I previously wrote about this in May 2018 (Sh*t Just Got Real. Tech Bubble In Meltdown). It’s worth a re-read because it’s doubly true now.

Over the course of the last year, there have been an inordinate number of half-baked startups being launched or preparing to IPO. Notables include WeWork, Uber, Wag, Peloton, Blue Apron, and e-scooter companies Lime and Bird.

What has become abundantly clear is that while having the right technology is an important part of the equation, it’s not enough on its own.

And that’s especially true for on-demand services where reliable, trustworthy people are crucial for success. What many startups are discovering is that finding those people in a gig economy (that they’ve helped to create) is nigh impossible.

What’s also clear is that many startups have not made one red cent and are nowhere near being profitable. It hasn’t been a priority – and why should it be when no matter how much money you lose, more money gets tossed your way?

Too many consumer-tech companies nearing their public offerings are selling magic shows at a science fair.

Derek Thompson, The Atlantic

The startup business model is no longer about bootstrapping. It’s all about creating high-level hype around a disruptive idea. And if a charismatic founder is involved, all the better. It makes raising stupid amounts of VC money easy as pie.

Surprisingly, it’s only been twelve years since this craziness started.

I date it to the iPhone launch in 2007 when apps first became a thing.

Two years later, in 2009, Uber’s app-based, on-demand service launched and we were off to the races. After that, every startup wanted to be the Uber of this, or the Uber of that.

Gradually, the disappointments started to pile up.

Over the last two years, Silicon Valley and its unicorns started to feel toxic, especially post-election. They have yet to recover.

So here we are in 2019 and it’s fair to say “the bloom is off the rose” and “the chickens are coming home to roost.”

Read on below for the two biggest challenges facing tech startups today.

Two major problems for tech startups:

1. Building a business based on unrealistically low prices, with no plans for profitability is a terrible idea.

The low price of an Uber got us all excited about the company.

It’s what I loved most about Uber from the outset (besides the convenience). I couldn’t believe that an Uber from LAX to West Hollywood cost me $20 vs. the usual cab fare of $60 or more. And, of course, that was not sustainable. What we’re seeing now is the disruptor being disrupted.

Over the years, as the prices have gone up, I still use Uber when I travel but I don’t use it locally. In NYC, I switched to Via.

Via, likewise, lured us with its “$5 rides anywhere in Manhattan”. Over the last few months, however, the cost for most rides has doubled or even tripled to $15.

I’ve now mostly given up on cars and gone back to using the subway.

The goal of ride-sharing companies was to get us hooked on the convenient Uber-lifestyle which made it so easy to overlook the price because we weren’t actually having to open our wallets to pay. If from Day 1, Uber had been charging $60 for a ride, it is highly doubtful that the bells and whistles of their app would have been enough to launch the company.

Perhaps those on expense accounts still don’t care. But for the rest of us, the days of ridesharing are numbered. It’s too expensive – and worst of all, even with higher prices, the Ubers of the world are still not profitable.

Free deliveries and returns are another bugaboo of mine. It’s a lazy and sleazy way to do business. VC-funded startups don’t care about profits. Their mission is to grow customer count and drive competitors out of business. But it’s a non-sustainable business model.

Additionally, anyone who really cares about the environment would be wise not to buy things thoughtlessly just because they can return for free. That is the antithesis of mindful shopping.

And then we come to WeWork, the poster child of these kinds of shenanigans. As we all know by now, the company was valued at $47 billion last month but is now a candidate for bankruptcy (taking many companies with it). In the last year, it incurred losses of almost $2 billion. It makes you wonder how much they should really be charging for one of their “hot desks?” Undoubtedly more than most of us would be willing to pay.

2. A shortage of contract workers combined with poor background checks/ vetting is proving to be a recipe for disaster.

Most app businesses rely on gig economy workers to do very important tasks for customers – frequently in the customers’ homes. They need to be absolutely trustworthy and reliable. They are NOT.

Wag, the dog-walking app, has been horrific. They’ve lost dogs and dogs have died while in their care. Walkers have been caught rifling through people’s personal items and even drinking right out of milk containers in the dog owners’ fridges.

Handy, the house-cleaning app, has had problems with cleaners helping themselves to the liquor cabinet. Several instances have been reported of homeowners discovering their Handy cleaning people passed out in their living rooms, totally intoxicated.

Lyft drivers have been accused of masturbating while transporting female passengers in their cars.

Rent the Runway got totally derailed recently with a supply-chain crisis that stopped them from delivering dresses to 14% of their subscriber base. As with most other tech startups, customer service was non-existent which exacerbated the problem – especially when high profile users took to Twitter to air their grievances, e.g., not getting a dress for a wedding or to attend the Emmys.

Bottom Line.

Eventually, reality sets in and it dawns on people that there is no free lunch. That’s what I learned from 30 years of running my own (self-funded) business.

Tracking the craziness surrounding most of these startups, serves as a constant reminde of the old adage, “if it sounds too good to be true, it probably is.”

Has anyone learned any lessons? I doubt it for when funny money is in play, common sense typically goes out the window.