WHY DO STARTUPS FAIL?

Abstract

Startups play an important role in contemporary economies. Given the high risk associated with this business type, a significant proportion of these businesses fail within a few years of being founded. Our goal was to draw general experiences, which can improve the very low success rate of startups. In our research we identified the factors that have a significant impact on the survival of start-ups. We used a database that the authors made of 40 ICT startups in the liquidation phase. Our study sample included defunct startups between 2020 and 2023, a significant proportion of which received funding from venture capital. Our database was f iltered from the answers to the questions in the semi-structured interviews. Subsequently, we reviewed the related literature and assessed the methodologies that have been used in the past to identify startup failures. For our analysis, we used an extended version of the SHELL model, which has been applied previously in similar research. Firstly, we created a problem map. The main groups of problem factors are funding and customer; business model; and management and product problems. Secondly, we found three groups of failed startups: “basic business model and financing problems”, “failed product idea”, and “looked promising” clusters. Thirdly, we examined the connection between the problem factors and the life cycle of startups. As startups evolve, the probability of some problems occurring increases, while others decrease. As the life cycle progresses, the following become less important: not feasible, no/wrong business model, and inexperienced management problems. While with the life cycle, the problems of a few customers become more significant. Financial and investment indicators improve, by definition, as the life cycle progresses. Fourthly, we found a positive and statistically significant relationship between the presence of female founders and survival. The results of our research can provide important findings for both startup founders and decisionmakers responsible for the development of startup ecosystems.