Mobile apps (and the provision of mobile app development services) are a licence to print money, right ?! ... so why have these two massive Australian app development companies entered into Administration in the past 18 months ?
July 2017: App development company Buzinga collapses into liquidation after expanding
December 2018: Young Rich Listers tech start-up Appster collapses after tough four months
As others have noted before, there are a handful of reasons why these app development businesses might fail.
To me, the reasons all centre around a basic premise: The "Business" around a Tech business is like every other business.
For Appster and Buzinga (among others), basing an aggressive "plant your flag on the mountain top" expansion ethos around managing your costs by using a workforce half way around the world because they cost 1/10th of the salary you would have to pay for local talent might seem like a stroke of brilliance when you first think of it, but the reality is always (ALWAYS!) different.
Sure, as a burgeoning win-at-all-costs startup app development business you can tell yourself that your business is an expert in process management and managing the minutia of projects is what you do - and theoretically there is no reason why you couldn't easily manage projects being worked on by remote teams in Sri Lanka, India, Philippines, Russia, or anywhere else for that matter.
Of course, the old adage is true here: "In theory there is no difference between theory and practice, while in practice there is".
And what of the clients themselves ?
Every single time, it's heartbreaking when we speak with a disillusioned app investor who has spent a large chunk of their savings (or hard-earned Startup Runway funding) to try to grab the proverbial brass ring to only ever be tantalisingly close-but-not-quite-there to being ready to launch their idea to the world.
More often than not, it's because their choice of development partner has a "local" office but it turns out that the actual work is being farmed off to teams far away from the marketplace in which the solution will ultimately be deployed.
Timelines blow out. Project costs triple. The quality of work drops as the initial team disintegrates and reintegrates into other projects over time. And disillusionment sets in for the investor when the honeymoon period is over and they still don't have a working app that performs as they had dreamed.
The risks of outsourcing development hits from both sides and if we delve a little deeper, we can see some of the bigger problems that this can cause to the sustainability and reputation of a business.
"... any experienced business person will smell a rat ..."
If we take at face value the statement to AFR Weekend in December 2018, where Appster's co-founders, Josiah Humphrey and Mark McDonald said that 4 months of sales forecasts missed by about 50% meant they were unable to pay their bills and therefore had to fold the business we could be excused for thinking that this was purely a Sales Department-induced business heart attack.
But any experienced business person will smell a rat in that statement. What business hasn't had a handful of lean months and has had to trade out of that over a period of time? There's got to be something else at play here.
Clearly what they're not owning up to is a business that had far deeper issues than just poor sales figures across 4 consecutive months. Did the co-founders take their eyes off the ball or just not realise that they had built a business that was unsustainable both financially and in its ability to deliver on its promises of service quality until it hit a tipping point and fell in a giant heap ?
Did they actually experience many months of dissatisfied customers demanding refunds due to poor quality work and missed deadlines, and the straw that broke the camel's back was the last 4 months of poor new sales ?
That would make a lot more sense.
And then being hit with the reality (and a retrospective tax bill) over dealings between their Indian and Australian operations (based on the Tech Mahindra ruling by the Full Federal Court) will have made them have to think long and hard about the wisdom of relying on squeezing profitability out of cheap labour through their overseas subsidiaries.
In my opinion they had, ostensibly, built a business entirely on outsourcing labour from cheap markets. And that's an incredibly risky thing to do for any service business including one in the tech industry.
Buzinga, by all accounts, suffered the exact same fate a year earlier but - puzzlingly - were not seen as a cautionary tale by their brethren at Appster (or any of the dozen or so rapid-growth app development shops operating under the same paradigm in Australia right now). Buzinga is now a division of The Butterfly Group and seem to be aiming their aspirations at more reasonable, sustainable targets.
Appster's WIP (Work In Progress) and client roster will likely be snapped up by another large app company with pockets deep enough to make money from doing so and who will have to try to churn through a terrifying list of incomplete work (and disappointed/angry clients) in a timely manner to get those client projects to market before they lose their edge. We know that are already a couple of large outsourcing app development outfits sniffing around for this.
But how does this all relate back to your own business ?
I previously wrote a quick reminder of the Simplest Principles of a Service Business - at least as I see them. These basic principles work whether you're selling consultancy services face-to-face or providing an app solution to users who you will never meet.
In short, if you provide a poor quality of service and have consistently low customer satisfaction your business will eventually fail.
How do you pick up the pieces if your app project is unfinished or locked away about to be auctioned off by an insolvency administrator ?
Start by getting your hands on your source code and every other piece of work product for which you have paid (if you have paid something for work, you should be entitled to at least that portion of work performed) and go and see a couple of reputable development companies to get their opinion.
Look for established businesses with a solid track record and a focus on delivering good work. You'll recognise them because they aren't busy telling you how many awards they have won and how many million dollars their clients' app businesses have raised in venture capital funding. They won't be aloof and will actually see that helping you realise your vision is rewarding for everyone involved.
With any luck, they can leverage what has already been done ... and if not, it often is a more straight-forward shot to build a solution if the owner of the Intellectual Property (IP) - that's you - have had some experience with shaping the business already.
And just maybe you can turn that terrible experience into something positive, and have a stronger app business because of it.
(EDIT 14/3/19: It seems that my theory of Appster actually having financial troubles a lot longer than they stated is being validated by the liquidator, Paul Vartelas. Our friends at SmartCompany have an interesting article about this).
Ian Exaudi
Managing Director
Creative Intersection Pty Ltd
