As exciting and innovative as the Caribbean tech start-up space is, most ventures fail. In this article, we take a sobering look at some of the reasons why tech start-ups fail.
Without a doubt, being an entrepreneur is hard in the Caribbean region. Though you might have what it takes to start a business in the region, hurdles abound, and in the tech entrepreneurship space, the challenges seem more pronounced.
Tech entrepreneurship is fast-paced and highly competitive, and young innovators are facing increasing pressure to not only build ground-breaking ventures but also to present an image of rapid success to secure vital investments. However, as was discussed in our recent podcast episode with Telojo (Telly) Valerie Onu, over the years, several ventures that were innovative and showed considerable potential have failed, or become ‘deadpool’.
One of the most noted challenges in the tech entrepreneurship space is the difficulty in accessing capital. Although it might be possible to bootstrap a business, there usually comes a point when a serious influx of capital is needed to get to the next level – whatever that might be. However, most business owners are unprepared for how difficult it can be to find suitable investors, and more so investors who are willing to invest in your venture.
As mentioned in the podcast episode with Telly, I want to catch up with entrepreneurs we featured on past shows. However, and although it is still early days in my search, it does seem that many of them either are no longer operating the venture we discussed that brought them to prominence or the business, if it still exists, is in the slow and painful spiral of decline.
Though I fully intend to have conversations with those who are willing, I was also reminded of how difficult it is to build a tech business – be it in or outside the Caribbean region. Below are key points that readily came to mind.
The Silicon Valley effect
For tech entrepreneurs and potential investors, the influence of Silicon Valley cannot be overstated. The success stories of companies like Facebook, Google, Apple, and Amazon have created a benchmark that aspiring entrepreneurs often feel compelled to match. On the investor side, some of them might also aspire to realise the return on investment that Warren Buffet, Peter Thiel, Elon Musk and Mark Cuban have enjoyed, but they do not have the same risk appetite.
Further, we also must consider the “unicorn” mindset, where unicorn refers to a privately held start-up company with a value of over USD 1 billion. When investments are being driven by the expectation of immense success in a short period, both entrepreneurs and prospective investors may make decisions that focus on rapid growth at the expense of longer-term sustainability.
The culture of overstatement
In the race for funding, many young tech entrepreneurs find themselves in a delicate position. The prevailing culture often encourages them to embellish their business achievements, user growth, and revenue projections. It does not pay to be honest or conservative in what the business has achieved and in the projections being made, as often these are not considered attractive or adequate to secure investors.
Further, the fear of missing out on opportunities or being overshadowed by competitors pushes some entrepreneurs to overstate their performance metrics in an attempt to attract investors. However, in some circles, it appears that embellishing a start-up’s performance metrics is the norm – and only becomes a problem when the business is on the verge of collapse and truth (and lies) are being revealed.
Meeting investor expectations
However, for entrepreneurs who have attracted investors, securing the investment is just the first step. The real challenge begins in delivering on the promises made or the unmanaged expectations. The exaggerated projections and overstatements can be a millstone around the neck of the business, not only setting the stage for disappointment if goals are not met but also for entrepreneurs to engage in less than scrupulous (or even fraudulent or criminal) activities to try to mitigate the anticipated losses. In a similar vein, poor performance can result in drastic action by investors, who may be on the board or part of senior management to try to salvage the situation – and their investment! Unfortunately, and perhaps more often than many would admit, the outcome is a rapid decline leading to the utter and complete failure of the business.
The mental health toll
Finally, it is not surprising the constant pressure to succeed can take a toll on the mental health of young or first-time entrepreneurs. Having had a front-row seat, it is easy to see why overwork, burnout, anxiety, and depression are not uncommon among entrepreneurs, and the situation can be even more intense when inflated expectations and sizeable investments are on the line.
Finally, as much as we might appreciate how detrimental the current investment climate is, with intense competition and expectations and entrepreneurs being inclined to overstate their business performance to get much-needed support, it is unlikely to change anytime soon. The returns when a tech venture achieves success, which is often less than 1% of all start-ups, seem to overshadow all of the negatives previously highlighted.
But where do we go from here? Our tech start-up space is still developing, so the emphasis may need to be on creating (and maintaining) the enabling environment. I do not believe that we are not yet at a stage where unfettered market and competitive forces can prevail. We are still at a stage where we need to create a more balanced and resilient tech ecosystem that benefits both entrepreneurs and investors in the long run.
Image credit: Peter Fischer (Pixabay)
