A new year means out with the old and in with the new; one 'old' thing the world left in 2018 was previously multi-million dollar app development company Appster, which collapsed into voluntary liquidation in December.
In 2017, it was Buzinga, a promising young development house with big dreams and a skyward trajectory. When Buzinga went bust, Appster was quick to swoop in with a Google Ad campaign aimed to capitalize on the market that had been left high and dry from Buzinga's downfall. Little known to them, they'd be following in Buzinga's disastrous footsteps only a year later.
Appster was once considered the golden child of the Australian startup and tech scene, with growth potential compared to that of Apple (by some overly enthusiastic commentators). On the surface, the award-winning company looked like it was on track to be a dominant player in the software development industry, but when they went down, they left business owners empty-handed with unpaid refunds and poorly built apps described as kindergarten stuff. With two high profile app development companies going under in such short succession, customers have some serious trust issues to contend with.
Founded by Melbourne duo Josiah Humphrey and Mark McDonald in 2011 with just $3000, Appster was quick to make waves in the startup scene, with a mission to build a development hub for the greatest ideas and innovations in the world.
Humphrey and McDonald were named in Forbes 30 under 30 rich list in 2017, with an estimated net worth of $US43 million, and Appster pulling in more than $US19 million revenue. The pair also ranked on Australia's richest under 40 list in 2015, making the list every year since including last year with a combined wealth of $52 million.
Four months prior to Appster's demise the company was in one of the best cash positions it had been in; things spiralled out of control very quickly when forecasted sales targets were missed by more than 50 percent, four months in a row.
Following the rapid deterioration of Appster's financial position, the company went into voluntary liquidation.
These are the three key reasons Appster failed.
With a limited startup budget, it is easy to understand why Appster was enticed by the appeal of offshore development, with low wages and a virtually unlimited talent pool. Post-mortem, one may wonder if Appster should have moved all development onshore once it began making a name for itself on the tech scene. Instead, development was primarily offshored, and with rapid growth, it was much easier for them to lose control.
Offshore development saves money, time and minimizes internal overhead, but the true cost of development is a question of control, speed and quality. Time zone differences, communication barriers, inconsistencies in code quality, a lack of transparency and accountability makes offshore development houses significantly less appealing. When you develop locally, you can meet with your developers, designers and testers regularly, and assess progress. You can identify problems quicker, and iterate accordingly. Due diligence is much harder to monitor online or over the phone.
Appster's aggressive sales strategy is reflective of rapid growth ethos. Over an eight year period, the company grew to employ 400 staff across four international offices, with a clientele consisting primarily of startups.
Appster had publicly stated a business goal to reach $100 million revenue in 2018. In four short months, work dried up and as Appster missed target after target, revenue took a substantial hit. The founders blame the hit on a new tax ruling by the Australian Taxation Office with Tech Mahindra, which changed how money was taxed between Australia and India. Both founders came from marketing backgrounds, and the rapid growth combined with problematic offshore developers meant they quickly lost control. Marketing is important, but it does not make a successful tech company. It's essential to have management with tech backgrounds employed; if you over promise and can't deliver, you'll fall harder and much quicker.
The startup market is a volatile one. While startups are an easy target for slick app sales, they're not a sustainable market for continuous growth. A balanced client base that includes SMEs and corporate organisations provides an app agency with steady a steady cash flow that reduces the impact of market fluctuations.
Two major up and comers taking the ultimate hit in 2 years does not instill a lot of trust of faith in app development agencies. True to the cycle of life, as Appster swooped in to pick off the fallen post Buzinga, a trove of new development houses have now sprung up to entice gilted business owner who have been "Appstered".
While some see this as an opportunity, a survival of the fittest development houses, it definitely adds to the erosion of trust in software outsourcing firms. Startups are the hardest hit when things go south. A family may invest their life savings into an app, then have their developer go into liquidation mid-development. Does this mean it's very unlikely a startup will be able to successfully build ground-breaking software on a minimal budget? Absolutely not.
Apps are no longer a novelty, they're a business necessity. The industry will continue to adapt, gaining strength from the pitfalls of others, and only the strongest will survive.
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