The irresponsible demise of Honestbee

Lately, we’ve been covering a number of startups that have gone through rough times.

Honestbee is the most famous one. We’ve also written about Tink Labs, which fell from its unicorn status, as well as bike-sharer OBike and airline loyalty app Mileslife. There’s a couple more that we’ll be discussing in the coming weeks.

While there’s plenty of advice on how to grow a startup, there’s very little literature on how to gracefully and responsibly scale down a company. We’ll just have to learn from others’ mistakes.

Photo credit: Honestbee.

It’s unfortunate that Honestbee represents the height of startup hubris.

While hindsight is always perfect, all fingers point to Joel Sng, the company’s ex-CEO and founder, who created a culture that apparently chased away good employees and stifled dissent.

Honestbee lacked the right processes for its size. It didn’t have a firm grasp of its unit economics and cashflow. Even as its cash dwindled, it was spending heavily just to look good in front of potential investors. It didn’t intervene soon enough – Sng departed only when the company was in critical condition.

Tech startups, especially consumer platforms, bear an enormous responsibility.

If a restaurant shuts down, the effects can be contained. But if a platform disappears, more livelihoods are affected – we’re talking about suppliers and contract workers. Honestbee appears to owe at least US$209 million to various people, including vendors.

I know of suppliers and contractors who were hit hard because a significant chunk of their revenue came from a single platform. Forget about shutting down – even a delay in payments could hurt their cashflow.

These vendors are often small businesses or even individuals, sometimes. For them, cashflow is tight, and there aren’t many options when it comes to raising capital.

Of course, you can argue that suppliers should know what they’re getting into and calculate the risks involved. But the odds are stacked against them because the information asymmetry is high. A fishmonger relying on Honestbee, for example, can hardly be expected to evaluate a public company’s financial and managerial performance, let alone a private one.

Startups have every incentive to be as opaque as possible. Fundraising is about selling the story of constant growth. Some startups, Honestbee included, pump up the numbers through marketing spending to make the chart look nicer.

It’s the “fake it until you make it” mentality. Of course, there’s nothing inherently wrong with it: many successful tech companies survive by the skin of their teeth in their early days. They were frequently months away from bankruptcy, until the arrival of some last-minute investment.

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