Why startups fail?
Ever wondered about the reason why there are so many stories startups who have failed to achieve success? Statistics show that about 90% of the startups fail.
Continue reading the article to find out the reasons and how we can help transform your a success story.
Contextualization of search
The number of startups Portugal and Central Europe has increased in recent years. Several entrepreneurs with a vision of the different common market see opportunities and initiate their projects. In order to support these startupsEither at the beginning or during its course, there are various types of support and many service companies (technological, financial, marketing, etc.). However, there are still many gaps in these services aggregation and modulation of any business.
With this knowledge we developed a questionnaire in order to identify the main difficulties encountered by startups in Portugal. Thus, five phases were found: ideation and concept, Company foundation, Corporative identity, product development e market launch. In addition, this study made it possible to define an improvement on the existing support considering the reasons why startups fail even before you start.
In the following section is a brief summary of the analysis of the results collected, identified the most relevant information that highlights this.
The remaining sections are described to study the universe and the method used to obtain data as to which search tools used, followed by listing the results obtained.
Finally, we present the conclusions of this investigation making an analysis of these data, reinforcing the aspects where it is visible a potential improvement
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We have analyzed the feedback obtained by the startups and incubators on service needs and the environment of these
Sample search
The study consists of universe startups Portuguese spread throughout the various regions of the country. The identification of these was challenging with the first step was in contact with some incubators. Then we were asked to publicize the questionnaires to startups for them accepted.
Another alternative adopted was to collect appropriate contacts, telephone and email. This was done through the information available on the websites of incubators about startups present in their facilities.
Thus, 40 were contacted startups, 17 belonging to the North, the Center 9, 9 of the metropolitan area of Lisbon, 3 of the Alentejo and finally two of the Algarve region. This distribution regions is in accordance with NUTS assignment (Nomenclature of Territorial Units for Statistics).
The questionnaire was prepared with the aid of a designated survio software. This is used for creating surveys, questionnaires, forms and online market research for free.
Email was sent containing the questionnaire for startups as well as made a few phone calls to get the most possible responses.
Of the 40 contacted, 9 startups They contributed their answers to this investigation.
Main difficulties of startups
Once analyzed the answers provided by startups, Prepared a summary of those considered most relevant.
O launch of the product on the market It is considered to more challenging phase a startup get support. Secondly, the Portuguese entrepreneurs named phase product development. This support covers both technical components either theoretical components such as knowledge. In order to overcome these adversity , More resources have been used such as, time, assistance by external entities, application and obtaining knowledge.
More generally speaking, two stand- general challenges . First, the link with the various entities to obtain the different services needed for startups. Next is the setting of a timetable, to cover all idealized steps for business.
Lack of support layers
Subsequently they considered the specific challenges of the phases treated herein. At ideation and concept It highlights three main areas where it is difficult to get support or even relevant information being the main obtaining partners or members. In addition, the creation of a financial plan and analysis of viability and profitability of the product feature difficulties notorious.
Obtaining incentives and funds is a major highlight in phase Company foundation , It is the most difficult area to get support. But the treatment of bureaucracies to open business also presents low support levels.
In the phase corportativa identity gives startup there was no major complaints from entrepreneurs. However, the development of a Styleguide and landing page were the most prominent areas.
As mentioned previously, product development It is the phase where there was more difficulties. Here, the most complicated areas are acquisition professionals, improvements in functionality, time management, requirements gathering and identification of the respective faults and finally the preparation of documentation.
The customer acquisition is the main challenge no market launch . This phase also corresponds to areas whose support is more difficult to get to work around these obstacles.
In order to help to advance the business, entrepreneurs resorted to some entities dedicated to startups. Of these, we highlight the incubators as the main. This information confirmed that, in fact, incubators They are seen as an essential aid for startups.
Tips for entrepreneurs
The changes in decisions by entrepreneurs, it is possible to determine the reason why startups fail. These would change some relevant aspects for business success which highlights a correct prediction and setting deadlines and results of the product. Similarly, there is an analysis of deeper market and a working team more appropriate.
Finally, entrepreneurs suggested some improvements to existing support currently. More availability and dedication on the part of the entities contacted, quickly and effectively, better working team management, ease of investment and partnerships are some of the answers given.
Learn how the The IT Factory can help you overcome these difficulties.
Results
This section proceeds to the presentation of the data. Listed here are the main difficulties encountered by Portuguese entrepreneurs. This analysis was essential to answer the question "Why startups fail?“.
creating motivation
The first question in this questionnaire was about motivation. That is, the reasons identified most common leading entrepreneurs to start their business.
Within the answers there is the calling or self-realization, selected by 77.8% of startups. Ie, the main motivation of entrepreneurs comes from within these. The desire to leave a mark on the world, changing it for the better or even achieve fame through its products, is greater than any other reason.
Next is flexibility at work (33.3%). Here, the ambition to define your own schedule, objectives and responsibilities are captivating factors for entrepreneurs. Probably a result of tiredness from working traditional hours. Another very strong motivation is the need to obtain money in the face of individual financial difficulties (22.2%).
In contrast, we have motivations that are not very important. The taste for teamwork and ambition to earn more money were both selected by 11.1% of startups. At first, the entrepreneur seeks to create a team following their criteria and the last, this seeks to increase personal income.
Finally, it was also referred to the desire to create something of value in the "other" available in the questionnaire.
Emergence of the idea
Associated to the previous question, there was the emergence of this business idea. With this, we determine if it occurs spontaneously or is the result of something more thoughtful.
Among the responses, resolution of a problem stands out (55.6%). That is, after facing a need where there was no obvious solution. Likewise, improving existing solutions is also one of the most common ways to obtain a business idea (55.6%).
Other sources are through observations patterns and intuition, both selected by 22.2% of startups. The first focuses more on an analysis of trends in the market, while the latter is the result of typical comments from family, friends or acquaintances.
Finally, it was indicated that the idea arose within the scope of university work, in the “other” field provided in the questionnaire.
Area of business activity
In order to overcome the previously conducted searches, one quesão was also placed on the area where the startup it operates.
The areas in which the startups who answered this questionnaire highlights the technology (being selected by 22.2% of startups). Despite the higher percentage to be allocated to the "other" available on this issue, the technology sector was the most recurrent.
In the "other" were mentioned area of arts, fashion, agriculture, science and water.
current phase of startup
A business goes through several stages throughout their life cycle. In order to better understand why startups failIt was crucial to know at what stage they are.
Entrepreneurs who responded to the questionnaire, are already in advanced stages. Phase in Mostly market launch (66.7 & startups), the other being in phase product development (33.3%).
At first, the goals focus on the marketing strategies of the developed product. On the other hand, the development phase there is the business idea into practice.
Phase more challenging
Within the various phases, it was important to identify what was the one where startups felt more difficulties. Therefore, more resources were used in these phases, such as time, contact with external entities in order to obtain support, among others).
O market launch It is the phase where most developers felt difficultiesWith 26.9% on a scale of 0-100%. In addition, product development also stood out (19.4%).
In the third place, we find the startup foundation (18.6%). Here, the bureaucratic aspects of the company legalization are treated as well as fund raising or incentives and brand protection, if necessary.
After this, we have the Corporative identity (18.2%). Here are implemented and visual brand management strategies of both the company itself or the product or service to develop.
Finally, we have the ideation and concept (17%). This is the earliest stage of a startupWhere this is just a mere business idea. Besides, it is the writing of business plans and financial, essentially.
Strategies to face adversity
Associated with these more difficult times, it was also made a question about the strategies adopted to address them. The formation of a suitable working team through hiring qualified human resources was one of tactics. In addition, the application of marketing was nominated for promotion of the company and the product thereof, however basic it was. Finally, hiring services and have patience with the process were advised by other techniques startups.
These attitudes of entrepreneurs are essential to avoid at all costs the factors why startups fail.
general challenges of life cycle
exist difficulties Still that are not derived from a phase in question since they are the result of the route as a whole startup. It was put this question to determine the main challenges found along the life cycle.
55.6% the startups fighting against the number of entities that need to achieve in order to get all the necessary services. One of the main problems is the excess time spent in communicating with different entities for different services. This is probably one of the factors that justify why startups fail.
It was subsequently shown to define a timetable (33.3%), followed by a correct management of the time invested (22.2%). Obtaining cost transparency ranked last obstacles in this list (11.1%).
Furthermore, it was indicated the financial capacity in the "other" available in the questionnaire.
Difficulties in phase and concept ideation
After more general questions, succeeded to more specific questions for each phase treated in this investigation. These have focused primarily in major difficulties and the entities that sought to support.
In the first phase, ideation and concept, Find partners or partners for the business is the main challenge. This has obtained an average of 5.78 on a scale of 0-10, where 10 corresponds to the degree of difficulty higher. Ie entrepreneurs felt lack of support and information to achieve the goal.
Then, is the creation of financial plan (average of 5) and the viability and product profitability analysis (average of 4.89). Soon after, there is a correct estimate of costs and duration (average of 4:56), as the main difficulties getting support or information.
On the other hand, are the areas where there was no such difficulty. Market research (average 4.33), fault identification in defining requirements (mean 4.22), an entrepreneurial education (average of 3.98) are some examples. Finally, the definition of the vision, mission and values as well as the creation of a business plan (both with an average of 3:56), do not show many obstacles.
We can conclude that the inaccessibility of these areas can be one of the contributors why startups fail.
With the startup advisory service, we will help entrepreneurs to establish their businesses beginning with a deep market analysis and a good structuring of business plans and financial.
Entities sought in the ideation phase and concept
To overcome difficulties, many startups come in contact with authorities in order to get support from these. The purpose of this question was to identify which are the most frequently contacted entities at each stage hereof.
As incubators are the entities most sought after by startups (selected by 66.7% of startups). Thus, one would expect that these furnish the necessary services to circumvent the reasons why startups fail.
Second are the national and international institutions to support startups (44.4%).
At this stage they are also consulted consulting and accelerator companies (both 33.3%).
Finally, other entities were contacted general investors, venture capitalists and business angels (both selected by 22.2% of startups).
Difficulties in the company's foundation phase
Likewise, the startups They were questioned about difficulties experienced in the second stage hereof.
Obtaining incentives or funds is the main difficulty getting support. With an average of 7.89 at 10, the entrepreneurs are clearly challenged. Although not as notorious as the previous one, dealing with bureaucracies for the opening of the company also has its weight (average of 5:44).
Here is the brand protection guarantee, with an average of 4.78. Probably these three areas are the main reasons why startups fail this stage. On the other hand, the identification of the entities to legalize startup (Mean 3.89) no longer represents a major challenge. Likewise, the definition is the legal structure of the company (average of 3.78).
Entities sought in the foundation phase of the company
Again, the question was taken on the contacted entities since they vary with the phase in question.
Entrepreneurs sought to support virtually the same entities appealed the previous phase. That is, incubators still in first place (66.7%). Then there are the consulting firms and national and international institutions to support startups (Both 33.3%).
Other entities have also been contacted were the general investors, acceleration and business angels (both 22.2%). Finally, venture capitalists are (11.1%).
Difficulties in corporate identity stage
As can be seen in the graph shown in the respective figure, at this stage there is a degree of difficulty in obtaining information or support very high.
At this stage due to the planning of a brand management strategy and visual company and product. Of the areas mentioned in the questionnaire, there is the preparation of a Styleguide (average of 4.22) as the most difficult to obtain support.
Next are the definition of corporate identity & design (average of 3.22) and the development of the landing page (average of 3.11).
Ultimately, the logo design (average of 2.22) and business cards (average 1.33) revealed no major difficulties in obtaining information or support.
We can conclude that although not highlighted any difficulties in particular, a sloppy brand management can be one of the reasons why startups fail.
As good design is the first step towards the recognition of the company, The IT Factory provides a comprehensive service that covers the development of the brand until the creation of web design and graphic design to convey your vision, mission and values, considering the psychological aspect to create more impact on the user.
Entities sought in corporate identity phase
Regardless of the level of difficulty found at this stage, many startups seek extra support through entities.
As in the other phases, incubators (55.6%) remain in the lead of sought by entities startups. Next, there are accelerators, national or international institutions supporting startups and consulting firms (both 22.2%).
In last place are general investors (11.1%). However, with the same percentage, there are startups that claim that they did not seek support or use the bootstrapping method. In the latter, personal (essentially monetary) resources are used to advance in this phase.
Difficulties in the product development phase
As previously indicated, product development It is one of the most difficult stages. Thus, the startups also feel difficulties getting support or information needed.
The acquisition professionals (mean 6.67) stands out as the most problematic area in support. The improvements in the definition of product features (mean 11.6) are second.
The values are very close to each other, so once again demonstrates that this is a very difficult phase.
The time management, requirements gathering, identifying faults in the requirements and the development of general documentation or code have the same degree of difficulty obtaining support (mean 5.67).
Then, the product matching the requirements (average of 5.56), the work team management and cost compliance (both with an average of 5.44) also reveal a level of difficulty above average.
The meeting deadlines, the adaptation of the feedback received in the tests and make the product / service user friendly (average of 5:33), product or service test (average of 4.78) represent other areas of this phase. Finally, ensure product quality (average 4.11) symbolizes the area more easily in support.
We can conclude that the inaccessibility of these areas and the level of demand implies that this phase may be one of the contributors why startups fail.
In The IT Factory will find a team of professionals ready to develop your product as envisioned. We offer a wide range of web and mobile solutions that cover all the performance and scalability requirements for performance and growth ideas.
Entities sought in the product development phase
To overcome difficulties this stage, many startups come in contact with authorities in order to get support from these.
Startups continue to seek support in incubators (55.6%), followed by national and international institutions to support startups (44.4%) and accelerator (22.2%).
Moreover, 22.2% of startups They claim that did not seek support at the stage of development of your product.
The remaining entities were contacted general investors, venture capitalists, business angels and consulting firms (11.1%).
Difficulties at launch in the market
Likewise, the market launchThey were also checked difficulties above average.
The attraction and customer acquisition (average of 7:56), stands out as the most difficult area to get support or information required.
Next are the target audience (average of 5.78) and the creation of an action plan (average of 5.67). Very close to these is the choice of strategies to deal with competition (average of 5.33).
On the other hand, where it does not appear much difficulty in obtaining support are the creation of a marketing strategy plan and achieving the defined objectives (average of 5.22). These are accompanied by continuous optimization (average of 4.67) and finally, the selection of advertising channels and monitoring of results (average of 4.56).
Due to the various challenges that this phase presents, we can conclude that the inaccessibility of these areas may be one of the reasons why startups fail.
As a good and effective marketing is critical to the success and recognition of the developed product, The IT Factory has a team of professionals in maketing branch where together, targets will be set and various actions will be taken to promote your product or service using the various channels and online platforms.
Entities sought at launch on the market
Due to challenges this last phase, entrepreneurs sought support from various types of entities.
Once again, the incubators (55.6%) continue to be the main entity where support is sought. These are followed by national or international institutions supporting startups (44.4%) and accelerator (33.3%).
22.2% the startups They claim that they did not seek support for this phase.
Other entities are sought general investors, venture capitalists, business angels and consulting firms (11.1%).
In all addressed phases, entrepreneurs seeking solutions to overcome the most common reasons for which startups fail.
Involvement of entities in decision making
As regards the level of involvement of entities, entrepreneurs say it is high. These are involved in making important decisions startups.
These results reflect the views of startups before his experience with the entities that actually provided support. In cases where they were not provided support, the startups selected the “Not applicable” option.
The venture capitalists (mean 4.5), business angels and consulting firms (average 4.33) and general investors and hubs (average of 4) are the entities most involved in decision-making of startups supported by them.
Finally, other entities also have some weight in making decisions such as incubators and national or international institutions in support of these (average 3.55) and finally, the accelerator (average 3.33).
Improvements to existing support
It was placed the question of which is the support startups they would like there to be improvement. Among the responses, the following stand out: the entities simply needed to be truly available to help these companies in starting their business; on a financial level, time is crucial and more speed and efficiency are needed; work team management; establishing partnerships; more support in terms of investments; and finally, greater contact with higher education institutes in order to provide a real perspective of what the job market requires.
Thus, this feedback provided by entrepreneurs allowed better understand why startups fail.
Changes in business decisions made
Ultimately, you will find advice and opinions on what would change if you opened a business today. If, on the one hand, some entrepreneurs say they wouldn't change anything, others say they would change almost everything or not even start. Of the answers given, optimization in forecasting and defining deadlines and results, better market analysis and better selection of the work team stand out.
But then, why startups fail?
After analyzing the results, we can conclude that entrepreneurship is increasingly taking on gigantic proportions, with individuals wanting to follow their dreams and wanting to take more risks.
Entrepreneurs still feel enough difficulties in obtaining support for the growth of their startups as this environment is still globally new.
Despite the visible efforts to contact various entities to get the best possible support in more phases difficult, Either for lack of knowledge either for lack of technical qualities, still face a lot of inaccessibility of services. If there were really accessible entities to listen entrepreneur's needs and show dedication in order to reach a solution, perhaps these new companies showed more confidence and security to go further with your business.
Moreover, the fact that there is no centralized information about the beginning of a business requires and existing support also are not fully present in a single entity makes the process much more boring and complex than it really is.
However, the fact that this environment become increasingly known and desired by the population makes the existing support to become better and better and that new support born to create a culture of entrepreneurship and innovation in Portugal.
In order to bridge the gaps support the existing ones, a new concept was created. The The IT Factory has launched an innovative concept which covers all areas of necessary services for a startup so that they do not have to go through several different entities, thus maximizing the time invested. These services are tailored to the needs of each client that is to start your company. Thus, the main focus is always the customer and the business idea with this control for its startup.
Make your dreams come true.
Find out about the discrepancies between the needs of startups and services of incubators