This One Type Of Startup Fails the Most

It takes courage to create a new business, especially a venture-backed startup, because there are so many risks and potential pitfalls. Research from Harvard Business School's Shikhar Ghosh shows these kinds of startups fail more often than most people thought. By his estimation, 75% of venture-backed startups bring in none of their anticipated returns. Here's a list of cautionary tales from the world of startups, and some of the lessons gleaned from their failures.

1. Wesabe

Image via Flickr by 401(K)2013

The creators of this personal finance website wanted to help people manage their money, and make a little money of their own along the way. Wesabe was a forerunner of the many web-based personal finance sites that populate the web today. The founder gives several reasons for its failure, but one of the biggest causes was the fact that it was built on the wrong premise. Wesabe had the goal of helping people understand their finances better so that ultimately, they could make better money management choices. However, Wesabe's biggest competitor, Mint, put distance between users and their financial data, meaning they had to do very little work to determine their spending, saving, and other financial habits. In the end, users preferred Mint's model that required less work from them. Wesabe simply couldn't compete because the company didn't offer what customers demanded.

2. ArsDigita

Image via Wikiemedia by Andreas Pizsa

In the late 1990s, this software and IT company enjoyed its position in the market. It was a smaller firm offering open-source solutions for big name clients such as America Online, Levi Strauss, and Siemens. After accepting venture capital funds and creating a governing board that shifted the balance of power within the company, ArsDigita saw its assets decrease and its cost structure skyrocket. With people at the helm who had little experience in software and development, this company watched its future go down the drain. By the time the original executives regained control, it was too late to save the company.

3. Kiko

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This web calendar company ended up selling off its assets on eBay after it flopped. There are multiple reasons this startup failed to gain traction. The founder blames a bad hire, taking ineffective shortcuts, and failure to build slowly. Even though the company's original managers didn't turn a profit when they were in business, they recouped a few bucks when the domain name, user database, and other assets sold on eBay for more than a quarter of a million dollars.

4. EventVue

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This company initially offered a private social network that conference organizers could use for conference attendees. With a few successful sales to conferences, the company had to revamp its site to handle the extremely high number of users from these conferences. Handling brief, high demand required the company to pour money into its product. Perhaps if the company had anticipated the demand instead of scrambling to respond to it, and organized the background tech processes using job scheduling, this transition wouldn't have cost them so much money, time, and energy. Early in its history, EventVue founders had the notion that the company could help bring in more people to the conference. However, the company readily admits it failed to capitalize on this idea.

5. LoudCloud

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Clearly, this company had an idea that would be profitable. It just put the idea into the marketplace at a time when the public wasn't quite ready for cloud computing. Marc Andreessen, the same entrepreneur who started Netscape, founded this company which billed itself as providing software as a service to customers. This was a new concept when the company started in 1999. The company sold off its operations business in 2002 and changed its name to Opsware, which was dedicated to managing servers. In the end, the original LoudCloud concept was premature and couldn't find its footing back in the late 90s and early 2000s.

6. Pets.com

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This was perhaps one of the most high-profile flops among tech startups. It boomed just as rapidly as it flopped. With the goal of selling pet supplies through its online portal, it made a huge splash with its marketing by getting featured in several nationally televised events, including the Macy's Thanksgiving Day Parade and the Super Bowl. Despite its marketing blitz, the underlying business structure of the company failed to maximize profits. In fact, it lost money when it sold goods. So, even though Pets.com did an incredible amount of business following its successful efforts to obtain visibility, the company didn't handle demand properly and failed to profit. It collapsed in 2000.