believed – about 9 in 10 startups fail.
When we were writing the article, the question we asked ourselves was – ‘should we introspect the nine that failed or the minority 20% that excelled and survived?’
The easier route would have been to analyse the success stories, but it would be a grave injustice to our readership.
The readership that has come to rely on us for publishing a failed startup list every year for a specific country.
So this time, we decided to touch Australia and look at the major failed businesses and startups in Australia.
The growth of startups in Australia hasn’t followed a graph that over the years only moves up from left to right.
As per statistics, there were 1,675 startups in 2017, and the number dropped to 1,465 in 2018 – a 12.5 percent decrease in one year.
The drop came after a steady growth from 712 startups in 2016 to 1,291 startups in 2017.
We still could not find the reason for the drop. However, we did explore further to look at the reason for this impediment. i.e., what is it that stopped entrepreneurs from starting new startups.
As per 2018 stats by the Small Business Administration (SBA)- around within the first year of following the steps to register a company and getting started, one-fifth of businesses fail. After 10 years, the survival rate is one-third of the surviving startups. (source: https://www.businessknowhow.com/startup/business-failure.htm)
While it is said that, it takes a minimum of four years before you’ve actually ‘set-up’ your business, seven to ten years is what you’re looking to see your initial plan come true. (As long as you’re realistic)
Now that’s a long time with a lot of hard work and high certainty of failure.
And then, there was an interesting study by the Australian Centre for business growth. According to the study – The reason why startups fail in Australia can be attributed to the following factors:
- Poor Market research
- Bad Financial Management
- No control over external factors
- Bad Leadership skills
- No Planning or bad execution
They were the top 5 reasons that accounted for 70% of business failures in Australia (source: https://centreforbusinessgrowth.com/news-and-events/five-reasons-companies-fail/)
Now those were some interesting statistics for you. Time to move to the list for which you are on the blog.
Oh, Wait! We have one more interesting stat to share with you regarding how many small businesses fail in Australia and what percentage of small businesses fail in Australia:
As per research by data and analytics provider illion – In the year 2018, 54,992 small businesses closed in Australia. The number was 12.7% more than the number of small businesses that closed in the year 2018 (source: https://www.abc.net.au/news/2018-10-31/small-business-failures-on-the-rise/10447846)
Let’s get down to the list:
List of famous failed startups and businesses in Australia
Shoes of Prey
Shoes of Prey was unique since people could customise and design their footwear.
The high flying business soon caught the interest of some well-known investors including American venture capitalist Bill Tai and Atlassian co-founder Mike Cannon-Brookes and to name a few.
In total, the company raised almost $30.6 million funding from the above VCs and some of the other renowned VC firms like Blackbird Ventures Khosla Ventures and Southern Cross Venture Partners.
Reasons for failure
The startup started to fall while attempting to adopt mass-market adoption, explains Michael Fox.
Fox explained the startup undertook market research with partners such as David Jones and Nordstrom to see if there was an appetite for mass-market fashion customers wanting to customise their shoes.
The startup found there was an appetite, Fox says, but only if they could reduce their lead time, simplify the design experience, expand their distribution and not charge a premium for customisation.
“It was hard work, our business was operationally complex, and there were many challenges, but to the credit of our amazing team we executed successfully in all these areas,” he wrote.
However, despite the research and “all the right trends”, the startup failed to crack the mass-market, with customers not responding as the startup expected.
Shoes of Prey co-founder Michael Fox said – he learned the hard way that shoppers have a subconscious desire to be shown what to buy, despite market research suggesting customers would be keen to create their unique styles on the shoe retailer’s website.
Another problem the brand faced was the operational framework for producing orders one-by-one incurred high fixed costs for the brand, without economies of scale.
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The Nerd Cave
The Nerd Cave was a startup that wanted to disrupt the traditional business model of the retail industry.
One that blended community centers, retail and hobby stores all into one place. They were backed by the idea that a social element always adds to every experience.
Dev Desi once saw a scene in a movie where kids were playing arcade games, gambling, skateboarding, etc. in a single place.
He thought of turning the visual from this movie into reality minus the gambling, drinking, and smoking….and foot clan (of course).
It all started by finding some business partners to help him fund his dream.
The strategy was simple. Find out the requirements of the existing gaming clubs and offer the local ones a new location to run their meetups, hangouts and events.
The biggest generator for them was – word of mouth publicity.
Still, the journey wasn’t as smooth as the nerd cave expected.
What went wrong?
Much like any failure, there was no sole reason for the failures. It was a combination of a lot of reasons that led to the failure of this startup.
To start with – they changed location 3 times.
Out of the 3, the second was the one where they stayed the longest. It was, however, within reasonable proximity to 2 other game/hobby stores (both franchises of the same company) which gave them stiff competition. (Oops! Competition, who thought about that?)
The shifting demographics were another problem. The Nerd Cave was further away from the universities, losing the 20-30 age bracket.
They closed their doors after being in the new location for only 5 months.
During their time of operation, board gaming and gaming clubs evolved around them to be similar to what they were trying to do.
It meant the costumers were looking at similar business models.
Near the end of the business, Dave Desi spoke with a few other store owners about the situation of his startup and someone said something that struck him as quite prolific – “when people start a business, we all think that the “thing” that will set us apart is “us”. We all say, “Well, I will treat my customers well and always have time for them”.
The problem with this mentality and thought process is that we aren’t selling ourselves. Your customers don’t know you are a nice guy until they have already become a customer. So, find the “thing” that makes your location unique.
We started with a very low capital ($75,000AUD). This meant that our start was slow and we really had to prove ourselves in the early portion of the Cave’s existence.
Another challenge we had was defining ourselves. We had a little of everything, which meant some people were confused as to what we were actually doing. This was generally overcome once they stepped through the door and experienced it for themselves, but we definitely should have had a stronger identity to breakthrough”.
Time and again, we hear about startups and businesses that had a wonderful idea which attracted a lot of visitors/users, but the idea failed because the idea never had a monetization strategy.
The above situation is what perfectly describes the failure of Onepagetrip.
Onepagetrip – a travel itinerary sharing community helped liked minded people explore itineraries from other users and then use it to build your travel itinerary.
The 3 founders, Ana Santos, Jose and Lucas, worked together for more than a year but couldn’t make any money out of it.
The first thing they wanted was to build a marketplace. So the company needed people to write itineraries and people to use/download them. They started by asking friends and family who helped them by sharing their travel itineraries from old trips.
Where it went wrong?
Onepagetrip’s portfolio of itineraries was increasing, and they did a lot of social campaigns, build social communities, but nothing seemed to work. People didn’t have enough reasons to spend their time sharing their trip with others, and they didn’t have money to pay for the shared service.
They did a fair bit of Google AdWords and social campaigns to draw traffic to their site.
They had visitors come to their website – download the travel itinerary shared by others and leave without paying them anything.
They spent months building a product, making it better and better.
They got so involved in features and details that they forgot the bigger picture. Ana realized some of the disadvantages and summarized them.
“The biggest one was the competition; I had a feeling that I could put millions into Google AdWords and I could be the best person in the world optimizing for SEO, but I would never rank in the 1st 50 positions.
It was so frustrating, for every travel-related word, there were so many billion-dollar companies competing.
It was impossible for us to stand out. It would take us years, and we didn’t have the time. ‘Life
is tough, my darling, but so are you’ – Stephanie Bennett Henry.
I’m very persistent, and sometimes that is more emotional than rational – can be a disadvantage too.
But the second biggest disadvantage was our lack of expertise about how to build a startup, how to validate an idea, how to ‘pivot’, how to validate the basic Business Model Canvas.
And the 3rd one I believe it was our runaway.
Sydney is really expensive, we had to keep our day jobs and after one year Lucas, our tech guy, had to go back full time to a day job too. The team broke, and there were no conditions to keep going”.
Asked, if there was one thing she would do differently.
Easy: quit my daily job, cut down my monthly expenses, apply to a startup accelerator program, get mentors, validate the idea before starting building the product, get advice from reputable mentors in the travel industry and build a strong business model before the 1st line of code.
He saved up $1,000 from working a horrible afternoon job and was soon en route to turning into the 1st debt-free graduate in recent years.
Zor Technology, the business started by him was on track to do 6 figures in its first year.
Over time Mathew would sell his products on his website. There was no marketing budget. On the contrary, all the sales were through word of mouth publicity.
“Because I was always busy both before and after school, some of my friends caught wind of what I was doing and wanted in. Looking back now, I had somehow recruited affiliates, but back then, they were simply friends helping out. I had designed a flyer pemplate which I gave to each affiliate (I’ll stick with the term affiliate for now) and had them add in their name and contact number at the bottom of the flyer. I raised my prices to $55.00 per item giving each affiliate $15.00 per sale, which left me with $40.00 profit. I remember before the Christmas break going to school a few times with a box full of MP3 players and handing out lots of 10 to people who expressed interest in selling. This was probably one of the easiest things I did to make a few thousand dollars – who knew teenagers were good salespeople!” says Mat.
His entrepreneurial story started to go viral, which helped him make Zor Technology more famous.
Mat felt that everything was going too well to be true. Only a few months before the business turned one year, he was forced to shut it down.
What went wrong?
Being a fresher, Mat was unaware of the repercussions of selling a product that closely resembled another company’s IP.
‘I still remember the day I got the phone call, I was sitting in the library processing orders and talking with my supplier when my phone starts ringing with an unusual number on the caller ID. It was a man who claimed to be from a law firm representing a major business in the MP3 industry’.
The similarity between Mat’s MP3 Player and the company’s product was too close. He had to cease operations immediately or be sued.
He couldn’t take another order, couldn’t accept any more payments, and couldn’t even trade under the same name.
In 2008, Guvera started its journey on the Gold Cost. Within a few years, the startup managed to raise $180 million from 3000 investors.
AMMA Private Investment initially funded the venture, and the rest of the money came from approx. 1000 smaller investors – comprising of accounting and financial services firm.
Chief executive Darren Herft told StartupSmart the business planned to take on Apple and Spotify through targeting emerging markets for its streaming services.
Guvera acquired Blinkbox Music from Tesco in 2015.
The part of the acquisition’s agreement was that it would pay its employees a higher rate of redundancy payment if the business failed – something Guvera failed to honour.
The above incident led to a £10m Employment Tribunal case lawsuit filed by former Blinkbox music employees.
And then the downfall happened – the employees won £3.5m in damages against which Guvera appealed and lost in Nov 2017.
Guvera’s business condition just went from bad to worse when it was placed under investigation by a corporate watchdog. The investigation came after a complaint by 3,000 investors on their $180 million investments in the company.
As per reports from ABC, some of Guvera’s investors had been questioned by the Australian Securities and Investments Commission (ASIC) after allegedly being promised huge returns on their investments.
Guvera reportedly used a network of accountants to convince investors to buy shares in its streaming service.
The company stopped operations less than 12 months after the Australian Securities Exchange blocked its listing on the share market.
Guvera shut down operations in but is however reportedly trying to get a listing on the Macedonian Stock Exchange.
Now the failures were not restricted to startups. Some famous companies failed in the Australian Market.
List of famous failed Businesses (shut down operations) in Australia:
Ed Hardy Australia
The world of fashion owes it to Don Ed Hardy fro bringing the tattoo artistry into the glamorous world of fashion.
Don Ed Hardy quickly became popular for his Japanese art form and American style.
In 2002, Hardy ventured into the fashion space when he licensed his art designs to be made into a clothing line.
When fashion designer Christian Audigier joined forces with the brand, influencer marketing efforts went through the roof.
However, as quickly as you can rise, it could be the speed at which you could tank.
It did not take much time for the brand to deteriorate in the eyes of the consumers. By 2011, enough damage had been done, and Audigier sold the brand for $62 million.
Ed Hardy Australia had also become the center of jokes, with some of the following tweets, the day the brand went into administration
‘how will we spot bogans now?’
‘what I am gonna wear when I turn 50 and bleach my hair?’
Reasons for failure:
Christian Audigier, the licensee of the rights to produce the Ed Hardy brand, had his share of success with popular brand Von Dutch. Thus he would be pretty inclined to use the same marketing strategies which led to the popularity of Von Dutch, which was marketing directly to celebrities, which he did.
It was extremely unfortunate that the celebrities they chose to sponsor were washed out sports stars or unsuccessful Australian gangsters.
The result of such associations meant that a certain ‘type’ of Australian society member leaned towards wearing Ed Hardy clothes.
Now, these were not the kind of people the society wants to replicate or relate to.
The labelling of those wearing the clothes was extremely unpleasant.
The pricing of the brand was another issue. They were a streetwear brand, and the average shirt was $200.
Also, you needed to make sure that the t-shirt didn’t become dirty since one wash would mean, you have to throw away the t-shirt. (That’s how bad the quality used to get when washed the t-shirt)
Next was the design. Ed Hardy had a distinct, undesirable design.
Also, a lot of people found Ed Hardy’s designs to have a strong homosexual design, although this was not directly communicated.
Ed Hardy Australia just didn’t do enough to hold on to its customers, and the customers had much better alternatives.
‘If you don’t spend enough time meeting customers, you’re forcing them to meet competition’.
Sources: https://en.wikipedia.org/wiki/Don_Ed_Hardy |
Out of the 500, 300 are in the UK. They also have a decent e-commerce presence.
In the year 2011, Topshop launched its Australian operations.
However, the dynamics of the Australian retail market were not well understood by Topshop, which led to its demise. In mid-2017, Topshop’s Australian operations went into voluntary administration.
What went wrong?
Topshop Australia was always in a tight spot, with H&M, Zara and Uniqlo to compete with and the Brand’s combination of demographics and affordability was a big problem.
Urban rents in Australia are amongst the highest in the world, and Topshop opened shop at some of the priciest locations.
Add to the above, the humungous investment in its e-commerce business and you have a business running on high rentals with high operations cost.
It was a disaster.
What made matters worse for the company was the poor stock levels, often not carrying common sizes.
A lot of people complained about spending hours looking for their size jeans.
As per a 2014 survey by Fairfax Media,- an Australian customer paid up to 35% more than their UK counterparts for similar products, often receiving them after considerable delays.
Croquembouche the flagship dish by Adriano Zumbo’s helped him become a household name (courtesy – reality TV show MasterChef in 2009). A show where he asked the contestants to recreate the dish.
It turned out to be a super-marketing strategy.
Zumbo was soon a household name. Realizing the idea to be a hit, he returned time and again to the show giving out his share of recipes which he asked the contestants to recreate.
One thing led to another, and soon, Zumbo expanded his business.
It was a fairy tale story where Zumbo went from running a small Balmain bakery in Sydney’s inner west to opening 4 more Sydney stores, 3 Melbourne stores, 1 Sydney pop-up and a high-tea salon in Melbourne.
As usual, a mix of reasons led to the failure of the business, but the one that sticks out like a sour thumb is the Soth Yarra bases Fancy Nance project.
“High tea on steroids,” a Guardian reviewer said of Fancy Nance’s 12-course degustation menu, which started with Linzer cake and “chouxmaca” (choux bun with macaron) and finished with pork rillette and osso bucco.
“Ultimately I don’t recommend that anyone eat a 12-course, mostly dessert meal,” she concluded, to which a lot of foodies agreed.
If Zumbo thought, over-expensive food and bad reviews were his only problems.
When the administrators felt that I’m So Fancy Pty Ltd – the brand name under which Fancy Nance and Little Frankie’s operated might have turned insolvent since at least early to mid-2017 – it meant more problems.
The discovery could expose Zumbo to fines, compensation and more.
Things got worse when the wages increased, and operating expenses started to rise. The rising cost was never complemented by an increase in revenue.
To add to it, Zumbo was also accused of underpaying its staff. Zumbo admitted to the charges and attributed payroll errors to the charges.
By March 2018, the tax office raised a winding-up order to recover unpaid tax to recover approx 1 million dollars in taxes.
Well! As they say – the government always knows where your money is. Zumbo wasn’t smart enough to outsmart the government.
1996 was the year when two founders Max Fichtman and Oded Brenner found the brand Max Brenner in Ra’anana, Israel.
A small handmade chocolate selling business soon turned into the most sought-after places to be, where it came to chocolate; however, it wasn’t long before it became one of the casualties of the food industry.
Reasons for failure
The first, as one wouldn’t have expected, was a political one.
Strauss Group, Max Brenner’s previous company, used to publicly support the Israel army, which didn’t go down well for many.
“While it’s hard to determine whether it was a significant factor in Australia, Max Brenner — with its origins in Israel — has been, at various times, the focus of protests,” said Business trends expert Dr. Lauren Rosewarne from the University of Melbourne. “This was perhaps also a factor in its demise.”
“When Max Brenner opened in Australia in the late 1990s the food scene was very different,” she said. “Now, artisanal chocolate and associated shops and cafes are everywhere: the novelty of Max Brenner has largely faded.
In 1866, Avon Products, Inc., a company involved in selling products under beauty, household, and personal care categories, was established.
The company garnered enormous goodwill in the beauty industry and had clocked a beyond impressive annual sales of $5.5 billion worldwide in 2018.
However, the retailer was forced to announce the closure in Australian and New Zealand markets by the end of 2018.
Reasons for Failure:
With an almost outdated business model of the door to door sales, the retailer was sure not in sync with the changing times.
Today, with the increasing working population, people might not be available at home to get the product handed over, add to it the fact that online sales are rapidly replacing conventional retail stores.
Another reason for the failure of the brand was their inability to keep pace with customer and network member’s expectations which led to a horde of complaints against them.
And that brings us to the end of our list of failed startup and businesses in Australia.
Before we end or as they say “on an ending note” – Dear business owners please avoid tax evasion.
Come on, Mates! Don’t rip the government. They use the money to fund our schools, hospitals and build the roads your business uses every day.
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