Your Startup Will Probably Fail… And That’s Okay.
You’ve probably heard the saying that “90% of startups fail.” Well, after tracking over 27,000 startups over 20 years, Cambridge Associates says that the amount of startups who provided less than a 1x return to investors has not risen above 60%, on average. The failure rate peaked around 2000 and the failure rate topped out around 79%. Either way you look at it, even at its worst, the startup failure rate was never more than 80%.
So why do people keep repeating the “conventional wisdom” that 9 out of 10 new businesses fail? It may be to lessen the blow when new startups inevitably do fail, it may be because people actually haven’t looked into the numbers, or it may be to discourage people from taking risk. Regardless, the fact remains, if you start a company the odds are against you. On a purely statistical average, there’s a 60% chance that your company is going to provide less of a return than any amount of money put into it.
Top reasons why startups fail
If you read our previous blog post- common issues we see in startups today – you’ll see that the top 6 most common causes for failure are:
- Your product or service doesn’t solve a problem or address a real need
- You are unable to sell your product or service
- You don’t have enough money to expand and grow your business
- You have no true leader to shape the vision of your company
- There’s no differentiation between you and your competitors
- You don’t care enough about the customer experience or customer service
Almost all of the reasons that a startup fails can be categorized into one of those 6 issues. It can be very difficult for a first-time entrepreneur to avoid these common pitfalls because most people do not truly learn something until they experience it firsthand.
REAL reason startups fail
Almost all of the problems we listed above arise from lack of experience. That doesn’t mean that first time entrepreneurs can’t be successful. It simply means that it’s hard to foresee all the potential troubles that lie ahead until you’ve been there before. Experienced entrepreneurs anticipate running into these problems and proactively build their organization to overcome them.
There are two ways to overcome a lack of experience. The first is to simply go directly into business and learn along the way, anticipating inevitable failures. Most failure is not permanent or catastrophic and therefore, can be learnt from. The second way, to make up for lack of experience, is to learn from others. Build a team of experienced people around you that can help you navigate the complicated start up process.
Why failure isn’t the “end of the world”
Failure is never permanent unless you quit. An entrepreneur can always try again. As long as you are ethical and moral, people will not negatively judge you for an earnest attempt. If you tried your best and failed, try again. As long as you keep your reputation intact, there’s no need to fear failure.
Entrepreneurs who failed but tried again and succeeded
There are countless entrepreneurs who failed multiple times before they succeeded. In fact, the majority of great entrepreneurs fail before they meet with success. We think it might be helpful here to highlight some of the more obvious examples of entrepreneurs who failed but got up, tried again, and built a successful company.
Jeff Bezos (Amazon) tried to start an online auction site called zShops, which ultimately failed. Reid Hoffman (LinkedIn) created a company called SocialNet, for online dating and social networking, which ultimately shut down. Evan Williams (Twitter) developed a podcast platform called Odeo which didn’t take off. Fred Smith (FedEx) received a poor grade on an assignment from his college professor where he pitched his idea for the future shipping giant.
All of these entrepreneurs have one thing in common, they didn’t give up. No matter what, even if you’re first companies fail, if you try again, you still have the chance to be wildly successful. Our hope is that failure doesn’t keep you out of the game -of entrepreneurship- for the rest of your life.
Are you the type of person that never gives up?
At the Tandon Group we are always looking for entrepreneurs who refused to quit. If you have a company that you think can be the next big success, reach out to us. We’ve invested in dozens of startups across many sectors that have seen success. You can check out our portfolio of companies on our website and read some of their spotlight articles on our blog. If you need capital to grow your company, we’d love to be your partner for the road ahead.