Why seven out of 10 entrepreneurial ideas fail

One of Covid’s unexpected effects was the surge of new business projects, a result of entrepreneurs coming to the conclusion that their lives needed a change, according to University of Maryland economist John Haltiwanger in a recently published study. The report notes how “Applications for new businesses surprisingly surged during the COVID-19 pandemic, rising the most in industries rooted in pandemic-era changes to work, lifestyle, and business.” Many of the moment’s initiatives failed. Arthur Manukyan, director of business development at Prelaunch.com, estimates that “up to 70%” bit the dust. That being said, he believes that figure can be reversed.

No one was immune from the fiascos, from start-ups to corporate giants like Amazon, which had to stop selling its first smartphone (Fire Phone) just 15 months after its launch. To reduce this high failure rate, Manukyan’s U.S.-based international company is part of a group called The Crowdfunding Formula, which brings together specialists in fundraising, idea development, e-commerce creation and advertising and public relations. Their model is aimed at new entrepreneurs. “We invest in risk and teams. There are no fees, only commissions. If the idea prospers, so do we,” Manukyan sums up.

One of the keys to TCF is the consumer’s incorporation into every phase of the project. Potential users who show interest in a product will be integrated into a group that participates in its design, price point determination and possible improvements and modifications. “There is no similar methodology. It is based on real data. In other models, the client participates in exchange for money and their perspective is biased. Our system is to find out who wants what product, and they make it work,” explains Mariam Hambardzumyan, co-founder of Prelaunch.com.

TCF’s network of firms assumes all risks — without public financing — and guides the entrepreneur through each step. “A good idea has to find its way, that’s our business,” says Manukyan. Rate of failure is reduced because the capacity to face challenges, modify strategy and reverse a misguided initial approach is the collective aim.

Benoit Macq, an engineer at Belgium’s KU Leuven who is not involved with TCF, agrees that planning must include the final user throughout the process. “When you have a technology, you need people to want it and use it,” he says. Macq linked with the heads of TCF in Yerevan, Armenia, where he participated in the double-header international meet-ups of the World Congress on Innovation and Technology and Digitec, which EL PAÍS was invited to alongside a dozen other international publications.

Harvard professor and researcher Cass Sunstein, an advisor to former U.S. president Barack Obama, adds another aspect to keep in mind while developing projects. He calls it “sludge,” defining the concept as “a curse that prevents one from taking advantage of technological advancements, intentionally or not.” “It’s a barrier that prevents access,” he explains during the WCIT, before adding that it’s not just bureaucratic factors, but also has to do with psychological, economic and resource-based elements.

Education is also important, as explained by Artavazd Minasyan, physicist, mathematician, tech entrepreneur, the co-founder of Krisp and 10 web companies, the board member of UATE. Minasyan presented Armath, a public-private initiative focused on introducing children between the ages of 10 and 18 to science, technology, engineering and mathematics through extracurricular activities. “50 percent of the program’s participants orient their careers towards these fields,” he says.

The conference has already given birth to such projects like Cifora, a platform for emergency decision-making, and Titan, an application that connects 11,000 clients with the service providers they need. Fast Shift, which specializes in all areas of digital development, is another proposal that came to life here. Also, Krisp, which uses artificial intelligence to change accents into one that is more accessible to the listener. And Sada, a cloud business services provider.

Carlota Galván, head of environmental, social and governance at HBX Group, has not attended the international Yerevan conference, but says that failure is an idea that is impacted by various factors, such as a lack of a clear vision, coordination with general plans, firm direction, resources or adaptation to market needs. “Projects have to be very agile and flexible, able to adapt to constant market and user changes. Otherwise, they quickly become obsolete,” she says.

She highlights the importance of testing the product, evaluating risks and opportunities, establishing strategic alliances, involving all participants and continuously monitoring the project. “You have to have the why and what for,” Galván says.

HBX Group, a travel tech business, has applied those criteria to develop tourist micro-destinations in collaboration with rural communities in Mexico. “We begin with a small pilot, working with seven cooperatives. That allows us to adjust our approach according to the results and particular aspects of each community. The success of that pilot has given us the confidence to expand the project to other countries in the near future,” says Galván.

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