The Three Strikes that took a groundbreaking AI Company down

A step by step guide for how to cut off your nose to spite your face.

A tech company with a revolutionary AI product was poised to transform the media industry by seamlessly integrating video into media workflows.

With experienced industry leaders at the helm, innovative technology and a strong value proposition, and the backing of investors who saw the potential, the company seemed destined for success.

However, despite being on the brink of profitability, it ultimately collapsed - not due to market rejection or a flawed product, but because of a series of strategic missteps after becoming investor controlled.

Last year I wrote about the single reason startups win, and the many reasons they don't but those aggregate reasons don’t apply to this story…

This company’s AI-driven technology was groundbreaking, enabling media organisations to unlock the power of video for increased engagement and revenue.

Maintaining and deploying this complex product required a skilled team of engineers, whose work was central to the company’s value. However, its sophistication also demanded significant upfront investment in customer integration and support.

Strike One: Arbitrary Cost Controls

Trouble began when the shareholders imposed a strict operational expense (opex) limit. This cap wasn’t based on financial metrics or business needs but on the shareholders’ preference to minimise funding requirements.

This decision hampered the company’s ability to grow, forcing it to stretch its limited resources while trying to meet ambitious goals set by the shareholders.

Strike Two: Mismanagement and Layoffs

When shareholders took control of the company, their primary focus became cost-cutting rather than growth.

They removed the CEO, who had been both the company’s top salesperson and a unifying leader. This destabilised the organisation and fractured the team.

To cut costs further, the shareholders laid off key engineering staff.

This decision crippled the company’s ability to deploy its product for new customers, effectively halting its revenue pipeline. Without the engineers to facilitate customer onboarding, even signed contracts couldn’t translate into revenue.

The downward spiral continued when the shareholders decided to eliminate the sales team.

This severed critical relationships with existing customers, leaving them unsupported and causing some to seek alternatives. With no sales team to build new relationships or maintain existing ones, the company’s revenue and reputation eroded further.

Strike Three: Resistance to External Funding

Despite the CEO’s efforts to secure external funding from global investors, the shareholders resisted.

They feared losing control of the company, even though new capital could have provided the resources and connections needed to scale. This refusal to welcome external investment left the company unable to expand in key markets or sustain its operations.

A Cycle of Decline

The company became trapped in a vicious cycle.

Unable to deploy new customers or generate additional revenue, it was forced to focus solely on cost-cutting.

This destabilised existing customer relationships, further reducing revenue and triggering even more cuts.

Eventually, the company reached a point where it could no longer sustain itself.

What Went Wrong?

• Misaligned Shareholders: The investors prioritised control and cost-cutting over long-term growth and sustainability.

• Short-Term Focus: The emphasis on immediate expense reductions ignored the value of customer relationships.

• Leadership Disruption: Removing the CEO and critical engineers disrupted operations, weakened morale, and eroded the company’s ability to execute.

• Missed Opportunities: The refusal to bring in external funding limited the company’s ability to grow and compete in key markets.

At its peak, the company was only months away from breakeven, with a robust pipeline of customers ready to deploy.

Its failure wasn’t due to market rejection but to governance and strategic mismanagement.

This company’s story highlights the importance of aligning investor priorities with a company’s mission.

It underscores the dangers of prioritising control over growth and making short-term decisions at the expense of long-term viability.

Ultimately, its failure wasn’t about market timing or product issues but about internal decisions that turned potential success into abject failure.