Startups are growing and increasing their impact on the economy ever so fast. In this article we will present barriers that Iranian startups face on their path towards success.
Startups are creating jobs, creating value for customers and contributing more and more to the overall economy. Successful startups have great stories behind them, some of which we all know. However, we should remember that while success stories are loud and catchy, failure is much more prevalent and closer than it appears. It is now widely believed that 9 out of 10 startups fail. Despite this fact, the importance of studying failures has been overlooked. In this article we will shed light on the barriers Iranian startups face. This article is based on the 7th issue of ICTstartup’s startup ecosystem report.
1. Poor Service/Product
A survey conducted at the ELECOM exhibition concluded that 5% of Iranian startups were developing their idea/demo, 74% were at the market-entry stage and 21% were at the growth stage. Entering the market needs a product/service that is both demanded by the market and appealing to customers.This is a major challenge for Iranian startups that have stated poor service/product and ignorance towards customer feedback as one of their main issues.
Startups often do not perform extensive research about the market they intend to enter or the product/service they propose to develop. Startups should be agile in developing demo versions of their product/service, presenting it to customers and monitoring their feedback. Adopting a “develop your product/service and the customer will chase it” strategy is not the best idea. Startups should focus on developing a minimum viable product (MVP), offer the product to customers, collect and analyze feedback and accordingly make improvements and adjustments to their product.
2. Lack of Sufficient Financial Resources
Raising capital for a startup is a big challenge not only in Iran, but also everywhere else in the world and has been stated as one of the three major barriers to success. However, inappropriate resource allocation, underestimating costs and overestimating revenues are common mistakes that exacerbate the situation.
3. Not knowing the Customers’ Needs
A study of the startup ecosystem of Iran indicates that Iranian startups face serious issues in aligning their product with the market. Insufficient market research leads many startups to introduce a product/service incompatible with market needs and places their business at risk. Even in European countries and in developed countries such as Australia many startups have reported that a major concern for them is acquiring customers and introducing a product/service that is really demanded by the market.
In response to questions regarding facing rivals, ignoring rivals and extreme focus on new markets, most entrepreneurs answered “low” and “very low”. It seems that rivalry is not a bold concern for startups in Iran, an issue that can be attributed to the nascent startup ecosystem.
However, there are still some market leaders that act as rivals, making it difficult for small and new businesses to thrive, especially, since intellectual property rights have either serious flaws or are not enforced. For new businesses protecting their product is essential and can create sustainable competitive advantage. Enforcing IP laws also encourages investment in startups and should be taken seriously.
5. Lack of Management Skills
Every business requires an effective management team. An uncoordinated management team can easily lead a startup to failure. Many entrepreneurs (70%) have only technical skills and very few (11%) have either graduated in management disciplines or have managerial skills. Therefore, it seems necessary for startups to use business consultants and mentors to overcome this potential problem.
To overcome the management problem, India has initiated a program called “Startup Hub India”. The hub serves as a connecting point among all Indian startups. Using the hub, startups in India can easily access knowledge, experience, mentors, VCs and consultants. Similar programs are being launched in Iran.
6. Lack of a Good Team/Human Resource
In countries such as Slovakia 51% of startups recognize identifying experienced and talented human resources as a critical challenge. Iran’s startups are not much different. Reports show that startup team members in Iran seriously lack business skills, such as entrepreneurial skills, sales, marketing, branding, SEO, etc. Acquiring and keeping skilled and talented employees or team members is an endeavor that startups need to focus on.
7. Imperfect Business Model
A well-thought, sustainable and profitable business model is essential to keep a startup running. Startups should accurately estimate customer acquisition costs (CAC) and balance it with customer lifetime value (CLV). A profitable business model should lead to a CLV that outweighs its CAC. Startups should ask themselves two questions regarding their model; First, can scaling be achieved through the current model?, and second, is the amount of money that customers spend on our products more than the money required to attract those customers?.
Business models should be compatible with the economic, social and cultural landscape of the country. Startups have to also pay close attention to the scalability of their model and adopt suitable growth strategies. Educational and training programs should be devised to introduce these strategies to entrepreneurs and help them design a sustainable business model or improve their current model.