Theoretical Background

Abstract

With more and more technologies available via the internet, large markets are within easy reach for software producers (Nowak & Grantham, 2000). The downside of the emergence of the web in this respect is that the threshold for new entrants is radically lower than ever before, leading to more competition within the software market. This high level of competition in the software market consequently leads to the likelihood of more failures, even though only 19 percent of all nascent entrepreneurs want to become rich and establish a large company (Van Gelderen, Thurik & Bosma, 2006). To stimulate economic growth, it is critical that the basic success factors of software entrepreneurs are understood (Nowak & Grantham, 2000). Although different authors define the success of a company differently, numerous studies show that 50–80 percent of new businesses fail during their start-up period, which is generally defined as the first five years of the company (Dun and Bradstreet, 1967, as cited in Busenitz, 1999; Headd, 2000, 2003; Nowak & Grantham, 2000). Table 2.1 shows the different failure rate percentages identified by different authors. Gompers, Kovner, Lerner and Scharfstein (2010, p. 26) are at the high end of these estimates, claiming that ‘first-time entrepreneurs have a 20.9% chance of succeeding’. This percentage can increase to 25 percent when the entrepreneurs have precious entrepreneurial experience.