In the past two decades to build and manage the business, and to work full-time with dozens of startup founders and CEOs in the past few years, researching their strategies and financing plans in my consulting business, I have observed a common set of Reasons: The struggles and failures of startups, and a series of constant factors that make startups successful.
I was wondering whether my observations are supported by conclusive data. My curiosity about the success or failure of entrepreneurship finally defeated me. I decided to do some in-depth research on this topic. I want to know if there are any studies that show the reasons for the success and failure of startups. I found several articles full of unsubstantiated opinions and some sources that have done a lot of research on the subject.
Why does the enterprise fail?
According to an article by FastCompany “Why most enterprise-backed companies fail”, 75% of enterprise-backed startups fail. The statistics are based on Harvard Business School research by Shikhar Ghosh. In a Statistic Brain study, Startup Failure Rate by Industry, the failure rate for all American businesses exceeded 50% after 5 years and more than 70% after 10 years.
The study also asked company leaders about the reasons for business failures, listed four main reasons for failures, and listed subcategories below. They also listed 12 major management mistakes. The details are worth checking. This research-based analysis confirmed some of my observations. I summarize the findings of Statistic Brain into seven key reasons why entrepreneurs experience business failure:
- Lack of focus
- Lack of motivation, commitment, and passion
- Too much pride, resulting in a reluctance to see or hear
- Get advice from the wrong people
- Lack of good guidance
- Lack of general and domain-specific business knowledge: Finance, operations, and marketing
Raising too much capital too early
All of this is focused on entrepreneurial decision-making and business knowledge.
In another study, CB Insights analyzed the autopsies of 101 startups to compile a list of the top 20 reasons why startups failed. The focus is on the cause of failure at the company level. I think this list is instructive, but each of these reasons for failure is due to some kind of leadership failure. The top nine most important in this research are:
- No market demand
- No cash
- No adequate equipment
- Price/cost problems
- Bad product
- Need/lack of business model
- Inadequate marketing
- Ignoring customers
Please note that these are all business and equipment-related issues, and even product-related issues. Questions like these are always related to leadership and the leader’s ability to build strong teams, promote business models, business thought processes and discipline. Also, keep in mind that if running out of funds is the main cause of failure, there will always be other factors that lead to this result.
Why are startups successful?
Next, I look for sources of information about the reasons for the success of the business. I found some good research at Harvard Business School, Performance Persistence in Entrepreneurship, showing that experienced serial entrepreneurs are more likely to be successful, and the best venture capitalists are very good at selecting serial entrepreneurs. However, this did not answer my question about the quality of entrepreneurs.
The best comprehensive study to help answer the “reason for success” question I can find comes from Compass’s eCommerce genome in its Entrepreneurship Genome report, which surveyed 650 Internet startups. Although this research is for specific technology industry, I still think it is very illuminating. The report identified 14 indicators of success. Some of the 14 is a bit redundant, but you should check the report yourself. This analysis also confirmed some of my observations. I summarize these 14 indicators in nine key success factors:
- The founder is driven by influence, which generates enthusiasm and commitment
- Commitment to stay to the end and stay on the chosen path
- Willing to adapt, but will not continue to adapt
- Patience and perseverance
- Willingness to observe, listen and learn
- Establish correct mentoring relationships
- Leadership with general and specific business knowledge
- Implement the principle of “lean entrepreneurship”: Raise sufficient funds in a funding round to reach the next set of milestones key
- The balance of technology and business knowledge, and the technical expertise required in product development
Are reasons for success opposed to reasons for failure?
There are some things you must have to become a successful entrepreneur, but they do not guarantee success. In other words, if you solve the cause of business failure, you will at least increase your chances of success, which makes sense. Therefore, I decided to compare the causes of failure and the factors of success in parallel.
If you look at both the reasons for failure and the factors for success, it’s clear that commitment to the plan is key. Of course, this means that there is a plan. This does not mean that you are completely inflexible, but you can stick with it. That is why the most successful companies have one or two pivots. I don’t think every small business adjustment or adjustment is a foothold.
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