SOFTWARE OUTSOURCING

The higher you fly, the faster you fall: 3 key rea­sons Appster failed

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.

What went down?

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.

They man­aged on­shore, but de­vel­oped off­shore.

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.

They scaled up too quickly.

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.

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Their cus­tomer base was pri­mar­ily star­tups.

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.

What does this mean for app de­vel­op­ment agen­cies?

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.

The Codebots ad­van­tage.

Codebots’ rev­o­lu­tion­ary code-writ­ing bots can be em­ployed by in-house teams or out­source part­ners as an end-to-end plat­form to plan, de­velop and de­ploy apps to the cloud.

Currently, WorkingMouse is the only de­vel­op­ment house with ac­cess to Codebots, but the plat­form is pro­jected to be launched to the pub­lic this year. Onshore de­vel­op­ers pow­ered by Codebots can main­tain the ad­van­tages of on­shore de­vel­op­ment (better com­mu­ni­ca­tion lines) whilst slash­ing de­vel­op­ment time and costs.

Codebots makes build­ing soft­ware a re­al­ity for every­one, cre­ated in Australia, writ­ing 100% de­vel­oper-read­able code so you can cus­tomise your prod­uct at will.

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ABOUT THE AUTHOR

David Burkett

Growth en­thu­si­ast and res­i­dent pom

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