Reasons for Wesabes Business Failure - Research Paper Example

? Wesabe’s Business Failure Wesabe’s Business Failure Introduction Starting a business is highly risky; in fact, 80 percent of small enterprises fail five years after formation and 50 percent within the first year (Zimmerman, 2011). Additionally, in business numbers are the most important determinants of success. There have been numerous questions behind the shutdown of Wesabe, in the summer of 2010 four years after it was formed. Wesabe was formed in November 2006 to assist people in managing their finances. The company was among the first to try out the Web 2.0 approach for dealing with this problem (Bruene, 2010). It started off on the right track since it had the appropriate technology thus was flexible in contracting negotiations. They had state-of-the art user interfaces that allowed the company to carry out efficient transactions. It featured in a public API and it had a well established database (Bruene, 2010). It had a strong brand image at the start and never used commissions from financial providers. At this juncture, it is important to note that the company was the first of its kind and had the experience as compared to other competitors. However, the company’s woes began even before the company was formed as several companies had started working on similar plans. The company started off with a decent capital investment of approximately $5 million capital investment and had up to 150, 000 members in the first year of its operation. The company was adversely affected when a similar company Intuit Company (Mint) was started $117 million capital and 300, 000 users (Bruene, 2010). Mint had a better brand name, an easier interface and a huge pool of capital. This together with the increasing competition from other new entrants put increasing pressure on Wesabe. The company began generating revenue later than Mint and finally ceased its operations in July 2010. The company’s mission statement was concerned with offering cheap, fast and efficient financial services by using the internet. It defined itself as ‘a community of real people dealing with real money issues’. The goals and objectives focused on ensuring that its clients meet their financial targets (Bruene, 2010). It was referred to as web based site that offered its members a better understanding on how to manage funds. It also focused on giving sound financial advice to their customers thereby improving their decisions on spending. The company did not aim to compete with traditional banks focused on providing unique and secure financial solutions to its customers. The company operates in a highly competitive market and its chief competitor is Mint. Mint has had outstanding growth since it was formed ten months after Wesabe. It has a market share of 60 percent (Bruene, 2010). The second competitor is Geezeo that has been experiencing impressive growth in the recent past. Other competitors include BudgetTracker, Thrive, Yodlee, PearBudget and Buxfer all which have shown impressive growth over the years (Bruene, 2010). The company faced competition from these other players in terms of marketing, sales and technology. The company failed to employ strategic marketing strategies therefore it did not reach a large number of users. Mint was more aggressive with marketing its financial services. With regards to sales, the company did not apply the sales tactics such as the ones used by Yodlee and Geezo. In terms of technology, Wesage did not integrate the FI’s online banking frameworks in their system. Reasons for Failure As earlier stated, most businesses fail after a few months in operation. The major reason is due to lack of enough capital investment to run future activities. Stiff competition from other players in the market may also cause a business to shut its doors. Such businesses are characterized by poor developed business models that are impractical and ineffective (Bridges, 2013). Small businesses tend to be anxious to generate profits therefore they may over expand their activities. The other reason why businesses fail is due to poor management and internal controls resulting to problems in accounting, customer service and other key functions (Bridges, 2013). Finally, businesses fail due to increasing competition from well established companies in the industry. These are some of the basic reasons why small businesses fail and they are similar to the ones in Wesabe’s case. Wesabe’s case analysis shows that the company only has itself to blame for its untimely failure. There are three main causes of Wesabe’s failure. They failed to successfully execute on sales, marketing and technology (Wolf, 2010). With regards to sales, they lacked a market presence as compared to their competitors. Their major competitors had properly managed and aggressive sale strategies that resulted to profit generation (Bruene, 2010). The company did not fully exploit its technology to gain a competitive advantage over its rivals. Additionally, the company failed to adopt t technological advancements in the industry (Wolf, 2010). In terms of marketing, the company failed to position itself sufficiently to the traditional approach of aggregation, budgeting, forecasting and aggregation. Eventually, the company missed the opportunity to draw million of customers. The company failed to capitalize on its early lead. Unfortunately, its chief competitor, Mint benefited from this as it was able to learn from the mistakes made by the company (Wolf, 2010). This early lead made the company set their prices upfront, other competitors including Geezo did not set their prices and have been are doing better by the day. There were rumors that the company did not make any many. This was untrue as the company started generating profits in the last quarter of 2008 however; it was insufficient to maintain the company’s operations (Bruene, 2010). Being an online business venture, Wesabe was not viral. This is because the company did not spend any money on online marketing. On the contrary, Mint acquired customers by investing in search engine marketing. Although this was an expensive undertaking, it paid off as the company grew five times faster than Wesabe. The company’s startup capital was inadequate as compared to what its major competitors had. This could have been one of the causes of failure. Being a financial company, it should have invested more in starting the business to ensure sufficient financing of its future operations and long term financial security. The company paid too much attention to customers’ opinions and this had adverse effects on Wesabe. Wesabe failed to make the most of partnerships and mergers. For instance, the company should have worked together with Yodlee Inc., an entity that worked with banks and was in a position to acquire customer passwords and other relevant information (Bruene, 2010). The company’s design and brand name were not catchy. The products design and brand name matters a lot since it plays a huge role in attracting customers. In a nutshell, the company had all the necessary resources to succeed but failed in formulating and implementing proper strategies. Analysis Wesabe business idea was outstanding and destined for huge success. It was highly creative and could compete with the traditional banking approach as it offered financial service to the people who could not manage their finances. With the use of the internet, it was easier to reach a high number of users. The best example of this scenario is Mint that went viral after it was launched thus attracting a high number of users (Bruene, 2010). The company failed in the implementation stage as it did not apply the necessary marketing strategies to reach a high number of customers. The company was the first to launch its financial services in the market and did not make the most of the early lead. The company should have made efforts to gain a well established customer base before focusing on profit generation. Wesabe took a long time to start generating revenue. This could have been a warning sign to the management that should have reviewed their strategies on time. This epic business failure could have been averted in so many ways. First the company could have improved its design and overall image. Second, the company could have engaged in hard line marketing. As earlier expressed, the company spent little on marketing as compared to other players in the market. Third, the company should have been involved in strategic mergers to enable it the necessary information with regards to their customer. Fourth, Wesabe refused to host ads on website which could have been a considerable source of income (Bruene, 2010). Fifth, Wesabe had low sales as their services were more expensive. If they had reviewed the pricing policies, the company’s fate could have been averted. Finally, the company did not exploit the full potential of its technology and this explains why it lagged behind in the competition. In my opinion, the entrepreneur could have planned better as he had a sound business idea but failed on implementation. First of all, the entrepreneur should have conducted an in depth research of the market to establish the pros and cons of investing in online finance. He could have invested more capital at the beginning and hired a qualified staff to advance the company’s success. The company could have invested more in online marketing. It can be observed that this strategy worked well for other players in the industry. The company should have adopted the conventional approach of aggregation, budgeting, forecasting and aggregation that was employed by other players in the field (Bruene, 2010). The entrepreneur had the appropriate business idea but lacked strategies and resources to see it succeed. In a nutshell, Wesabe shot itself in the foot by faulting in the formulation and implementation of sound strategies. This case analysis should be a lesson to other small businesses that are seeking to venture into risky and competitive industries. Wesabe’s causes of failure resulted from their sales, marketing and technology strategies. Future entrepreneurs should bear this in mind in managing their businesses. Wesabe’s case is just one among the numerous business failure stories that have occurred to well established business ventures resulting to their closure. References Bridges, V. (2013, May 19). Five reasons that small businesses fail. Retrieved from http://www.heraldnet.com/article/20130519/BIZ/705199989/0/OPINION Bruene, J. (2010, June 30). Online financial management pioneer Wesabe to shutter its PF functions, open source its code. Retrieved from http://www.netbanker.com/wesabe/ Wolf, G. (2010, October 5). Why Wesabe failed: Marc Hedlund’s challenge. Retrieved from http://quantifiedself.com/2010/10/why-wesabe-failed-and-the-chal/ Zimmerman, E. (2011, January 5). How six companies failed to survive 2010. Retrieved from http://www.nytimes.com/2011/01/06/business/smallbusiness/06sbiz.html?_r=1& Read More