Is Startup Failure Avoidable?
There’s nothing worse than hoping to beat the odds, and not making it. The Small Business Association notes that 9 of 10 founders that you meet will have a bad ending to their startup endeavor, likely before hitting their three-year anniversary.
So the question is – can failure be avoided?
By constantly sharpening the wits of the founder, expanding their business viewpoint, network, customer touch points, and yes, capital, we believe so. We think by holding founders accountable for making changes (or at least attempting to make changes) can keep founder’s brains in the game. We believe by providing founders immersive education opportunities, helpful mentors, and tools to understand and possibly scale their business will allow them to dig into commonly devastating problems and possibly minimize the impact.
Articles like this one by CB Insights (one of our favorite research publications, seriously join their daily newsletter and learn something new, everyday) keeps us education providers thinking over our programs and resources that we provide to early stage startups, to make sure they are relevant and helpful for you. And that’s great for you.
Where we are alarmed is by looking at the top reasons why startups fail and see the changes in reasons. These trends point to the ever-changing environments such as internal drivers, external drivers, policy, accessibility, capital… that today’s and tomorrow’s startups must acknowledge.
So with no further adieu, let’s walk through this trend change that’s happened in 24 months.
The New Failure Pressures
Just read through the two graphics above and let it sink in.
What was obvious to us is that bottom line, ALL STARTUPS need to be paying close attention to CASH. It is certainly alarming that the reason “Ran out of Cash/Failed to Raise Capital” jumped up by 9% in failure rate within 24 months, to take the top spot away from “No Market Need“.
Another alarming external pressure that’s moved up the ranks is “Got Outcompeted” from 4th to now 3rd place, gaining 1% in change. Competition certainly has a direct correlation between funding and cash burn because the steeper the incline, the more gas you’ll burn. By selecting easy targets (seriously dissatisfied customers of other products), and designing a cost-controlled market entry approach could soften the cash burn by pulling in revenue.
The only other failure reason that had a significant increase was “Regulatory/Legal Challenges” jumping from 8% to 18% in the same time period. All other reasons appeared to doh-see-doh with each other.
Some positive changes that may have resulted from our lockdowns is that “Not the Right Team” dropped from #3 reason to #7 – which is great news. Perhaps spending countless hours on Zoom and Slack, and feeling empathetic toward each other due to the radical shift in work and life environments really did hone startup culture and alliances for the better.
How can BoomStartup Help?
BoomStartup can’t raise new capital for all of our startups, but we can help with the ubiquitous education about financials and different funding options that best fit your company’s potential and growth rate.
Because we have thousands of startups on our platform, we capture and track the growth and financial situations to use as a guide for how to improve the sustainability of your business – especially during the first three years of creation.
Why? Because we know that this is when businesses must try, test, learn, pivot, and project where each direction can take them. Because this is the time when you’re building your company’s internal compass and culture, and it’s critical to have some support to back you up.
Want to try it out for yourself? Begin by completing our Quarterly Business Survey and we’ll ask you to share your company progress every quarter going forward – providing you with a snapshot and some suggestions to improve your success rate.
Separately, we have a great first-round investment program where we hand-pick the startups that hit a high growth, high potential criteria and then leverage Assure’s SPVs to convene the right accredited angel investors (as well as our parent company) to provide that capital. The beauty of this hybrid syndication approach is that BoomStartup’s SPVs democratize the opportunity to invest into early stage, high-risk, high-reward opportunities.
The outcome from combining these two approaches is to mitigate the pressures from cash mismanagement, and create opportunities to find accredited investors, simultaneously.