Background check – Why many entrepreneurs will fail?

I know “failure is pillar of success” but let us for a moment analyse why many entrepreneurs or start-ups will fail. You will get to read many blog posts as “Why start-ups fail” but let us go to the fundamentals and find the root cause of the problem.

Note: When I say start-ups and entrepreneurs, I mean IT start-ups/IT entrepreneurs with a team strength of 0-10 people.

If you do a dissection of a typical IT company there are 3 major parts each of which can be further sub-divided.

1. Business Promoters/Business Development Heads – their designation may vary from company to company.

2. Support – Finance Personnel, HR Personnel, Facilities Personnel.

3. IT professionals – Developers, Designers, Testers – (primarily)

The trend has been found that 60-70% of the IT start-up entrepreneurs are from last the segment – IT Professionals. Lets dive deeper into this:

Situations:

1)      IT Professionals just hop from one company to another. Life becomes monotonous. They start thinking that they know everything after staying in the industry for just about 4-5 years and then they move out to start their own IT Start-up. In many cases, they move out stealing client base from their previous companies. Sometimes these IT professionals move out because “they had a fight with the management.”

2)       IT Professionals stay in an IT organization say for about 10-12 years or may be even more and then they feel it is time for them to do something good for the society. So they move out to start their own start-up, without even understanding the “business”.

3)      Another trend which is seen recently is that students are discarding their education and getting straight into building start-ups. When asked why have you discontinued your studies? They reply “look at Steve Jobs and Bill Gates”. In some cases students with poor marks cannot get into IT companies and end up starting their own venture. Many start calling themselves “Next Gen-Entrepreneurs.” Even they will fail because 80% of them do freelancing projects and freelancing is not entrepreneurship.

The initial 1-2 years is exciting for these so called entrepreneurs but slowly the problem creeps in – financial issues (because they do not understand business), human resource related issues (cannot recruit people nor can they retain them), marketing/sales (majority are “technical” and have never done sales/marketing in the past), operational issues (output affects).

Advices:

  1. Think a number of times before you start your venture. Journey ahead is not easy.
  2. Knowing technology does not mean you can start a business. Give more weight age on business. After all technology is just a tool.
  3. Think who will work for you before starting anything new.
  4. Motivate students to work in start-ups first, which is the need of the hour rather than telling them blindly “go start your venture”.
  5. Do not build something or start something just because you like it (just to satisfy your creative urge).  Indentify the need first.
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5 thoughts on “Background check – Why many entrepreneurs will fail?

  1. Nice article Aninda. Apart from what you said, I think everybody should understand what they can do; you are starting a company, are you a good manager? Do you have a proven track record? I can share my own experience here; I am a great team player, I am an innovator, I can come up with many creative ideas but I am a VERY BAD manager. I realised it many times in my life and that is why I politely rejected promotions many time.

    I would like to amend the statement – I can be a GOOD manager when the team members are motivated, but I cannot handle a team of slackers. So that’s my weakness; many people start a venture before they get such realisations. You have to identify your strength and weakness first; that’s very very important.

  2. Nice Observations and I hope guys out there working in IT companies take a note of these before jumping in. Its hard really hard and be rest assured no matter how well you have planned, be prepared to accept only 30% of what you have planned will go in that way, remaining 70% will be reverse of what you have planned. So be very very well prepared to survive for more than 4-5 yrs as pointed by Aninda.

    Once again, nice post Aninda.

  3. The idea “students who wish to become entrepreneurs should work in a startup for a few years to test the waters” is quite interesting.

    Anybody who is proactive can get to do almost every thing that an entrepreneur does by being an active member of a startup. This will give him good exposure and if he feels he belongs to this eco-system, he is welcome 🙂

    Ditto for she 😉

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