Opening your own business can be a universally shared dream job, but it is probably one of the toughest endeavors you can undertake.
Being your own boss and running your own business is one of the most common American dreams. This is a standard metaphor in films where the orphan leader longingly looks at an empty window and dreams of opening his own bakery, restaurant, beauty parlor; At the end of the movie, her dreams come true. Three out of five Americans want to start their own business.
Despite the outbreak, the IRS received 4.4 million applications for new businesses, according to the Bureau of Labor Statistics (BLS), with 30% of small businesses closing due to the impact of COVID-19.
A new study by management firm Wilbur Labs could show that entrepreneurs have enough determination to set aside the cold, harsh realities of how hard it is to start a business. BLS published data showing that 20% of all attempts failed within the first year. Companies lucky enough to start with their venture banking investment failed: Research from Harvard University showed a staggering 75% (three quarters) of a shutter release.
“The failure percentage is definitely high, but starting a company is an inherently risky effort,” said Phil Santoro, co-founder of Wilbur Labs.
According to a Wilbur Labs survey of over 150 founders, 70% of entrepreneurs face potential business failures, 66% will fail within 25 months of their launch. While the IRS is receiving applications for new businesses – their height was in the summer of 2020 – 77% said they “faced potential failure” due to the pandemic.
SEE: COVID-19 workplace policy (TechRepublic Premium)
Why ventures failed in 2020
The main reasons why startups in 2020 failed were: running out of money (37%), lack of finance / investor interest (31%), no business plan or model (25.5%), loss of focus (23.9), not the right team (22.8%) and / or outstripped the competition (21.7%).
Wilbur Labs’ report states, “While most startups cannot expect to make a profit right away, they must have a break-even point and a plan to reach it.” Santoro quotes former Google CEO Eric Schmidt, who often said “Revenue solves all known problems.” Income can also solve Unknown Problems, as the COVID-19 outbreak shows. ”
How to avoid startup failure
“I always ask if they want to spend the next five or more years working on their ideas when talking to potential founders,” Santoro said. Said. “Building a successful company takes a lot longer than most people think. In about two years, this is when the founders usually realize that there is more work ahead. This is also when some of the initial excitement can pass. Two years is often a critical time when founders must decide whether to continue moving, turning or closing. ”
The Wilbur Labs report offered suggestions for avoiding a startup failure to be prepared and most importantly have a plan:
- Further research before launch 29.5%
- Stronger business plan 22.4%
- More financial support / investors 13.5%
- Better marketing 13.5%
- Better product 5.1%
- Success pivot 3.2%
- Better team 1.9%
- Other 1.3%
This theme continued in the free answer section, where participants could make any recommendations for the founders: One quarter of the responses emphasized research, planning and / or preparation. Only 6% said “just do it” or “keep going”.
Start failure timeline
Wilbur Labs chronicled the causes of initial failures from 2014 to 2020, and these six years have shown that the causes have changed significantly. As might be expected, money and financing remained at the top of the list and even increased. Rather than reflecting the lack of cultural, geographic and socioeconomic diversity among founders and investors, there were increases in “lack of market need” that should not be interpreted as a loss of opinion. Competition is also increasing.
Unfortunately, the days have passed when founders were able to launch an application or product quickly and successfully, and this is why Wilbur Labs says “too much noise outside.”
Achieving success in ventures: Be willing to turn and plan
“Solving real problems that serve people better is now even more critical, given the vast numbers of products competing for attention every day,” the report said. Regulations and legal challenges may also have contributed.
Return error is another reason for initialization failure; 55% of startup founders returned to avoid business failures, and 44% of them felt comfortable with the business’s chances of survival. Overall, 75% of startup founders who changed course were successful – learn from mistakes, repeat and adapt quickly before money runs out.
The most common pivot strategies are improving / changing business plans (59.3%), improving existing products (40.7%), launching new products (39.5%), rebranding (22.1%), changing team (%) 16.3) is to secure additional funds / investors. (12.8%) and “other” (5.8%).
As poor business planning is the third most common cause of failure, it makes sense that most pivots involve changing existing plans.
Advice from the founder to the founder: The most stated advice is “to learn from mistakes to be made” (58.3%). Other recommendations include listening to your customers (53.8%), ensuring that there is a market for your product (53.8%), creating a solid business plan (53.2%), being passionate about your product (51.9%), and don’t be afraid. as well as suggestions to change your product when necessary (42.9%)
The glass is half full
Founders determined to start a startup will keep trying again despite failure (67%). Wilbur Labs recommends that anyone planning to start a startup should: Better research, planning and preparation; do not leave money to chance; pivots increase the chances of success; and learn from shared mistakes.
Santoro is optimistic: “Although 67% of them were willing to start another company, despite their business failure. This is great news because often the founders make multiple attempts to succeed. Experiences and mistakes are the best teachers and these kinds of lessons take to build and years to combine. ”