The Sad Story of Startups

EghtesadOnline: It’s no secret that almost 90% of all startups globally disappear before their first anniversary. Of the remaining 10% many are on the way out in the second and third year.

News ID: ۷۷۷۲۸۶

30 June 2017

The US Fortune magazine reported that the top reasons that startups fail is because “they make products no one wants.” It said a careful survey of failed startups showed that the single biggest reason for the failure of 42% of those identified was “lack of a market need for their product.”

True. If there is one thing we have observed often at the Financial Tribune, is that over the past three years, many of the young companies we covered ultimately vanished due to ill-conceived and short-sighted business plans.

On several occasions, when talking to some over-confident local entrepreneurs, it was found that their ‘vision’ lacked foresight and the pattern of copying a service or product that is already in the market, or had a zero demand in the first place, often led to their downfall, Financial Tribune reported.

A case in point: Prior to the relative success of Iran Internet Group’s Snapp ride-hailing application, its predecessor TaxiYab was created in a rush to copy Uber. That was a disaster according to several reports at the time.

The nascent TaxiYab in 2013 was battered by calls from the Tehran Taxi Association that their use of the word “taxi” was illegal, and countless lawsuits were filed against the startup.

Fast-forward to 2017, the Snapp branded enterprise is fully registered with all the relevant authorities and seemingly has the support of the government, despite countless protests by the now outflanked taxi drivers.

Poor Planning and Execution

Failure to organize is one of the key weaknesses we witnessed in our talks with young starters. The apparent poor planning and execution of the new business in essence made great ideas ultimately valueless.

It is not enough to just have a strong technical team and enthusiasm, these are not a guarantee for success. Moreover, enthusiasm is hardly a replacement for common sense and practicality. Lack of focus, motivation, commitment and passion, and high doses of hubris resulting in an unwillingness to see clearly or listen, are often the common reasons for failure of startups.

The various impressive titles that these entrepreneurs give themselves (CEO, CTO et al.) are droll when we see their way of conducting business. Even worse, because many of them lack the practical experience and real world skills, they often come unstuck down the line sooner rather than later for these reasons.

Unfortunately for most Iranian graduates, practical skills have often been sidelined for general academic knowledge. When these young brains are exposed to the brutal business environment, they quickly realize that they lack the required skills to succeed.

Indeed, this humbling observation is not to dissuade those looking to make money with a revolutionary idea, it is just to convey that a startup in this country is at least a five-year project and not a get-rich-quick scheme as many have been seeing it in recent times.

Business Accelerators Don’t Help

Despite the overwhelming presence of several business accelerators which have sprung up in several cities across Iran, not many of them have seen true success stories. Moreover, interviews with young business owners who went through business accelerators have often been damning about practical lessons they purport to offer.

A quick scan of several of these websites shows that the 90% failure rate maxim is not wrong, and with regards to Iran the figure is even higher.

But there are those businesses that went it alone and refused the financial incentive of moving into an accelerator. True, the failure rate in the wilds are just as high as those going through so-called mentorship, but some of the more recent companies springing up, either had their own financial backing, or from family and friends to get themselves off the ground.

I am not suggesting that people should not go through accelerator programs, they indeed are a growing component of the wider startup industry, but trial and error are just as important in developing one’s know-how.