Every year, thousands of ambitious entrepreneurs start their own businesses. They are motivated, have hope, and look positively into the future. But especially in times of crisis, it is hard to stay alive as a start-up. How many startups on average manage to become successful, and how can they best prepare themselves against crises to survive them, and even leave the situation stronger than before?
Is it Hard to Survive?
What the expert’s outline is far from quick answers and makes it clear that companies and people do not so much learn from mistakes, but rather get to know themselves better through the errors they make. Failure is the occasion to look at oneself and to define goals more precisely. The creation during these processes is called mindful organisation.
Around 50 per cent of all start-ups fail within five years, it is presumed, and even that is still comparatively good compared to the fate of ideas. Data-based companies such as Google or Facebook test almost all suggestions for improvements to their websites in so-called A/B tests: They show randomly selected users the innovations and measure whether they are clicked on more often or used more intensively than the previous pages. The result of hundreds of thousands of such tests: Around 90 per cent of all new ideas are worse than what is already there.
Top 10 Success & Failure Startup Statistics at a glance
- 20% of startups fail within the first year
- over 50% of startups fail after 5 years
- over 70% of startups fail after 10 years
- a third of small businesses get started with less than $5,000 USD
- 58% of startups get started with less than $25,000 UDS
- 40% of startups are profitable
- 30% of startups are break-even
- 30% are continually losing money
- 82% of businesses fail because of cash flow problems
- $10,000 is the average amount of startup capital required by a small business owner
*The data are surveys from other articles and refer to startups from the US market. However, the % values do not differ significantly worldwide.
It all seems very negative at this point. But never let that discourage you as a founder. There are several factors that speak for the success of any start-up. Bill Gross, an American investor, fund manager, and philanthropist, describes in one of his TED, talks about the factors that lead to startup success. According to Bill, after reviewing hundreds of companies, he created an image on how to assure success for your startup.
You might think that the amount of funding has everything to do with the success of a start-up. But according to Bill Gross, this is not a direct indicator of success. Nevertheless, startups that received funding have a higher success ratio than non-funded startups.
Well-funded companies accounted for a success ratio of 14%.
2. Business Model
Although a business model is a clear advantage when establishing a company, it can be done without it. YouTube is the best example of this as they didn’t have a business model in the beginning. However, it can only be an advantage for a start-up to create a business model, as the company must have a clear path to follow to generate revenues.
Having a clear structure in the company can more easily lead to later success and according to Bill has a success ratio of 24%
The very name of his own brand ‘Idealab’ shows how much Bill loves big ideas. Having the right idea and the “ah-ha” moment, leads, according to Bill, to a success ratio of 28% for start-up success.
A well-functioning team is essential, not only for a start-up but also for established companies. Especially in crisis situations, but also in everyday working life, the founder must be able to trust his team completely. In his TED talk Bill quotes Mike Tyson who said: “Everyone has a plan until they get punched in the face.” A good team is able to adapt to the true reality of a demanding customer. So maybe Bill views the team as the crucial point for the success of the startup.
Although team is one of the significant factors in the success of a start-up, according to Bill’s studies it has a 32% success ratio.
‘The idea matters a lot. But timing matters more.‘
With a staggering 42% of the difference between success and failure, timing is the winner. As an example, Bill observed that many investors gave up on AirBNB because most of them thought it was strange for a person to rent a room in their house to a stranger.
Apart from a great business model and a great team, AirBNB had the timing on its side. It was created during the recession when people needed extra money. The right timing made AirBNB as successful as it is nowadays.
Not only AirBnb profited from the perfect timing but also the worldwide known company Uber benefited from the recession. The drivers were seeking some extra money to increase their income.
However, there is no recipe to guarantee success for a start-up but these 5 factors can help your startup to grow and become more profitable.
How to Overcome a Crisis
Start-ups often not only have to face the competition and everyday pressure but also have to survive in times of crisis and make the best out of the situation. This can often be very challenging and nerve-wracking. However, the crisis can be an opportunity for some companies in the medium or long term, from which the stronger start-ups can benefit. During the dot.com crash in 2000 and again in 2008, many of the world’s market leaders such as Google, Amazon, and Salesforce grew as startups and benefited extremely from the crisis.
The aim of any crisis management is to preserve the company. In general, early action is the most essential instrument of crisis management. Even the first signs, such as declining sales or liquidity bottlenecks, must be taken seriously. Professional crisis management is often only possible with external experts. However, every company can also carry out crisis management itself and adapt to the respective crisis in the best possible way.
Here are three tips on how your start-up can survive a crisis or even profit from it:
Time for Innovation
It is important that your team and your business does not freeze during this time. It is not the time to simply continue doing the same monotonous tasks every day. You need to be creative and think outside the box. Don’t be afraid to deviate from your original business plan. Gather your team and brainstorm your ideas.
Observe Customer Needs
Customer needs will always change during a crisis, and as a start-up, you have to keep up with the trend. This aspect is linked to the previous one, innovation. Try to find solutions with your team not to lose your customers and in the best case to expand your customer base. As an entrepreneur, it is your responsibility to minimise operational errors and to approach new challenges. Time management, in particular, plays a major role in achieving a change like your enterprise, if necessary.
Have a close look at your finances
The number one priority of every founder must be to avoid that the company runs out of money. In a crisis, many founders are afraid of losing their start-ups. Explore the areas where liquidity can be maintained. Use government programs to mitigate the financial impact of the crisis. Explore short-term working and try to start negotiations on the next financing round. However, if you don’t see any other possibility, you might consider downsizing your team. Instead, many startups choose to work fewer days, reducing labor costs so that they don’t have to spend more resources on hiring to rebuild the team after the crisis.
In conclusion, it can be noted that you should take advantage of the opportunities that arise and be prepared to adapt your product to the evolving requirements to assure your startups’ survival. Use these chances not only to achieve incremental growth but also to strengthen your brand and reputation.
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