Startup

165 thousand youth businesses closed in Italy from 2011 to today. These are the data emerging from the report by the Research Office of Confcommercio-Imprese for Italy, highlighting that the situation of Italian entrepreneurship, overall, may not be progressing as it should. This collapse has also taken a toll on the Italian GDP, with 42 billion potential missing and a decreased youth entrepreneurship rate of -2.9%.

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The decline in young entrepreneurs, if it hadn't happened, would have brought a +2% increase to the national GDP, according to the Confcommercio report titled 'The Importance of Youth Entrepreneurship for Economic Well-being'. It illustrates the disastrous situation of entrepreneurs under 35, who have decreased by over a quarter (-26.3%) over the past eleven years.

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But what lies behind these failures? Is it just a sad reality to be considered for startups, or does it reflect an ecosystem not fertile enough for youth enterprises?

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It is well-known that bringing ideas, often brilliant ones, to the general public or at least to the target audience is very challenging worldwide. Various studies over the years, including the 'Global Startup Ecosystem Report' by Startup Genome and the analysis conducted in December 2022 by failory.com, have highlighted that globally more than 9 out of 10 startups fail, and generally, by the end of the 5th year, 50% of all new businesses fail. But what are the reasons?

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According to interviews conducted by failory.com with failed startups, the main reasons for failure are the product's failure to adapt to the market (34%), followed by Promotion and Marketing issues (22%), and problems related to Team (18%) and Finance (16%). These reasons are often linked to a lack of real or inadequate innovation by the startup in question in the market and an increasing distrust by VC funds to invest in these realities (resulting in a lack of capital), especially in the initial stages. Consider that 75% of companies funded by VC funds will never return the capital to investors, and in 30-40% of cases, investors lose the entire initial investment.

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Another central issue, according to the report, is the founders' incorrect valuations, who, on average, overvalue the intellectual property's worth before the product enters the market by 255%. Additionally, startups take, on average, 2-3 times longer to validate their market than expected by founders, with a significant need to adapt their business model along the way 1-2 times (this increases product usage by 3.6x and funds raised by 2.5x).

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In Italy, this situation overlaps with a lack of competitiveness in terms of costs and startup opening procedures (with excessively bureaucratic processes) and taxation compared to major European competitors. Consider that opening a company in England can be done entirely online with an opening cost ranging from £10 to £100 and a tax rate of 19%, with a bureaucracy much faster and more competitive than that in Italy. Therefore, the way to reverse this trend can only start with improving the ecosystem, incentivizing youth entrepreneurship, thoroughly educating founders to enhance the success rates of these ventures, and significantly contributing to building a robust Italian startup cluster.