Why do tech start-ups fail?

If you tell a set of new start-up founders that they are to fail in a few years, there is a ridiculously high possibility that you are right. Someone may point that even Silicon Valley, the bedrock of innovation, fails on higher rate too. That is true. According to a Harvard Business School study by Shikhar Ghosh, 75% of venture-backed start-ups in silicon Valley fail. This itself is a problem with Silicon Valley, but it is more of a problem looking at the size of the pool of start-ups created every year in our country.

This problem needs solving, but it is very crucial to realize that there is no silver bullet for it.The success of a start-up depends on many variables such as the team, product, market, and capital, which are all hard to get right when starting a company. From there, the lack of any of those factors can make a headline as a cause of fatal failure for any business. Only with extensive research can we be accurate in describing the root cause of this issue. If a founder wants to have a shot to a successful journey, they need to get all those factors right. Note that there is still a possibility to fail because success is just a hard concept to predict.

Let’s narrow this problem to one factor that can be addressed. Recently in a press briefing at Telecom House, the Chief Executive of ICT Chamber mentioned that young ICT based companies fade because of slow customer acquisition. This thought can match up with two of the above-mentioned factors: team and market. Certainly, young tech entrepreneurs do not possess the know-how to get the customers, but that is just one face of the problem.

The other part of the problem lies in the market itself. With good observation, most tech companies that are thriving are based on Business to Business model. Awesomity Labs works for Volkswagen. DMM Hehe builds effective solutions for different organization. AC Group is the closest to treading in the consumer market sea, but certainly when they started enjoying success, they were serving Bus owners as the majority of the users had hard feelings towards their technology.

The only technology that has succeeded is spectacularly in the consumer market so far is mobile money. Other companies that have succeeded are either in the B2B market or have strong ties to government policies, like in the case of RwandaOnline Platforms. What is wrong with our consumer market, the general public? Most of the technologies that we are involved in requires internet. This makes our technology irrelevant to 60% of the population, and the rest thinks that our products are not good enough. They prefer Amazon, Google, Facebook and more.

On the flip side, founders seem to not understand the consumer market. They focus on increasing the level of technology complexity, trying to incorporate fancy technology such as blockchain and Machine learning. There is nothing wrong with that. However, the issue comes when you do not put the same effort into business development by ensuring the right business principles are followed, such as understanding the market and knowing how to effectively recognize a demand and supply it.

Tech entrepreneurs needs to realize that it is not enough to be a good programmer to create a successful venture. I made the same mistake while thinking I was building a tech company, ignoring the fact that we were fundamentally an entertainment company. We found ourselves spending much time building a technology that was not needed. The better founders know the industries they serve, the general population, the likely they are to succeed.

What can be done? Founders needs to realize and understand that they are building a product for the Rwandan market by focussing and exploiting problems in the Rwandan society. After that, It is important that they focus on creating more early adaptors, tech fanatics. They need to work with the Media to let the people know the usefulness of their products, and the media needs to realize that they need to follow these founders and write stories from the tech industry, as they will harvest more long time benefits by supporting these companies that may later give more through advertisement. The same chance that was given to a young music industry in the early 2000s should be given to tech enthusiasts of the new tech industry.

Founders, media and everyone in the tech industry should play their part in building the consumer market. We should focus onto building products that are capable of exciting a good number of the Rwandan population.

To say that this solves the problem would be an overstatement. To answer this problem a thorough data-oriented research should be done to clearly understand why most companies are failing.