An Exploration into the Decline & Fall of Tech Start-ups.
| Author | Murti, Ashutosh Bishnu |
Introduction
Today, the term "start-up" has become a buzzword, and the start-up ecosystem is teeming with entrepreneurs. India holds the world's third largest startup ecosystem, with a year-on-year growth rate of 12-15 percent predicted. By 2018, India has over 50,000 organizations, with around 8,900-9,300 of them being technology-led organizations. During 2019, alone, 1300 new tech firms were founded, implying that 2-3 new tech firms are established every day. To flourish, each firm must have three major components: a competent founder or founding team, market demand for the offering, and a fantastic product. The issue develops if any of these three critical components is missing or insufficiently forceful (Feinleib, 2012). A few entrepreneurs fail quickly and gain their lessons, but others fail slowly, lack learning ability, and pay a high price for their inability to adapt. An entrepreneur must be multifaceted in order to adapt to both expected and unanticipated problems. However, an entrepreneur cannot be a jack of all trades, he or she or the founding team must be adequately skilled in a variety of fields. This characteristic can distinguish the entrepreneurs and their initiative from others in the market and serve as a strong foundation for building a successful firm (Lazear, 2005).
In order to understand and appreciate firm failure, several methodological techniques have been developed. Lussier and Corman (1995) conducted a review of the research literature on the elements that contribute to small firm success vs failure. Prior empirical studies on failure, on the other hand, have mostly focused on financial ratio data, despite the fact that the effectiveness of ratio-based firm failure prediction models has been called into doubt (Lussier, 1995). It is commonly claimed that a firm failed because it ran out of money, although the real reason might have been poor or inept management, for example. Clearly, uncovering the basic reasons of failure, in particular, and their dynamics, would be advantageous for the long-term building of a business, as it would save a considerable amount of resources and energy on non-yielding or toxic practices.
Blank (2005) was an early contributor to the start-up ecosystem as a scholar and practitioner. He explains how startups nearly invariably fail due to a lack of clients. There are increased risks of failure for a new firm attempting to enter a highly technology industry without having proven its product in the real world. As a result, it is expected that consumer feedback will minimize the perceived risk in a tech start-up. The initial step should be to identify the best problem-solution match. The goal is to put the riskiest hypothesis of the problem under discussion to the test by executing the first solution. Then consider developing the correct product features to address genuine consumer demands, commonly known as product-market fit. If a product-market fit cannot be discovered, a problem-solution fit should be revisited, a process known as pivoting. Multiple studies show that start-ups need to focus on product-market fit, whereas entrepreneurs prioritize development. According to the findings of a study conducted by Giardino et al. (2014), there is a need to enhance methods in order to achieve verified learning in a more effective manner. Nevertheless, in order to do so, we must first comprehend the major hurdles that start-ups encounter.
Start-ups are recently formed businesses with minimal operational experience that are focused on developing cutting-edge products. Start-ups require effective strategies to confront those specific obstacles since their time and resources are highly limited, and one bad project might put them out of business. However, just a few scientific studies have attempted to examine failure characteristics, particularly in the early stages. Despite the idea that the success rate of start-ups enhances global economic growth, researchers have discovered extremely few and contentious discoveries of their failures in recent years (Giardino et al., 2014). Shikhar Ghosh, a prominent educator at Harvard Business School who has held senior executive positions at eight technology-based startups, believes that, "In any natural system, failure is the engine that causes growth; that causes new birth; that causes anything to happen". According to research, entrepreneurs frequently make unnecessary blunders. The goal of this study is to help businesses avoid falling into this trap. Knowing how to avoid these pitfalls does not ensure success, but it is a start in the right direction. Jeff Bezos, founder of Amazon reiterates "Failed experiments are a necessary evil to creating successful inventions. Failure and inventions are inseparable twins."
Literature Review
Analysis of both funded and unfunded start-ups is required to elaborate on the failure of start-ups. However, there are significant challenges to researching unsuccessful businesses (Bruno et al. 1987). Problems in sampling are related to the selection of acceptable sample frames of reference, as well as difficulties in identifying the ex-entrepreneurs. The second and third issues are related to the time passed between failure experience and data collecting. Researchers exploring the problem face classification and comparison challenges as a result of several causes. Ooghe and Prijcker (2008) performed a research that examined business failure in the context of the same four elements that contributed to failure -External environment, Immediate environment, Business and management, and Corporate strategy. The above classification suggests that business fail ure is caused by a mixture of internal and external causes, which is supported by the findings. Lussier and Corman (1995) also conducted a review of the research literature on the elements that contribute to smaller business success vs failure. Vesper (1990: 38, 55) provides a list of factors of failure in high-technology startups. Bruno et al. (1987) investigated 10 failing high-technology enterprises in California's emerging industries. Zacharakis et al. (1999) conducted matched case studies of venture funders and entrepreneurs in their research of perceptions of new venture failure.
Several assumptions are incorrect, and start-ups fail (Nobel, 2011). Entrepreneurs are frequently attracted by the wonders of...
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