Why Do Any Companies Succeed? (and Why Most Fail)
There is a consistent set of factors that lead to startup success and failure.
Over the last two decades of developing and operating companies, as well as the last couple of years collaborating full-time with hundreds of company creators and CEOs on their strategy and fundraising plans, I’ve discovered that there are a consistent set of factors that cause startups to struggle and fail, as well as a consistent set of factors that cause startups to thrive.
My curiosity regarding startup performance and failure finally got the better of me, and I wondered if my findings were backed up by hard facts. I wanted to do some in-depth research on this topic. I was wondering if there were any experiments that explained why startups thrive or fail. I came across many posts that were full of unsubstantiated opinions as well as a few outlets that had excellent hard analysis on the topic.
• Why Companies Fail?
75 % of venture-funded startups fail, according to a FastCompany report titled “How Most Venture Backed Firms Fail.” This number comes from Shikhar Ghosh’s Harvard Business School report. According to Statistic Brain’s Startup Sector Failure Rate by Industry research, the failure rate among all U.S. firms after five years was over 50%, and after ten years, it was over 70%.
This research also inquired as to why companies struggle, and presented a list of four key causes for failure, each with sub-categories underneath them. They have given a compilation of the top 12 management blunders. It’s worth digging at the particulars. Any of my findings were verified by this research-based study. I categorize the results of the Statistic Brain into seven main explanations why entrepreneurs fail:
- Inability to concentrate
2. Motivation, dedication, and enthusiasm are both absent.
3. So much ego leads to failure to see or respond.
4. Take suggestions from the incorrect sources
5. Mentorship is incomplete.
6. Finance, processes, and marketing: a shortage of general and domain-specific company awareness
7. Raising an unsustainable sum of capital too fast
Both of these are based on the entrepreneur’s decision-making and general market experience.
CB Insights looked at the post-mortems of 101 entrepreneurs to come up with a list of the Top 20 Causes Startups Struggle in another report. The emphasis was on the causes for failure at the organizational level. This list is helpful, but each of these causes for failure stems from a leadership failure at any stage. The following are the top nine most critical results from this study:
- There is no need in the market.
2. I ran out of income.
3. Outcompeted by the incorrect team
4. Cost/pricing problem
5. a subpar commodity
6. Lack of/need for a business model
7. Ineffective ads
8. Customers can be ignored.
And the ones that have to do with the commodity, all of these are company and team-related problems. Leadership and the leader’s capacity to develop a good team to push a corporate plan, business thinking process, and discipline are often related to topics like these. Often, bear in mind that even if running out of funds is the main cause of loss, there are still other variables at hand.
• Why can certain companies Succeed and others fail?
The next move was to search at sources of evidence about why corporations were successful. Efficiency Longevity in Entrepreneurship, a report from Harvard Business School, shows that serial entrepreneurs with previous experience are more likely to thrive, and that the strongest VCs are successful at selecting serial entrepreneurs. However, it didn’t really satisfy my query regarding entrepreneur attributes.
The Ecommerce Genome by Compass’s Startup Genome survey, which looked at 650 internet startups, presented the most detailed analysis that I could find to help address the “reasons for success” issue. Despite the fact that this report is based on the software sector, I find it to be quite instructive.
The study identified 14 performance measures. Any of the 14 seemed a little repetitive, but you can read the whole article. Any of my findings were also verified by this study. These 14 metrics were grouped into nine main performance factors:
- Effect motivates founders, culminating in enthusiasm and dedication.
2. Staying the road and keeping to one’s desired route is a dedication.
3. Willingness to improve, just not on a daily basis
4. Patience and perseverance owing to a misalignment between perceptions and fact in terms of timing.
5. Willingness to observe, read, and pick up new knowledge
6. Establish the necessary mentoring partnerships.
7. Leadership with a deep understanding of market as well as experience in a particular sector
8. Putting “Lean Startup” ideas into practice: In a fundraising round, collecting only enough funds to reach the next collection of main milestones
9. Product production includes a combination of technological and market experience, as well as technical skills.
• Are the reasons for success the opposite of those for failure?
There are some characteristics that you must attain in order to be a good entrepreneur, but these attributes do not guarantee success. Having said that, it stands to reason that fixing the triggers of business loss will at the very least enhance your likelihood of success. As a consequence, I wanted to explore a side-by-side analysis of the causes of loss and the reasons that contribute to performance.
When you examine both the causes for disappointment and the variables that contribute to progress, it’s obvious that sticking to a schedule is important. This, of necessity, necessitates the development of a policy. This does not indicate that you are absolutely inflexible, but it does imply that you should hold to your weapons. Because of this, the most popular firms have one or two pivots. I don’t consider any small market tweak or fine-tuning to be a pivot.
A real pivot is a move in direction that results in a major shift in product-market strategy. It may be around the commodity or business axis, but it must be important enough to necessitate a shift of policy and resource distribution. At least, that’s how I describe it.
The evident considerations are love and inspiration. Passion is listed by any entrepreneur, market mentor, strategist, adviser, newscaster, investor, and industry analyst. This is something that Steve Jobs is often cited about. At this point, it’s undoubtedly been cliched and overused.
This review speaks to me because it gets to the core of the matter. Good individuals have confidence in what they are doing. The prosperous entrepreneur hopes that they will have a significant effect on the planet. There’s so much inertia and skepticism around bringing a startup off the ground, let alone getting it to “escape velocity,” that if you don’t have a strong dedication to having a difference, you’ll give up.
Entrepreneurs who excel are fierce rivals. They play to win and despise losing. While this characteristic can express itself differently in various personality styles, I have never encountered a successful entrepreneur who lacks a competitive spirit and a determination to excel.
The next two points are intertwined. I kept them apart because I feel mentorship is incredibly valuable and has played a major role in my professional growth. Just because you wish to understand more does not imply you want to search out a coach to listen to their counsel.
By the way, I’m not recommending that you take every bit of advice and feedback from your mentors; however, whether you’ve chosen strong mentors with considerable domain, technological, or company experience, you can at least listen to what they have to tell. What’s the point of using them as a coach if they’re not going to support you? It all boils down to modesty. It’s one of those situations where you believe you’ve got it, but you really don’t.
Startups that thrive are companies. As a consequence, if you want to maximize your odds of success, you can develop and enforce solid fundamental market values and practices. Many technological entrepreneurs fall in love with their product design and imagine, knowingly or implicitly, that if they create a stronger mousetrap, the future will come knocking.
However, both the performance and loss studies indicate that in order to be effective, the organization requires leadership in both general and domain-specific market experience. Of course, good technological experience in the desired product creation field is needed.
Would this rule out the chance of a technical creator being a CEO? It doesn’t work that way. Take, for example, Dr. Irwin Jacobs, the co-founder and founding CEO of Qualcomm. Dr. Jacobs is an experienced developer and retired MIT lecturer. He does, though, have a bright strategic mind and a variety of business practice.
Dr. Jacobs had recently managed another venture, MA-Com, so he was no novice to operating a firm. He surrounded himself with a competent management team as well. There are several other instances of this growth formula where an experienced businessperson with domain experience runs the organization while a powerful engineering staff is in control of product creation.
The classic example of a business-oriented creator is Steve Jobs (Apple, NeXT, and Pixar). Meg Whitman (eBay) and Eric Schmidt (Google) are two exemplary examples of CEOs who were brought on early to complement an impressive team of technical creators.
Finally, understanding how long things will take, establishing intermediate targets every 12 to 18 months, and raising only enough money to get to the next collection of main milestones is crucial not just for resource performance, but also for progress.
• What moves do I need to take to reach the $100 Million Club?
Surprisingly, according to the Kauffman Institute’s article The Constant: Businesses that Matter, the rate with which the United States generates $100-million companies has stayed steady throughout the last 20 years, considering economic shifts. “Anywhere from 125 to 250 businesses (out of about 552,000 new employer firms) are created in the United States per year that exceed $100 million in revenues,” according to the report.
Entropic, my former organization, has attained this position. How can you become a member of the organization? You’ll need a touch of luck as well as a sharp sense of timing. “Luck is what occurs when preparedness reaches opportunity,” as the Roman philosopher Seneca put it.
A strategy, patience, perseverance, a desire to be agile, and a world-class team are also needed. You must still be thrifty, wise, and develop good mentors. The only approach to accomplish all of these things well and quickly right now is to pursue a structured method through which you prepare, commit, monitor results, encourage milestones, and collect the requisite money, or “power in the tank,” to move your startup forward.
Plan, Dedicate, and Win!!