Why do startups in Nepal fail?
- Entrepreneurs continue to dream big but failure should be one of the main concerns
Mar 27, 2017-While you wouldn’t know it from their enthusiasm, ambition, drive, and all-around excitement, every business founder deals with a hard truth—they will most likely fail. An aspiring entrepreneur just sees that the startup world is filled with stories of great success through perseverance.
Even the media is abuzz with articles that tell you that failure in entrepreneurship is not an option, and that in time success will come to those who are driven. This is one of the reasons entrepreneurs continue to dream big and keep looking forward. However, failure,which should be one of the main concerns for many entrepreneurs, gets shrouded by the unrelenting optimism in the startup world.
The reasons why startups fail are hard to definitively pinpoint. Some fail because they’ve run out of money, other simply because the vision no longer interests them. In Nepal, however, what has been seen throughout the startup boom in the past five years is that most of the startups that have failed tend to have met their fate due to a few common reasons.
Not enough knowledge of the market
This is one of the most obvious problems, and it sprouts from being unprepared and running a startup just for the sake of it. Ask any college graduate what they want to do after university, and an overwhelming percentage of them will say entrepreneurship.
Being an entrepreneur has become a tag you put on yourself to gain admiration from others. Therefore, there are many who start their business not knowing anything about the market they are serving. At NEXT Venture Corp, we see many startups that come to us hoping that we would invest in them or connect them to potential investors.
However, many a times, a simple inquiry about who their customers are or what their market size is, results in answers that are vague and unprepared. Most of the answers tend to be derived from general google searches, but most investors look for businesses that have done substantial local market research.
Understanding your market is the building block of a great startup, and skipping this step is detrimental to the whole business. For instance, you could spend lakhs into operating your business, and creating the product, only to realise that the market size is too small to derive profit from.
Too much networking
Whoever said that your network determines your value, didn’t mean that one must spend all their time and effort into networking. In Nepal, the number of conferences, meetups, hackathons, talk programs and the likes that happen are a dime a dozen, with something or the other happening every single day.
While each of these events may give you some value, it’s not necessary to attend them all. In the crucial first few years of a startup, focusing on internal operations prove to be more rewarding than building external relations. This strategy builds an efficient workflow and creates a strong team spirit, both of which are invaluable to sustain the company.
Therefore, one must always calculate the opportunity cost of attending such events, because as a startup your aim should be to grow fast, which can only be done by focusing on the core operations. However, it seems that many entrepreneurs fail to considerthis opportunity cost.
As entrepreneurship facilitators, NEXT gets invited to most of these events, and hardly ever do we see new faces. Consequently, these same faces have turned out to be businesses where little has been done, and the business has lost its momentum. And, in doing so, the employees too have lost their interest in the venture.
Very little customer interactions
A normal Nepali startup generally spends months creating a product which is on par with the best in the world, but it isn’t something customers need. Most entrepreneurs when they start out tend to forget that they need to create solutions for problems people are facing, not go looking for problems after they have created a solution.
This can be observed in the tech start-ups in the country, which are able to churn out one application after another, assuming the needs of a customer. Therefore, in many tech businesses in Nepal, seeing a portfolio of failed products is very common. Having interacted with numerous startups, we have come up with two reasons why startups tend to have very little customer interactions.
Firstly, people underestimate the number of customer interaction that can be considered enough. Too many times we’ve come across startups that have only talked to handful of people and just assumed that they had done their part. Whereas, as facilitators, NEXT is always on the lookout for entrepreneurs that have interacted with at least a hundred people. Customer interactions are one of the strongest indicators of a successful business.
Secondly, customer interactions are considered only at the beginning of the creation process, rather thansomething that needs to be pursued throughout. This has rendered so many products useless as there has been no feedback from the customers, and the customer’s needs haven’t been fulfilled properly.
Dependent on investment
There is a common misconception circulating in the startup scene of Nepal, where entrepreneurs assume that they need investors to start their business. At NEXT, one of the most common phrases we hear from entrepreneurs is ‘I have an idea, and I need an investor’.
We believe this view is grossly misguided. To an investor, an idea is only worth investing in if it’s proven that the demand for the product is substantial enough. Therefore, an entrepreneur with just an idea is not interesting. The investors believe that someone with a vision, who truly believes that his products will solve the problems of many, will not hesitate to invest in his own business. Even if what the entrepreneur has done is in a small scale, investors still want them to have done some legwork.
However, there are many who base the existence of their business on hopes of an investment, and therefore, are forced to close it down. An investment based purely on an idea, is a fairy tale born out of misconception.
Furthermore, this dependency on investment has also been seen in businesses that are currently operating.
While these businesses might find it relatively easier to raise investment, the startup landscape is highly competitive, with no assurance of receiving an investment. Nevertheless, most startups in Nepal are so focused in collecting investments that they don’t have any contingency plans, the lack of whichtends to lead towards theirfailure.
The startup world in general is filled with twice as many failure stories than success stories, and the Nepali startup ecosystem is filled with these failures, most of which suffer from the same shortcomings. It is important to learn from them, and navigate your business around these threats, to take a step closer to succeeding in Nepal.
Pranjal is an entrepreneurship enthusiast and a Program Development Associate at M&S Next
Published: 27-03-2017 09:40