REPORT: Why do software start-ups

fail at Early- Stage?

Abstract
Our country in on the verge of immense growth in terms of technology. In addition to this our country
has seen many entrepreneurial ventures that picked up and then remit. To overcome this problem it is
highly essential to identify the challenges for the software start-ups that lead to cause and failure. In
India there’s presence of highly competitive business environment which makes it challenging and
results to failure of these start-ups. Our country is an example of diversified economy that has seen
many entrepreneurial vacillation. The vulnerability of new markets and advancement of front line
innovations present difficulties not quite the same as those looked by progressively develop
organizations. Working in a disorderly and quickly advancing area passes on new strange difficulties for
start-ups. A model for the advancement of item improvement from startup to development is given,
comprising of three stages: startup, adjustment and development.

Software start-ups launch worldwide everyday due to increase in market opportunities in field of
technology. Here, Software Start-ups refer to the organisations that focused on creation of high-tech
and innovative products with little or no operating history, aiming to grow by aggressively scaling
their business in highly scalable markets. This study aims to understand the software startups’
dimensions, which impacts in failure of startups.

In this report we sum up with the key challenges faced by the software startups at early stages that leads
to failure. We present the fundamental analysis which can be immensely used by the new software start-
ups .

Chapter 1: Introduction
An impressive number of startups are launched everyday as a result of growing market opportunities,
new technology and venture capital. New ventures such as Facebook, LinkedIn, Whatsapp are some
good examples of the leading start-ups. Our country is growing faster than before in terms of technology
due to major changes in government’s policies like ‘Make In India’ which encourages companies to
manufacture their product in India and enthuse with dedicated investment. In addition to this our country
has seen many entrepreneurial ventures that started and then remit.

The Major problems that these start-ups face these days are Lack of Experience, rapid updation in
technology, lack of resources,lack of knowledge about the software and pre-mature scaling of the
software. In this study we aim to find the common problems start-ups have been facing in this era by
collecting the data through some secondary sources and analyzing the problems through that data of past
few years.

We have targeted the newly started IT companies as well as the companies settled in last 10 years so,
that we can make the analysis of the reasons for the sinking of software companies in this growing era of
technology.

Chapter 2: Theoretical Framework

An endeavor programming framework startup could be an innovation
organization fixated on conveying item and additionally administrations to
organizations through projects (programming) that care for PCs as well as
cell phones. These business clients will focus in size from sole administrators
to minor and medium organizations to monster transnational venture
associations. Some venture programming framework companies are inside
the matter of business endeavor equipment (for example Prophet sells every
undertaking equipment and programming framework) or potentially
customer programming (for example Microsoft pitches programming
framework to each the undertaking and to customers). A few examples of
big business programming framework partnerships exemplify SAP,
Salesforce, and Slack (Funders Club could be a shareowner in Slack as an
aftereffects of Slack's obtaining of Screenhero, an association Funders Club
put with in).

Venture innovation includes creating programming framework, equipment,

or administrations, facultative property for business associations. The IT
office's center tasks square measure dealt with by an out of entryways
administration provider World Health Organization offers the principal
suitable innovation at the correct time and esteem..
History of software system Startup
Software startups square measure recently created corporations with very little operational history
and familiarised towards manufacturing up-to-date product. As their time and resources square
measure extraordinarily scarce, and one failing project will place them out of business, startups want effective
practices to face with those distinctive challenges.

Reason for failure

• Lack of expertise
• Fast updation in technology
• Lack of resources
• Software data failure
• Premature scaling of software system
• Legal challenges
• No financing/ capitalist interest
• Failed geographical enlargement
• Disharmony among team/ investors
• Product mistimed
• Product while not a business model
• User un-friendly product
• Pricing/ value problems
• Investment problems
• No market want

Chapter 3: Literature Review

This research project aims to analyze variety of problems encountered by Software Startups and
emphasizes some of the major reasons for failure. Wrong market positioning, terrible hiring, poor
resource management, unbalanced partnerships and overpromising are some of the failure reasons
discussed. Likewise, fundamental ingredients for entrepreneurial prosperity and longevity, such as
having the right people, focusing on the customer rather than the product or technology, creating value
and hiring and firing fast are also highlighted herein this study. Overall, scrutinized analysis of startups
reveal that successful entrepreneurial ventures can be established through careful planning, organizing,
learning, accurate timing and being creative and innovation in their models to be practiced.

“I knew that if I failed I wouldn’t regret that, but I knew the one thing I might regret is not trying.”
(Jeff Bezos, Founder and CEO of Amazon)

Certain methods can be adopted to setup startups to run in the long run:

Strategic Orientation, Style of Resource Commitment, Decision-Making Approach, Attitude towards

Asset Accumulation, Management Structure and Style Approach to Rewards. (Peter, Cohan S, 2012,
p178)

There are various factors for startups software failure which depends on the nature of the company. We
have explored issued related to lack of knowledge about the software and its uses, the newly setup
companies, lack of innovation as compared to competitors. (Dean A. Shepherd, 2011).

Recent study “Importance of Startups in Economy,” shows that existing large firms loose more jobs
than they create, especially during the period of recession. However, creation of jobs
remains stable in startups while existing large firms suffer from net job loss due to business cycle
sensitivity. Moreover, new business establishments innovate far more than the existing

administrative companies and enrich people’s lives by increasing consumer choice, customizing and
providing them with goods and services for needs they didn’t even know they had. (Bureau of
International Information Programs, 2012)
Successful new business venture and economic development do not just Happen they are the result of
the combination of right environment, planning, effort and innovation. Right combination of this can
only be achieved by the entrepreneurs. They provide a clear blue print for stimulating research,
technology, finance to help promote matured enterprises. At the same time they grow the eco-system and
give boost to economic growth. (CNN Money, 2014)
The factors contributing to economic development are labor, technology, natural resources, capital and
entrepreneurship. The key factor in this development process is the entrepreneur. This is the domain of
the entrepreneur whose policies and strategies cover such broad areas as production marketing,
financing, pricing and personal relations. The growth of entrepreneurship largely depends upon effective
policies and their efficient implementation. Thus entrepreneurship is the coordination of the production
elements.

Thus, to the best of our knowledge, currently, there is no other comprehensive framework trying to
capture the major elements involved in a fruitful software startup ecosystem and identifying the major
relationships among them. Consequently, the framework that emerged from our research, as described in
this paper, adds to the existing body of knowledge in the field and serves both education on
entrepreneurship and future research on the area.

Chapter 4: Industry Profile

A start-up is a company which initiated by enterpreneurs to search for business models. A start-up is a
new emerged business venture which aims to develop a viable business model that meet a marketplace
need or problem. The concepts of start-ups and entrepreneurship are same. But, entrepreneurship refers
all new businesses, including self-employment and businesses that never intend to grow big or become
registered, while start-ups refer to new businesses that focus on growing beyond the founder, have
employees, and intend to grow large. Start-ups face high uncertainty and do have high rates of failure,
but the minority that go on to be successful companies have the potential to become large and
influential. Some start-ups become unicorns, i.e. privately held start-up companies valued at over $1
billion.

Start-ups mostly begin by a founder (solo-founder) or co-founders who have a way to solve a problem.
The founder of a start-up will begin by problem interview, solution interview, and building a minimum
viable product (MVP), i.e. a prototype, to develop and validate their business models. The start-up
process usually take a long period of time (which can be, three years or longer), and for that effort is
required..

Design principles

Models that are behind start-ups presenting as ventures are usually associated with design science.
Design science is use for design principles which is considered to be a coherent set of normative ideas
and propositions to design and construct the company backbone. For example, one of the initial design
principles in effectuation is "affordable loss".

It’s better to first make a must-have for a small number of users (early adopters) than a nice-to-have for
a large number of users. It is much easier to get more users than to go from nice-to-have to must-have.

Heuristics and biases in start-up actions

Due to the lack of information, high uncertainty, there is a need to make decisions quickly, founders of
start-ups use lots of heuristics and exhibit biases in their start-up actions. Biases and heuristics theses are
parts of our cognitive toolboxes in the decision making process, and they help us to take a decision as
quick as possible under uncertainty, but sometimes become erroneous and fallacious

Entrepreneurs often become not only overconfident about their start-ups but also about their personal
influence on an outcome (case of illusion of control). Entrepreneurs believe that they have the more
degree of control they also have over events, discounting the role of luck. There are some most
important decision biases of entrepreneurs in start-up a new business.

1. Overconfidence: Perceive a subjective certainty which is higher than the objective accuracy.

2. Illusion of control: Overemphasize how much skills, instead of chance, improve performance.

3. The law of small numbers: Reach conclusions about a larger population using a limited sample.

4. Availability bias: Make judgments about the probability of events based on how easy it is to
think of examples.

5. Escalation of commitment: Persist unduly with unsuccessful initiatives or courses of action.

Start-ups use a number of action principles (lean start-up) to generate evidence as quickly as possible to
reduce the downside effect of decision biases such as escalation of commitment, overconfidence, and
illusion of control.
Mentoring

Many entrepreneurs they seek feedback from mentors by creating their own start-ups. Mentors guide
founders and impart entrepreneurial skills in them and may increase self-efficacy of the nascent
entrepreneurs.

Reasons why start-ups fail

1. No market demand for your product

What we see t in the start-up scene is that a number of companies believe that their invention is
so appealing that the market would beg for it and through that money would begin to flow in.
Most start-up founders they do not fully understand what their product would be able to achieve
in the market – especially in the early stages. That is the reason many pivots – when a company
would be changing its course and product to satisfying another market. If they would validate
their product in pilot projects before launching, or even through beta-testing instead, those
entrepreneurs might reduce significantly their failure and market rejection risk.

2. Reluctance to get feedback and criticism on prototypes

Many founders they have a hard time in letting others see their prototype until it is reasonably ready.
Failing to get feedback from potential customers is usually bad to a start-up. There is no not be afraid of
someone stealing your idea or that your prototype will not be perfect to be shown to the first people. As
with technologies democratizing prototypes production for hardware and software, there is also good
chance that getting a few prototypes made and after that having them tested with feedback from those
who tested it – like in focus groups – will put you in a product improvement and learning loop that shall
be repeated until people begin to demand your product.

3. The market might not be ready for your product

Some of the companies they launch their products before their time and either the market (demand/need)
or the technology would not be there yet. While others launch too late, although they might not notice
that it would have been too late already. The key factor here would be to always question yourself with
the competitor’s benchmark and also with common sense when sales would not taking off. This would
be the best time to call a “stop loss” and pivot or invest time, capital and efforts in another market.
4. Weak team, poor leadership
At any stage, a good leader would have the charisma and also a track record to inspire a compelling
vision for the company and its future, recruiting committed employees instead of top talent who will fly
to the next offer very soon. Employees are also committed with the company mission and vision this
will help the founders for realizing their vision, not the so much “top talent” cherished by the media.

5. No real interest in the market you are operating in?

To be a successful founder you will need to spend about 60 to 90 hours a week with very little or no pay
to make your start-up take off. It is not possible to work that hard and be effective unless you believe in
what you are doing and trying to build. It is not possible to do that if you are not 100% committed to
making potential customers improve their lives by providing them your company’s product or service.
Shift your start-up in the direction of solving a problem you care about honestly and profoundly. Many
times, it is an underserved problem or a problem nobody has solved yet that makes people want to start
their own companies offering a solution for that problem – and in case several other people have that
same problem or concern, your company is off to a good road.

6. Inability to raise capital

People may always be surprised by the time and number of rejections required before they succeed in
raising capital for their start-up. Too often this process is started too late and the entrepreneur goes to the
rescue with the wrong group of investors – the first ones. Fundraising in a start-up environment is
something that needs at least 6 months of active prospection, meetings, calls and visits. The more you
are in the routine of fundraising, the more precise you are about what you need as a company and what
investors who are looking for your profile want. Make a committee responsible for this and name at least
two people who will be responsible for raising funds and report to the team every 2 weeks.

7. Poor marketing (and/or sales)

Noise matters and no matter how great your product may be, it’s going down if no one knows about it.
Poorly managed marketing (or sales) is a major reason for the failure of many start-ups. You don’t
necessarily need a professional PR team at the beginning, but you need to create buzz in social media
and in the press about your company and products. Also, be sure that when you get published in the
magazines and websites – that they are authoritative and popular for your audience. If your company
cannot manage marketing properly, no one will know about your product, therefore no one will buy it.
Spreading the word may seem a waste of time for some founders and more technical teams, but it is
fundamental for a business to survive.

8. Ignorance of what your customers want

There is not enough stress I can put on how important it is to launch a minimum viable product and get
feedback from customers again and again, for product development and testing over and over. This
allows you to build a bridge with your audience and incorporate changes in the product that will hook
your customers to the next versions of your products and services.

Chapter 5: Conceptual Framework

Among the difficulties identified in our review, the most unmistakable one is thriving in innovation
vulnerability. This is steady with the idea of programming start-ups, who are regularly pursuing new
mechanical changes, upsetting the software industry. Thus, growing new advances may require inventive
instruments and techniques with little network support. Notwithstanding, concentrating just on
mechanical arrangements won't ensure survival and achievement. So as to create something profitable
for clients, new companies need to comprehend their genuine issues. Be that as it may, new businesses
are not counseling the necessary forms for this need.

With this examination we intend to raise our comprehension of the disappointment of beginning period
programming new businesses and in order to achieve this we enquired and they quoted their reasons
through which we came to know the reasons of failure.

The outcomes present how irregularity between administrative systems and execution can prompt
disappointment by methods for a social structure. In spite of systems uncover the principal need to
comprehend the issue/arrangement fit, real executions organize the improvement of the item to dispatch
available as fast as conceivable to confirm advertise fit, disregarding the important learning.

The factors according to the respondents that would persuade and a characterization of software startups,
defined by the challenges they face with:
 1. Practically Zero Working History: New companies have minimal amassed involvement
in improvement procedures and association the executives.

2. Restricted Assets: New businesses commonly center around getting the item out,
advancing the item and working up key coalitions.

3. Numerous Impacts: Weight from speculators, clients, accomplices and contenders sway
the basic leadership in an organization. Albeit separately imperative, generally speaking they
probably won't meet to help an unmistakable basic leadership.

4. Dynamic Advances and Markets: The freshness of programming organizations

frequently expects them to create or work with problematic advances to enter into a high-
potential target showcase.

Chapter 6: Research Methodology

The Study is to explore the challenges faced by the newly set-up software companies:

 Lack of knowledge of the software

 Demographic details
 Investment problems
 Pre-mature scaling of the software
 Lack of operation knowledge

Secondary data of 100 software companies was collected who had made an attempt towards starting up the
venture.

Objectives:

 To study the reasons for failure of software start-ups at early stage

 To create awareness to overcome this problem.

Hypothesis:

 Investors are taking less interest funding these start-ups because these are not able to achieve
worthwhile returns on Investment.
 Youth is not very much keen about this industry because of more numbers of failures and less number of
success.
Chapter 7: Data Analysis

Conclusion
Programming new companies are testing attempts. Distinctive difficulties involve the focal
considerations of pioneering groups at various stages. In this paper, we expanded the tight focal points
of past examinations and inspected the key difficulties that product new companies need to manage at
various taking in stages from issue distinguishing proof to arrangement approval, and at various item
advancement stages from idea to develop item, in light of a substantial review ponder. We set up a
positioned rundown of top difficulties, and exhibited how they change crosswise over various stages.
The discoveries can control future investigations to address the top programming designing difficulties
looked by programming new businesses, for example, building programming item, characterizing least
suitable item and building innovative group, while considering logical variables, e.g., the item
advancement stages and learning stages. The common sense estimation of our examination is that it
raises the familiarity with the difficulties pioneering groups may experience and propose them handling
right ones at the correct time.
The overview information gives a preview of the difficulties looked by changed programming new
businesses at various stages. A longitudinal investigation of various difficulties looked by same
organizations at various stages would approve the discoveries from this examination and give more
extravagant logical comprehension of these difficulties. It is additionally fascinating to comprehend the
uniqueness of the product startup challenges and their centrality in contrast with different kinds of new
companies or new item advancement tries as a rule. Further progressively, future examinations can
explore the potential linkage between the misalignment of learning and item improvement stages and
startup disappointment.

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