It might surprise you to learn that Jeff Bezos believes Amazon will go bankrupt one day. That, from the richest man in the world, who is still the CEO of the company he founded in the mid-1990s. Even though these types of comments grab headlines, they're often dismissed. They're also truer than not, as Appster—one of the largest app development companies—found out with its recent liquidation announcement.
Before going further, I'd like to get a couple points out of the way. First, I can't say I'm surprised that Appster failed. To me, Appster represented everything Savvy Apps never was and never would be. That's not pride, it's a statement of fact. When I started Savvy Apps in 2009, I focused on building a company all about focus, quality, and selectivity. Appster, on the other hand, valued scale, quantity, and volume. Where we've tried not to grow Savvy too quickly, without the right people and processes in place, Appster valued growth above everything else.
Second, I'm not happy Appster failed. Any failures in our industry should be taken seriously because any of us could be next. I write this article not because I want to but because it needs to be written. We need to collectively document what went wrong, take away some lessons learned, and figure out how to avoid such failure again. I'm also sympathetic for the founders, investors, wider Appster team, and the many who lost their hard-earned money by deciding to work with them.
In this article, I will highlight how those who build apps or otherwise participate in the app stores can avoid Appster's shortcomings. App developers as well as anyone with a vested interest in the app stores, take note.
Prioritize Longevity Over Fame
Most people don't start a new app and expect it to fail. In fact, in our experience at Savvy Apps, it's the exact opposite. Many come to us believing their idea is the next Uber, Instagram, HQ Trivia, or whatever the latest darling is on the app stores.
Now, I'm all for dreaming big dreams. There's always room in our world for apps and services that transform the way we live, play, and work. For every Uber though, there are plenty of apps that are great—and continue to stay in operation—but are not household names.
Often we only hear about the breakout successes or the crash-and-burn failures. It's important to realize the other parts of the market outside those extremes and be grateful if you exist in that space. I'm not suggesting you aspire to mediocrity. As Bezos points out, many businesses only exist for 30 years or so. Appster did better than many by lasting about seven, but tried to be the "Uber of app development companies." You may or may not be an Uber. Set yourself up to play the long game.
Stability First, Scale Later
Amazon started with books. Uber started in San Francisco. HQ Trivia was born of video streaming experts. Facebook began on college campuses. All ultimately became high-growth ventures yet came from more focused beginnings.
Many apps don't go from tens of users to even hundreds of users quickly. Those apps that grow to thousands or millions of users after launch often experience growing pains from an operational and technological standpoint. That's why the more focused paths of those successful companies mentioned above were so smart. Their approach allowed them to prove out their concepts before trying to scale. Further, they ensured they had the right people and processes in place before expanding.
Even when you're getting traction, resist the temptation to scale too early. Growth is often seen as the antidote to a business' demise. Uncontrolled growth, however, can lead to the exact end you're trying to avoid.
Don't Let Your Expenses Get Out of Control
Unchecked expenses is one of the issues we've seen through the years, especially with companies that try to scale too early. Bad habits that develop earlier on in the lifecycle of a new app or service also contribute to this issue.
When there are few expenses, like at the beginning of an app's lifecycle, people tend to not worry about them. That can result in failing to keep the books up to date as well as not knowing what monthly expenditures look like. Even if you get away with those bad habits early on, they can sink your app and business as you grow, draining any cash reserves or putting you into debt.
I've met with some fairly established companies that didn't know how their expenses broke down each month. They didn't know how much they spent on personnel, marketing, or various operational expenditures. Further, they adopted a hands-off approach too early, giving away the responsibility for hiring personnel and managing cash. Personnel, in particular, is one of the larger expenses that can cause monthly expenditures to skyrocket. Also, when someone else is managing all the cash, it's easier to approve big ticket items or otherwise not think about bottom-line impacts.
For example, Appster employed over 400 people at the time of liquidation. Their reported revenues of $19M annually—which I'd question anyway—do not support such a large staff. Additionally, a former employee who had access to the company's funds ripped Appster off. Both examples indicate that Appster co-founders did not own, or at least were not intimately involved in, key parts of their business early on in their company's lifecycle.
Be Wary of Cheap and Inexperienced Labor
Thanks in part to the prevalence of app store success stories and apps in our everyday lives, almost everyone has an idea for an app. Problem is, people don't understand the difficulty of bringing an app idea to reality. They also don't realize the costs involved in creating a quality app.
Back when I wrote App Savvy in 2010, I provided guidance on app costs in the early days of app stores. Since then, I've written a number of resources, such as the web's best guide for how much an app costs, what separates a $10,000 from $100,000 app, and how to figure out an app's costs based on its features. The point is that when some people learn how much quality apps actually cost, they sometimes experience "sticker shock." That leads them to seek cheaper alternatives, which often don't end well. Going back to the last section, although it's essential to manage expenses, skimping on labor is not a good place to do so.
Appster had a large footprint in places historically known for producing cheap yet low-quality apps and software. In fact, it appears they almost exclusively used offshore talent for actual app work. Customers quoted in the articles about their downfall noted that even if they got something done, it was "kindergarten stuff." We often speak to the allure of offshore costs on paper during prospect calls. The highest costs though are losing money, pushing out time to market, spending countless hours on QA, and seeing constant regressions. The latter items are especially maddening.
What's also overlooked is what many agencies and larger companies do to keep their margins as high as possible: hire inexperienced talent. Agencies in particular often burn through young talent, investing in recruiting off of college campuses. They pay them low wages and expect long hours, knowing that they can replace them with a new crop of graduates within the next year. There's a seemingly endless conveyor belt of fresh talent that keeps their margins high and the quality of their apps low.
Obviously those new to the workforce deserve a chance. Similarly, not all software developers and companies overseas are bad. Yet, when a firm begins relying on these tactics to build their company, the results can be problematic.
Play in a Market You're Obsessed With and Knowledgeable About
In my opinion, successful opportunistic entrepreneurs are a rarity. That is, those who enter a market solely because they believe they can profit from it, are the exception, not the norm. I'll almost exclusively not continue conversations with someone if they aren't trying to solve a problem they either face themselves or see firsthand. They simply won't have the stomach for the long game of the app stores—or any business really—if they don't have the passion to solve those pain points.
From what's available about the co-founders of Appster, they didn't seem to come from the software industry. They both seem to have growth or marketing backgrounds. To their credit, that expertise did help them with marketing, sales, and general notoriety. They fell flat, however, because they lacked expertise in other places, including building apps, software, and general operational execution.
We often say at Savvy that "profits follow passion." Meaning that by focusing on what we care about, helping customers build industry-leading apps, we have the best chance to have a thriving business. When people have a "passion for profits," they value money more than a quality app and those involved. They then enter a market where they think they can make a quick buck, look for ways to maximize margins, and even outright exploit or deceive their customers. For example, Appster pressured prospects during the final months of operation by throwing them huge discounts to get cash in the door. It's not just Appster. We know today that there are plenty of dishonest players on the app stores that try to trick users into giving away data, perform illegitimate in-app purchases, or comparable underhanded activities.
Another issue that plagued Appster during their last year in business involved new regulations that impacted their offshore operations. Again, from the outside, it appears they had little expertise in running an international company. A side effect of not being obsessed with your market can be ignorance of regulations, rules, and even cultural norms. On the app stores, that can result in lower sales outside of a core market or even offending users.
As mentioned previously, we're neither excited about nor celebrating Appster's demise. Apps are hard. Software is hard. Business is hard. That's why it's important to understand the tangible lessons available from Appster's mistakes.
We take these insights to heart and hope this examination helps others in the app industry this year and beyond. By focusing on longevity, stability, controlling expenses, hiring experienced labor, and valuing passion over profits, you'll stand a much better chance to reflect on consistent small successes instead of one big failure.
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