Why Some Startups Succeed and Others Don't...

There’s no shortage of theories on why some startups are successful while others fail. Shops are full of “how to make it rich” books and well-known entrepreneurs can always draw crowds to events where they reveal their “secrets”. This is understandable: a survey by insurer RSA found as many as 50% of startups don’t survive beyond five years.

Ultimately, a business fails because it runs out of money. But there are a multitude of reasons why this can happen. Management teams, business models, access to markets, finance, ideas, timing and the abilities of the entrepreneur themselves are all factors that can influence the failure of startup.

But is one cause more common than others? We speak to investors and serial entrepreneurs to find out what’s really important.

The entrepreneur

The founding entrepreneur is the driving force of any startup and, in the early days, will characterise much of the business. Bill Morrow, founder of Angels Den, regularly assesses new companies for investment by his network’s members, but says that even if he saw a great business idea, he wouldn’t back it if he didn’t believe in the entrepreneur.

In particular, entrepreneurs need to be aware of their shortcomings and how they might be addressed. “I am interested in how aware the entrepreneur is of their weaknesses so they know how much they are going to need other people and create a team,” says Morrow.

The team

Having a good team to run the business is critical. The Tech Factor Report found that businesses with more than one founder tend to be more successful than those with just one. Certainly, investors and business advisers are united in their belief that the people running the company are of fundamental importance.

Paul Smith is the managing director of startup accelerator programme Ignite, which works with entrepreneurs to hone their business models and find investment. Smith also ranks the management team as being more important than the idea. “You can have the best idea in the world but unless you have a strong team, they will never execute it,” he says. “However, if you have a great team then even if the idea isn’t fully formed, the team will hone in on it.”

The big idea

Entrepreneurs may be surprised that having an original idea, even if it is a good one, is far from a guarantee of success. In fact, for many business thinkers, original ideas aren’t that important.

“Entrepreneurs need to understand it’s not about innovation, it’s about implementation,” says Hari Mann, a technology entrepreneur and lecturer at Ashridge Business School in Hertfordshire. “Great entrepreneurs are really good at implementing small changes to existing ideas.”

Mann suggests many entrepreneurs have similar ideas at the same time, but only a few are successful. “Facebook is a classic example – look how many people have tried to sue [Mark Zuckerberg], saying it was their idea, or how many other people have said ‘I had that idea’. It was an idea that was out there at the time.”

Crucially, whatever the business idea is, there needs to be demand for it. Research by CBI Insights into failed startups found that almost half of them went bust because of a lack of demand for their product or service.

The market

Accessing the market is one of the big problems startups must overcome. Mann says some entrepreneurs wait too long before launching. “It’s a myth that things have to be perfect before they go to market,” he says. “Entrepreneurs go to market when they are 90% ready, listen to customer feedback and sort out the glitches later.”

For B2B companies there are different struggles. “Gaining access to market is really important,” says Smith. “It can take a large amount of time and small teams don’t have the manpower to go through long tendering processes.

“If the business has developed a solution for larger companies then it can be difficult as they are often only geared up to do business with other large companies. Even when you are talking about a simple product or service, the sales pipeline can be two years.”

The model

The business model, or how the company addresses its market, is key, even if this evolves over time. For Mann, this is the product of research. “A lack of planning and understanding the amount of resource and time it takes to get to profitability is the cause of many failures,” he says.

Julie Meyer is a serial entrepreneur and founder of Ariadne Capital, which invests in and advises businesses. She looks for companies with business models that are game changers, the ones where “an entrepreneur says ‘here is how it’s working now, but this is how it should be working’.”

Such businesses sound like they ought to be disruptive. However, Meyer believes that at this point in the IT technology cycle, startups that enable larger organisations are more likely to be a success. 

She is inspired by the work of academic Carlota Perez, who proposed the idea that technology cycles last 60-80 years. The current cycle, started in 1971 by the invention of the Intel processor, is now in its maturing stage. Meyer says the successful startups will be those that enable some of the world’s biggest companies to advance.

The money

Cashflow is always the killer of startups and financing is a key issue. This should be addressed as effectively as possible during the research stage and if the entrepreneur isn’t financially minded, they must have someone in their team who is. In terms of investment, it’s a commonly cited maxim that a great business will always find backers. 

As Smith says: “There is so much seed money out there, I don’t know a decent team that can’t raise money. If you can’t, there’s something wrong.”

Timing

In a recent TED talk, the American investor and entrepreneur Bill Gross argued that timing – when a company comes to market – is key to its success. Gross highlighted a number of internet-based businesses that arose prior to the widespread adoption of broadband and that were later superseded by companies with similar ideas. Timing may indeed be a factor, but assessing the best time to launch is easier said than done. 

Entrepreneurs and their teams should be well prepared, well researched, aware of their weaknesses and have a clear route to market. But as Smith says, success is closely related to another factor: survival. “Companies are creating products that seem ridiculous now, but they won’t in five years’ time. It’s about staying alive and being relevant when the market is ready for you.”




Source: http://www.theguardian.com/small-business-network/2015/jul/23/why-startups-succeed-others-dont-businesses-survive