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How to guarantee your start-up’s downfall in Türkiye

Start-Up's Journey Start-Up's Journey
By Ertugrul Simsek
Nov 11, 2024 12:21 PM

Let’s be honest—starting a business in Türkiye is no easy feat, and the risk of a start-up’s downfall is always there. Sure, launching a startup is exciting, but here it comes with its own unique challenges. Whether it’s navigating tricky economic conditions or dealing with investors who prefer to play it safe, there are plenty of pitfalls that can tank your business.

In this guide, we’re breaking down the most common mistakes that can lead to a start-up’s downfall in Türkiye—and how you can avoid them. Understanding these challenges can make all the difference between just scraping by and truly thriving.

2024 ecosystem volume in Türkiye without start-up’s downfall

In the first quarter of 2024, there were 54 new business ventures in Türkiye, with a total volume of $43 million, including startup acquisitions. Even though the total investment amount dropped compared to last year, the number of deals stayed nearly the same. Seed-stage startups took the spotlight, accounting for 60% of all deals. Local investors were particularly active, making up 91% of all transactions. Fintech had the highest number of deals, while AI startups brought in the most funding, with $15.4 million in total investments.

Here’s a quick look at some of the major investments in Türkiye’s startup scene for early 2024:

  • Titra Teknoloji: This AI-focused company made the biggest splash with a deal valued at $15.4 million. The investment came from Pasifik Teknoloji, which acquired a 51% stake in the company.
  • Getmobil: A marketplace platform that secured funding from a mix of investors, including Dutch Funders Fund, 212 (Fund II), TechOne, Logo Ventures (II), Arya GSYF, and Maxis Yenilikci GSYF. This seed-stage investment was valued at $4 million. The shareholder percentage wasn’t made public.
  • Shark Guitars: A niche startup in the music industry, Shark Guitars attracted backing from Neo Portfoy Target GSYF along with private investors like Nevzat Aydin, Gokhan San, Bekir Yener Yildirim, and Mustafa Dogan, securing $2.7 million for a 12.5% stake.
  • Fellas Foods: In the food tech space, Fellas Foods raised $2.6 million with Neo Portfoy 5 GSYF acquiring a 30% stake in the company.
  • Pine Games: This gaming startup caught the attention of 500 Emerging Europe (Fund II) and Laton Ventures, though the exact amount of their investment remains undisclosed.

These deals reflect the diversity and potential of Türkiye’s startup ecosystem, with sectors ranging from AI to food tech and gaming attracting significant local and international investor interest but in this op-ed we will focus on the reasons for those who fail rather than those who succeed.

Türkiye's Start-Up Ecosystem in 2024: Explaining the Reasons Behind Start-Up's Downfall

Why most start-up’s fail in Türkiye

The most common reason for failure is not enough demand in the global market for the product or service the startup offers. Even if it seems like a good idea, if it doesn’t solve a real problem for customers, the product/service won’t catch on. But is generally the reason why most start-ups fail globally.

If we look at why so many startups fail in Türkiye, it’s pretty clear. Most investors here — apart from the big corporate and professional ones — aren’t really investing in the true sense; they’re more like loan sharks. When they decide to put money into your startup, they expect you to almost guarantee a return. Because of this kind of pressure, startups either avoid taking risks altogether or, if they do, they’re forced to offer even more, like giving up a larger share of ownership or making other big concessions.

On the other hand, investors in Türkiye tend to fix their returns to either the dollar or the current interest rate. For instance, if they decide to invest ₺1,000,000 in your startup, and considering the annual interest rate is currently around 50%, they’re expecting a minimum return of 50% per year. Yes, inflation might be higher or lower, but in their eyes, it’s much safer to just put their money in the bank rather than take a risk on a startup.

Then there’s the effect of the dollar. Türkiye is a country where people are dollar-focused; they often prefer to store their wealth in foreign currencies like the dollar, euro, or even gold. To put things into perspective, the dollar went from ₺20.70 in June 2023 to ₺34.38 by October 2024. This rapid monetary depreciation of the lira is why people avoid riskier investments like startups. If they just put their money in the bank, they can guarantee at least a 50% return, or if they convert it to dollars, they can at least protect their purchasing power. This is why Türkiye is different from other countries when it comes to investing — the economic conditions here drive people to prioritize safety over risk. That’s why most startups in here seek investments from foreign countries or companies based outside of Türkiye.

These days, many angel investors and companies in Türkiye are focusing on opening up their networks to startups, positioning themselves as leading investors. But being a “leading investor” often doesn’t mean providing actual funds—it’s more about access to their network. However, it’s important to note that not everything comes down to money. Some investors are willing to take a risk on your idea by vouching for you and opening up their network, essentially becoming your guarantor. If you mess up or commit any kind of fraud, it’s their reputation on the line. That’s why, if an investor doesn’t offer direct funding but is willing to connect you with their network, it’s probably a good idea to accept it.

When it comes to networks, this is where we really need to pause. In Türkiye, if you don’t already have a strong network, getting funding from reputable investors can be extremely challenging. Securing investment here largely depends on who you know. If people don’t know you personally, they’re unlikely to trust you with their money. This often means that you have to pitch your idea to those who have connections with potential investors. In essence, you’re depending on well-connected individuals to vouch for you just to get your foot in the door.

After the investment

Let’s say you’ve made it past all these hurdles and successfully secure funding from reputable investors without any issues. Congratulations—but this is where the real journey begins. Now, you have to be even more cautious because the money you’re spending isn’t entirely yours; it’s both your investors’ money and your company’s. Your company isn’t solely yours anymore; it also belongs to your investors, which means there’s a lot more responsibility on your shoulders.

Most start-ups don’t succeed: More than two-thirds of them never deliver a positive return to investors.

Tom Eisenmann

So, what should you do at this stage?

  • Avoid over hiring: Over hiring refers to situations where a company ends up hiring more staff than necessary, either strategically or by mistake. Sometimes, businesses intentionally do this to cushion the effects of employee turnover or unexpected resignations, much like how airlines and hotels overbook seats and rooms. However, while it might seem like a quick fix, this approach can backfire in the long run. When unintentional, over hiring typically results from misjudging the actual staffing needs. In either case, it can lead to spending more money than the company brings in, ultimately hurting cash flow.
  • Focus on cash flow: After securing investment, a company needs to carefully monitor how money is coming in and going out. Cash flow is the lifeblood of any business, especially startups, so it’s crucial to manage it well. If you’re spending more than you’re earning, you could quickly run out of money, even if you’ve just received funding. In short, focus on cash flow to ensure that your expenses don’t exceed your income. This helps you stay financially healthy and prevents running into cash shortages that could jeopardize your business.
  • Don’t rush to expand: It’s important not to immediately try to grow your business too quickly. While it might be tempting to scale up operations, hire more people, or enter new markets right away, doing so without proper planning can be risky. Rapid expansion can lead to overspending, stretched resources, and losing focus on what made the business successful in the first place.Instead, take the time to strengthen your current operations, understand your market better, and grow at a sustainable pace to avoid costly mistakes. Focus on refining your product so that it continues to solve real problems for people.
  • Spend wisely: This is often confused with managing cash flow, but it focuses more on prioritizing essential needs first. For example, don’t splurge on renting cars for your managers right away. Instead, find cost-effective solutions that still show appreciation. Managers are important, but simple gestures like creating a “Starter Pack” for new employees or organizing team happy hours can go a long way. This helps build morale, and managers will appreciate the progress and positive energy in the team, making them more committed to staying with the startup.
  • Don’t let others take control: While it’s important to seek advice from stakeholders like employees, strategic partners, and investors, remember that final decisions must remain in your hands. Allowing too many outside voices to influence key choices can derail your vision and lead your venture off track. Be open to feedback, but ensure that you maintain control over your company’s direction.
  • Don’t underestimate competitors: It’s crucial to be aware of the competitive landscape and clearly differentiate your product. Failing to recognize your competitors or assuming you can easily outperform them can quickly lead to losing market share. Stay vigilant, research your competition, and ensure your unique value proposition stands out.
  • Be strategic with pricing: Setting the wrong prices or allowing operational costs to spiral can quickly eat into your profits. It’s essential to strike the right balance—pricing your product too high can drive customers away, while pricing too low can erode your margins. Carefully plan your pricing strategy and keep a close eye on your costs to stay sustainable.
  • Deliver on product quality: Rushing to launch a product that doesn’t meet customer expectations or has unresolved quality issues can damage your reputation. It’s better to take the time to refine your product than to risk disappointing your customers. Focus on delivering value and ensuring that your product meets the market’s needs.
  • Solidify your business model: Having a vague or unsustainable business model can prevent your startup from thriving. It’s essential to have a clear, scalable plan for generating revenue. Continuously test and refine your model to ensure it aligns with your long-term goals. Without a solid foundation, even the best ideas can falter.

These challenges apply to founders everywhere because startup failures tend to follow similar patterns around the world. But local factors—like economic conditions, investor behavior, and politics—can definitely impact your journey. One of the most important things for founders is to stay strong mentally and not let setbacks get to you. Essentially, as a founder, you’re the pilot of your startup plane.

Think of it like this, there are three critical moments in your journey. First, there’s the take-off. In the world of startups, this means securing funding. But before you get there, you have to taxi down the runway—which is basically your phase of pitching and seeking investment. Just like in aviation, there can be delays or sudden changes in plans. The key is to fix any issues and keep moving forward until you’re airborne.

Once you’ve taken off, now comes the challenge of staying in control. The skies might not always be smooth—there could be turbulence and tough weather. But no matter what, you need to keep your plane steady and your passengers—your customers—happy.

And finally, the ultimate goal is to become a unicorn and land successfully. Once you’ve achieved that, it’s all about refueling, taking off again, and creating even more value and revenue with each flight. Best of luck on your journey!

Last Updated:  Nov 11, 2024 3:53 PM