Startup is our hope for creating a path-breaking opportunity of wealth creation. The success of Silicon Valley is a story of cumulative successes of innumerable startups.
The early years of the 21st century are seen as the dawn of entrepreneurship in developing economies. But 'infant mortality' rate is very high among the startups, as well as new small businesses.
Despite the tendency of quiet burial, studies indicate high failure rate of startups. A recent study by a tech market intelligence platform, CB Insights, reveals that most new companies have a lifespan of only 20 months.
High mortality rate is a cause of concern to unlock creative entrepreneurial potential for opening up path-breaking development opportunities.
How to reduce infant mortality rate of startups is a major development challenge for countries aspiring to be high-income ones. For example, upon commercialisation of raw labour Bangladesh has reached low middle-income country status.
With the given technology progression, global competition and labour market condition, Bangladesh must succeed in empowering university graduates to take ideas to market at profit, for creating new jobs and firms. Basically, the progress in nurturing startup potentials is going to determine the ability of countries like Bangladesh to keep increasing per capita income.
Startup basically stands for the entrepreneurial initiative of taking technology-centric ideas to market. These are ideas of products, whether goods or services, to be better alternative to existing products. This is about bringing better substitution to market to cause disruption to incumbent industry. Despite the underlying strength of ideas and technology base, it's a tough journey.
And such reality has been the cause of high mortality rate in the startup landscape. As high as 90 per cent startups suffer death within first three years; or by becoming "zombies" remain afloat with seeming lifelessness. It's also true that startup death is surprisingly hard to identify.
Many startups are essentially dead but limp along for years in zombie-like fashion. So, although on life support, these walking dead startups are not officially deceased. For example, close to 1000 startups Bangladesh in the area of software, mobile apps and games, and IT-enabled service area are basically zombies. Despite high hope and also potential, each year since 2010, 70 per cent of all dead tech companies have been found in the IT sector. In India alone, 1,000 startups died in 2016, half of which were incubated during 2013 and 2014. Adequate epitaph is yet to be written on failed startups to draw lesson from failures. Although we arrange colourful events and promote competition among creative minds to undertake startup initiative, but why don't we focus on doing postmortem on high mortality?
Due to high mortality, it's quite important to dissect the journey of failed startups to detect and share patterns to reduce the mortality rate. Oft-times, the underlying causes of such high mortality rate are more than commonly cited reasons, such as -- (i) failure to find unsolved customer pain, (ii) reluctance to get feedback on prototypes, (iii) no passion for the market, (iv) lack of skills needed to win, (v) ignoring cash burn, (vi) inability to raise capital, and (vii) weak team, poor leadership.
After originating in research-based university ecosystems of the USA, startup craze has diffused in developing countries like India and Bangladesh. Starting from political leaders to academics, startup is being projected as the new vehicle of wealth creation-pursuing disruptive innovation. Globally, over US$ 125 billion private equity was invested in the startup world in 2015. This number does not take into account-- (i) all the money that employees have "invested" through all the salaries and wages that have not been paid to them; (ii) the billions of dollars of investments made by founders, their friends and family as well as their angel investors; and (iii) also the billions of dollars that have been "invested" by suppliers who did not recover their money from the company that went belly up. If statistics were available, the total amount would be quite large-virtually wasted to pursue ideas. But success of startups is the key to bring better alternative to existing products-to serve our purpose better. It's quite ironic that despite such high-mortality rate and loss of so much capital, people often prefer quiet burial-instead of pursuing investigation to detect causes of deaths.
Startup journey could be considered as the process of succeeding in disruptive innovation. It's about bringing substitute products around new technology core to cause disruption to the exiting industry. For example, the idea could be smart phone based hand-held ultrasound machine to cause disruption to existing desktop counterparts. Irrespective of the strength of the idea and underlying new technology, the initial product shows up as a primitive alternative to target incumbent products. Suitable customers should be targeted for this primitive product. Additional ideas should be added to complement the first great idea to rapidly improve the quality and reduce the cost of the early primitive offering. Such rapid progress is essential to create new market, and also to cause disruption to incumbent product's exiting industry.
Both scale and scope advantage (preferable around software), and also the benefit of network externality (by leveraging the ubiquitous connectivity) should be exploited to empower the great idea to succeed. But in order to benefit from software, significant investment should be made in research and development. Such disruptive innovation journey is a long one, and moreover, initial great ideas need to be complemented by thousands of additional ideas.
Seed capital financing, quality of education and improvement of infrastructure alone cannot address such high mortality rate. In this globally competitive economy, just creative ideas alone cannot succeed. We need to have well-planned institutional capacity to support initial great ideas to grow with the support of an endless flow of ideas. Such flow of ideas is to be added to the initial great idea for continuously increasing quality and reducing the cost of the preliminary, often primitive though, product to grow as a strong substitute to existing products.
Subsidy in varying forms is often used by entrepreneurs of developing countries to increase the sale of the first cut of their great ideas. In the absence of having the capability of increasing the quality and reducing the cost though additional ideas, and also with the support of complementary capacity, such subsidy-driven approach eventually leads to death.
Instead of waiting for magical outcome of creative minds and increasing subsidy, it's time for policy makers and development planners to focus on developing ecosystem capacity to empower startups to succeed in bringing creative ideas to market as profit-for openings of a new wealth creation front.
M Rokonuzzaman Ph.D—academic, researcher and activist on technology, innovation and policy. zaman.rokon.bd@gmail.com