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Top 6 reasons why promising Chinese startups fail

COLDSKY.CN – Startups boom in China but some go bust after short-lived fame. Here are six reasons behind the losers last year: 

Fierce competition

In June 2017, bicycle-sharing company Wukong Bike became the first to shut down after 90 percent of its bicycles went missing just five months after it started operations. The founder said “Mobike and Ofo have dominated the market with clear advantages in resources such as supply chains and media, leaving little space for later arrivals to develop.”

The other loser Bluegogo, which once ranked in the top-three shared bike companies, was also on the verge of collapse before it was acquired by ride-hailing giant Didi Chuxing. Bluegogo’s failure was said to come from a politically sensitive ad.

Acquisition vs. conversion

Language training startup Xiaoma Guohe closed in March 2017 due to an unsustainable business model despite the backing of influential investors. The company quickly acquired many new customers with products at super-low prices but found almost none of them will convert to become real paying customers. “People who spend will always spend and people who choose the cheap will not spend. This is our lesson,” according to its founder.

High cost behind each deal

Launched in April 2015 with an angel fund of 40 million yuan, Beijing-based car-sharing EZZY had to shut down in October 2017 for failing to secure a new round of investment. EZZY founder Fu Qiang said he was a good product manager but performed badly in cost control. “We paid heavily in our aim to provide the best user experience… paying a cost of 60 yuan to get a customer to pay 30 yuan.”

Drone market limited

Skye Intelligence Technology, based in Xi’an City of Shaanxi Province, stunned many when it closed in January 2017 because its Orbit social sharing drone with precise auto-follow received investment from Baidu’s former vice president Li Mingyuan and caused a sensation at the CSE in 2016 (Related story). The key reasons were poor sales, debt to suppliers and delayed salaries to employees for three months. A staff from leading drone maker DJI  said “the (drone) market is not big and the development meets more difficulties than in the smartphone industry. The size of the low and medium-end market is barely 250,000 units so many startups have to give up amid the fierce competition. ”

Live-streaming sites blacked out

China’s live-streaming market faced a major shakeup in last year with the mobile broadcasting market still booming on one hand and more than 100 startups closed down on the other amid tightening regulation. Platform Guangquan, once valued at 500 million yuan, was one of the big names that went bust after burning through cash. But revenue from live streaming still reached 30.45 billion yuan (US$4.76 billion) in China last year, a 39 percent increase from 2016. Meanwhile, China’s Ministry of Culture has launched its biggest ever crackdown on Internet live-streaming platforms in an operation that will last until the end of April.

Rapid expansion

Xingkong, a well-known piano training institute, closed all its 60 centers across China on Sept 2. Established in 2012, Xingkong was a rising star among educational startups with its gross earnings reaching 50 million yuan in December 2015, according to its financial report. Yet rapid expansion and investment in other industries resulted in financial pressure, despite the 350 million yuan in four rounds of venture capital funding.

(Contact the author ukingsun@qq.com/WeChat:ukingsun)

 

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