Why Startups Fail…and a Few Succeed
You may think that is a pessimistic title for a blog about startups and entrepreneurship. The truth is, most startups will fail- 75 percent of venture-backed startups fail, according to a study from the Harvard Business School. Only 50 percent of all U.S. companies survive beyond five years, and just 30 percent after 10 years. Instead of thinking, “Why bother?” you should be asking yourself what sets the startups that succeed apart from those that fail. What are they doing right?
If you take time to study the startup market, you will observe a pattern among successful startups. There are a number of factors contributing to successful startups, as well as a number of reasons most startups fail. If you aspire to join the successful minority here in establishing your own business, then it comes down to knowing what goes into a successful startup and the mistakes leading to failure that you should avoid. To start, I will look at the reasons startups fail. Then I will turn it around and examine the traits successful startups have in common.
Reasons startups fail
- Lack of motivation: The people an entrepreneur hires need to be completely committed to and passionate about the startup’s success, or they will only bring it down. The team needs to mesh and be on board with company goals. According to Entrepreneur, lack of motivation, commitment, and passion, as well as not having the right team are some of the main causes of failure.
- Irresponsible use of money: A business owner and anyone else in a management position needs to have a set of general and domain-specific business acumen encompassing finance, operations, and marketing- all these business smarts play into managing money responsibly. If too much money is raised and spent too soon, not enough will be left over to help the business grow organically, and it will flounder.
- Not enough expertise: In addition to managing money, an effective leader needs to know how to manage a team of people. A startup founder should have a proven track record, but avoid letting pride and arrogance go to their head. It is paramount, especially in the development phase, to employ all of you knowledge and expertise while also being open to new ideas and strategies.
All of the reasons startups fail can be traced back to a common denominator: lack of leadership. Without a successful leader in place with the business knowledge and market insight to helm the business, it will never take off. A startup founder must be attuned to every step of the decision-making process and work with their team to establish and employ a successful business model. A conflict of interests is one of the most precarious situations a new business can find themselves in.
According to Entrepreneur, “Issues like these are always tied to leadership and the leader’s ability to build a strong team and drive a business model and business thought process and discipline.” Any monetary failure can ultimately be tied back to poor management and teamwork.
What successful startups have in common
To say that there is a precise set of reasons startups succeed would be misleading. Sometimes, a startup’s success comes down to being in the right place in the market at the right time. There are, however, some trends among successful startups and some traits they have in common, despite having original approaches and brands.
The reasons startups succeed are not necessarily the exact opposite of the reasons they fail. Having the qualities of an entrepreneur is not a guarantee of startup success. If startup failure can be defined by a lack of leadership, then startup success can be defined by staying the course. You need to have a plan and stick to it. This begins with finding a problem and identifying a solution, and then having the passion to follow it through.
At the Tesla shareholder convention in June, founder and CEO Elon Musk took the opportunity to address his mistakes. The wildly successful billionaire entrepreneur is not without his flaws and he had to go through a long process of trial-and-error before getting to where he is today. This year, Tesla is rolling out its most affordable vehicle yet with the Model 3 sedan starting at $35,000. Unlike with other models, customers only have two options for customization. Musk made these changes after learning from his mistakes with the Model X, which he referred to as “hubris extraordinaire.”
In fact, Elon Musk is so open about his failures and his path to success that was far from linear, the founder of Kickresume, Tomas Ondrejka, compiled a resume of Musk’s admitted mistakes. Here is a sampling of some of Musks setbacks: In 1995, he was rejected from a job at Netscape. A year later, he was fired as the CEO of his own company, Zip2. In 2000, he was fired from X.com, which then became PayPal. In 2006, he launched his first rocket which exploded. In 2007, his second rocket exploded and in 2008, his third rocket launch experienced a critical failure with NASA satellites onboard. Also in 2008, Tesla and Space X were on the brink of bankruptcy. In 2014, the Tesla Model S was recalled for problems with spontaneous battery combustion. Just two years ago, Musk experienced a fourth rocket explosion at launch. His Tesla Model X was delayed for more than 18 months. He cost Nasa $300 million when his fifth rocket exploded at launch in 2016.
Elon Musk is only 46 and he has had more than enough failures in his lifetime to make anyone want to quit. Yet, on the other hand, he is 46 years old and worth 14.3 billion with a lifetime of accomplishments under his belt. If there’s anything entrepreneurs can learn from Elon Musk, it is that an entrepreneur cannot be afraid of failure. You will indubitably experience setbacks on your path to success, so you must master the art of failing confidently in the right direction.
You can chose to let your failures define you or you can chalk it up to experience and learn to improve from them. I, like so many other successful entrepreneurs, chose the latter, and I am infinitely grateful that I did.