Here is a reality that most Korean startups need to know and understand. Over 70% of all Korean startups only last a year. This is in spite of the massive support programs set up by the Korean government. These startups set up operations in all kinds of sectors such as e-commerce, health care technology, robotics, AI, logistics, IoT, and etc. Close to 800,000 startups all over the world emerge every year. Yet about half of them go out of business within two years. This is the same for Korea. A report released by Statistics Korea. Since 2013 close to 75% of all Korean startups only lasted a year. As Seoulz covers startups in Korea, we have been able to see firsthand some of the reasons why many of these startups fail within a year.

Korean Startup First year

Top 5 Reasons why Korean startups Fail

1. Weak Team

The top reason why Korean startups fail is that the team is weak. The idea, product, or service might be great but you need to have the right team of passionate entrepreneurs to really have the business take off. Bad business decisions come from a startup team that does not work well together. This is a major problem with Korean startups.

So what is the right formula?

There has to be a clear-cut creative director, the “Steve Jobs” of the team. There also has to be an actual Korean entrepreneur who can deal with the business side of the startup. This person should know how to register your startup, deal with the taxes, as well as the accounting. Finally, the team needs a member to come up with the business model of their startups. This is usually the CEO and they will need to work hand in hand with their Korean entrepreneur to account for all costs. They should also work with the creative director to come up with the marketing strategy and different methods of monetization.

If the startup is not profitable after 1 year, investors in Korea will need to see a high growth rate. Getting additional funding in Korea will be difficult if you don’t have either. The only option for most Korean startups will be to either join an accelerator program in Korea, join a program set up by the Korean government, or find an angel investor. If they can’t find one of the three after year one, the startup will most likely shut down.

2.  Lack of Funding

One of the main reasons Korean startups fail after year 1 is the lack of investors and funding in South Korea. It is a simple truth that startups that get funded last longer. A startup will have a very difficult time surviving without investments. To get investments from Korean VCs and investors is to show the market demand for your product or services. Korean investors what to see that there is a demand for your product or service not just in Korea but outside of Korea as well. By demand, they want to see some kind of sales numbers. It is very difficult to get an investment in Korea if you don’t show at least SOME level of sales.

However, this does not apply to all startups in Korea.

For example,  Blockchain startups, Biotech startups, Fintech, and even some AI startups can get funded without sales based on their technological potential or the potential to acquire users. Coupang has and continues to lose money but gain users which in turn attracts more investment.

For others, the best way to show some level of demand for your product or service is through market research. Then, you will also find your target audience. Once you have a target audience do a pilot run before you look for investments. Korean investors want to see results no matter how small they are. This is why Korean startups focus so much on beta testing and MVP because these are the things many Korean VCs look for before investing. During the blockchain craze in Korea, many “Blockchain” startups were able to raise a lot of money solely based on their pitch deck. This is no longer the case.

3.  Going Global too Quickly

Many Korean startups want to go global. This is something many founders promised to their investors but remember premature scaling (hiring staff, getting funding, releasing new products/services, and entering new markets) could result in the failure of your startup. While startups are meant to scale it is important to remember the old saying of “slow and steady wins the race”. Before you even think of going outside of Korea, you must again do more market research. You will then need to get feedback which will lead to you adding more features, bug fixes, to release the product or service for that particular market.

Marketing outside of Korea is also very different which means you will need to hire a staffer who knows how to market your product or service for that particular region. This goes back to having a good team that has the potential to be successful outside of Korea. Therefore, it is highly recommended you find a local partner that can help your company grow. For example, if you are planning to expand into the SEA market, find a SEA accelerator, investment firm, or even a marketing company with whom you can partner. Korean startups that have done this have said it made the expansion a lot easier and more importantly saved them money.

4.  Lack of Focus on Innovation

Another reason Korean startups only last a year is the lack of innovation in many sectors. While Koreans are great at looking to fire the right technical staff, the creative side is left behind. Finding the right creative team is difficult in Korea. Many are not taught at a young age to think outside the box. Korean startups need to find innovation through their products or services continuously. The market is always changing and it is important for your startup to be up to date on the latest trends.

A common strategy for Korean startups is to pivot when they realize the market is changing. Don’t be shocked to go from a health tech startup to then a Fintech startup, and then to a Blockchain startup. Some of the latest tech trends of 2021 have been AI, Cloud, and Big Data which should be incorporated into their existing product or service.

5.  Lack of Networking

It is amazing how much time is wasted by Korean startups not going to as many global startup conferences and meetups as possible. Many startups now understand just how important these conferences are with the outbreak of COVID-19. Many have now turned to social media platforms like LinkedIn to grow their network outside of Korea. They must remember two critical aspects of expanding their network. For one, many global startups, enterprises, and even governments want to enter the Korean market.

A great way to expand globally is to have a global partner who can help you break into that market. In return, you can help them enter Korea. Now finding the right partner is key, which is why you must keep an eye out. Don’t expect a global startup or company to email you, you need to be proactive and go out and meet them.

Therefore once the COVID-19 global outbreak calms down and conferences start to reopen. It is crucial for startups in Korea to go to as many of these events are possible. Also going to these conferences and meetups is a great way to meet like-minded entrepreneurs and help see the latest trends and new ideas. Koreans are shy in nature but it is important to break that habit, the best way to do this is by going to as many global conferences as possible.

Getting Back Up

Statistics show that Korean entrepreneurs that fail at their first startup, only 30% end up starting another one. Many will never try again but rather go find jobs with major Korean tech companies like LG or Samsung.  They can still do this because most startup entrepreneurs are young with an average age of 28.

Those that have the highest risk of failure were Korean startups that focused on hospitality and food. Next were wholesale and retail, followed by manufacturing and transportation.

On the bright side, if a startup can survive the first two years, the outlook ahead looks very promising.