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​Big dreams, big failures: Why most startups flop and what we can learn from them

It might be harder to have a profitable startup in Eastern Europe than in Silicon Valley, but the lessons from failures are invaluable to tech entrepreneurs everywhere.

The amount of Romanian leu invested in the country's startups pales in comparison to dollars spent on fledgling US firms.

Image: iStock

An ordinary Silicon Valley startup gets as much investment in its first significant round of venture-capital funding as the whole Romanian or Bulgarian ecosystem in one year.

So, for an Eastern European entrepreneur, becoming successful is a doubly tricky business, with mistakes carrying extra weight.

In the US, just one out of 10 startups makes it. In Bulgaria and Romania, the survival rate is even lower, in part due to the shortage of money.

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"There are startups with reasonable business plans that lack access to funding, so eventually they decide to shut down," says Bogdan Iordache, founder and board member of the largest startup conference in south-east Europe, How to Web.

"There are many founders who try to get finance from abroad, yet with limited success."

Failure, though, is not always related to money. Startup ecosystems in Romania and Bulgaria are relatively new. This immaturity often means fewer networking opportunities, a reduced understanding of how things work, and unrealistic hopes.

Tech skills are plentiful within the region, but the scarcity of business expertise is a big problem. Most company founders who fail lack product knowledge, business knowledge, and a grasp of distribution, Iordache says.

A global study conducted by CB Insights shows why founders think their startups went down. Some 42 percent admitted there was no market for their product, 29 percent said they ran out of cash, while 23 percent claimed they didn't have the right team.

Founding a startup is an aspiring career path for local entrepreneurs in Eastern Europe. As a result they are often unrealistic about their products and potential demand. Those who get a few tens or even hundreds of thousands of dollars consider themselves lucky, and often believe these relatively small sums validate their dream.

One of the cases that grabbed media attention is that of the Bulgarian businessman Ivaylo Kalburdzhiev. He spent three years and $50,000, a large amount of money, considering the scarcity of funding in the region, on developing KOLOS, "the world's first racing wheel for full-sized iPads".

He came up with the idea after seeing a picture on social-media site 9GAG of a smartphone taped to a circle.

Kalburdzhiev's product got featured on major technology websites. He went to CES in Las Vegas, and the future looked bright. "I was naïve enough to believe that we were creating the right product until I got punched in the face," he says. "I, personally, was never really well educated on entrepreneurship."

Eventually, a crowdfunding campaign on Kickstarter that failed abysmally opened his eyes. "Never take a loan to launch a startup, use someone else's money, and try to stay away from reinventing the wheel, pun intended," are among the lessons he learned from this "affordable MBA", as he called the KOLOS experiment.

Kalburdzhiev is now helping local Bulgarian startups crowdfund with his platform, DayOneFunding.

Romanian-based entrepreneur Andrei Diaconu also prides himself on the value of a failure. He built drimm.in, a tool to recommend gift ideas based on people's activity on social media.

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"We knew from the start we missed a few steps, but were so excited about the technology that we thought we could wing it along the way," he says.

One of the most valuable lessons he has learnt: "Everything that can fail will eventually fail," he says.

Diaconu launched a new startup, Bunch, aimed at connecting entrepreneurs. If he fails, he wants to fail as fast as possible, so he monitors progress honestly and accurately.

"Missing a few milestones might mean that we're building the wrong solution for the problem," he says.

Entrepreneurs in both Bulgaria and Romania understand they still have a long way to go to catch up with their Silicon Valley peers and need to switch from an engineering approach to a business mindset.

Having the best possible computer algorithm in your product might help, yet even that can become irrelevant if nobody needs the software.

"Don't [just] code. Ask your client what they want to do with the product," How to Web's Bogdan Iordache says.

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