Statistics show a staggering 75% of all venture-backed startups fail. According to Patrick Henry writing for Entrepreneur, there are a common set of reasons why they struggle and fall, and there is a myriad of factors that make a company successful.
According to Statistic Brain, more than 50% of all US startups fail after just five years of business, and over 70% end after 10 years.
Research found that the most common causes for a startup failure are “lack of focus; lack of motivation, commitment and passion; too much pride, resulting in an unwillingness to see or listen; taking advice from the wrong people; lacking good mentorship; lack of general and domain-specific business knowledge: finance, operations, and marketing; and raising too much money too soon.”
The findings focused very much on the decision-making process of the business owner, their knowledge and the support system surrounding them. The key to ensuring a startup is successful is by getting the right people on board, followed by the capital needed to help it succeed.
CB Insights looked at the reasons why startups failed, and the evidence was startling, pinpointing leadership as the fundamental flaw. Results showed that failure was due to “no market need; ran out of cash; not the right team; got out-competed; pricing/cost issue; poor product; need/lack business model; poor marketing; and ignored the customers.”
Some failures due to: “no market need; ran out of cash; not the right team; got out-competed; pricing/cost issue”
The reasons for why startups fail seem rather obvious, and the answer we’re all looking for is why and how they succeed, and if there is a formula to emulate. Of course, each business is different and is subject to its own industry, but research is helping business owners get a firmer grip on their business to prevent it from falling at the first hurdle.
Patrick Henry says that the Harvard Business School’s Performance Persistence in Entrepreneurship states that serial entrepreneurs who have prior successes are more likely to have future success, and that the best venture capitalists are more likely to back them. New startups, of course, have less successes.
According to the Startup Genome report, which looked at 650 internet startups, they pinpointed 14 indicators of success: “Founders are driven by impact, resulting in passion and commitment; commitment to stay the course and stick with a chosen path; willingness to adjust, but not constantly adjusting; patience and persistence due to the timing mismatch of expectations and reality; willingness to observe, listen and learn; develop the right mentoring relationships; leadership with general and domain specific business knowledge; implementing “Lean Startup” principles: Raising just enough money in a funding round to hit the next set of key milestones; and finally, balance of technical and business knowledge, with necessary technical expertise in product development”.
Some successes due to: “commitment to stay the course and stick with a chosen path; willingness to adjust”
The main reason for start-up success has got to be money. The money you invest in your business to employ the best people to drive profit is key. Yes, there are business owners who run them into the ground through lack of knowledge, but the main reason for failure is focused on lack of investment. If you’re well connected and able to secure funding, or have the right resources behind you then you’re more likely to succeed.
According to Gallup, the entrepreneur’s role is very, very important to a startups success. Their business-savvy knowledge is key to helping the business succeed, and their ability to secure funding and bring in the right people are crucial elements to ensuring a new business prospers.
The New York Times says investors have started to tighten their belts this year. The amount of money invested into US-based startups fell in 2016 for the first time in four years as the number of deals secured dropped to their lowest levels since 2011. However, the technology revolution has sent high hopes through 2017 and beyond, and analysts insist it will be a brighter business future.
Building a successful startup is more apparent in the digital-based sector, or at least to secure funding you would need a digital-based business plan. As companies like Snapchat and Facebook go public and venture capitalists amass wealth to fund new projects, there is more money available to fund innovation which in turn drives the economy.