Startup Failure Rate: How Many Startups Fail every year and Why?
If a basement with unkempt laptops and empty pizza boxes in a corner is the picture you visualize when you hear the word "startup," relax, you're not the only one.
However, while a lot of people picture startups as teams rather than as companies, it is not necessarily so. Even a four-year-old company with glass windows and homely partitions can still be considered a startup.
A startup is no longer a startup when it has many branches, has more than 70 employees, generates revenues topping $20 million, or has been bought by a larger company.
Every startup owner dreams of being the next big thing. However, it is not always so. Only 10% of startups make their marks every year. That means 90% of startups fail. Yes, that's the truth. Any startup can fail as a result of not following certain principles, and this article will help you in this aspect.
What percentage of startups fail after Series A?
When your product has successfully fit the market (product-market fit) and, by extension, your clients, and you have acquired a solid and competent team, it's time to seek your first funds known as Series A. Series A funds refer to the money for the growth and establishment of your startup's operational processes that you found out during product-market fit.
At this stage, the usual investors are venture capitalists and angel investors. The range of funding amount is usually between $500000 - $2,500,000. This is dependent on the industry the startup belongs to.
The funding amount at this stage is typically between $500,000 – $3,000,000, depending on the industry. The target runaway is a year to a year and a half.
More than 60% of startups that get Series A funding go on to acquire Series B funding. The rest, let's just say it's back to the drawing board for them.
Some examples of 2021 startups that got Series A funding are DiviGas, Walkie-talkie, and Noissue.
What percentage of businesses fail in the first five years?
It is commonly stated that more than half of all startups fail within the first year. However, this is not always true, according to statistics. The U.S. Bureau of Labor Statistics found that about 20% of new startups experience failure during the first two years of operation, 45% within the initial five years, and 65% within the initial ten years. This means that only 25% survive for 15 years or longer.
These figures haven't altered much over time and have been relatively stable from the nineties till date.
A unicorn refers to a startup valued at over $1 billion. Coined by Aileen Lee (a venture investor) in 2013, the term 'Unicorn' (so named due to their rarity) defines the few cases of such successful companies.
The further a startup gets into the funding stages, the fewer chances it has of getting into the unicorn family. In fact, less than 1% of startups actually get in.
However, many startups have attained this zenith, ranging from familiar brands like Reddit, Airbnb, and Uber, to massive eCommerce enterprises and pioneers of futuristic technologies such as artificial intelligence and space travel like Amazon, Tesla, and SpaceX.
What is the success rate of startups?
Presently, there are 31.7 million small businesses in the United States of America, accounting for 99.9% of all businesses in the country. Many small businesses are established monthly, yet the failure rate is high.
One in every ten startups grows and becomes a business everyone cannot get enough of. If it gets fortunate, it can join the unicorn club.
You're lucky if your startup survives. You've accomplished something that 90% of novel businesses did not.
Even while there is a lot of luck involved in the success tales like Google and Facebook, startups flourish for some specific reasons. They have a product that fills a demand, doesn't disregard anything, develop quickly, and rebounds from the startup's hard knocks.
How many startups are profitable?
In reality, only 40% of startups become profitable. Startups take between two to four years to get profitable. During this time, they operate at losses until they break even, and about 30% just do that. However, here are some facts about growth and profit:
- Startups having two founders are 19% less likely to scale before they need to than startups having just one founder
- Startups having two founders have nearly three times the normal user growth than with a single founder.
Crowdfunding is another option for fundraising. You need to come up with the best strategies to raise venture capital for your startup.
How to Create a Startup Growth Strategy That's Built for Sustained Success?
If you want to be a long-term success as an entrepreneur, you must have a growth strategy. The dream is to ensure your business is booming for as long as possible, not just for the first few years. The route to success is dependent on changing strategies.
You must create a step-by-step strategy and plan to make changes as much as possible. Here are the basic steps for growing your startup:
Know What You Offer
As an entrepreneur, you must be familiar with your industry. You must also understand what distinguishes you from your competition. If you can perfectly outline this, your startup will be on the path to long-term growth.
You must first establish why customers prefer your service or product among the many in the industry. What attracts them to you? Knowing your unique feature/characteristic will make it easy for you to target certain parts of the industry that have not been previously reached.
In summary, determine your value proposition, your company's unique selling point (USP), and your unique benefit(s) that only you can deliver.
Monitor your competitors closely.
Actually, it does not matter what industry you are in; there is always a competitor succeeding at something you are failing. When developing your growth strategy, consider similar firms that are expanding daily. Scrutinize their growth strategy and learn from it.
To make the best decisions, you must question everything and anything, even the supposed basics. Whether they are incorrect or simply positioned differently, remember, no man is an island. We all learn every day.
Knowing who you're selling your idea to makes pitching go much more smoothly and reduces the possibility of making mistakes. When you can recognize your target audience, you will undoubtedly make better decisions about creating and improving your service or product. When you've identified your target demographic, you'll be able to generate more precise and more targeted marketing.
One of the most effectual methods to accomplish this is to conduct a customer survey. Assume you are starting a bakery chain having specific flavors. Allow a small set of individuals (who must belong to your target demography to try out your product and ask them questions during the launch to gather honest and useful feedback.
You may also accomplish this through email marketing and newsletters, asking questions, and receiving relatable responses from those who have shown enough interest in your company to provide you with their contact information. The findings will almost certainly point you in the right direction since the people who take the time to answer your questions are almost always members of your target demographic.
How do you track growth when your growth strategy is in play? What data will notify you of growth? This is where KPIs play a major role.
KPIs highlight factors and measurables that show you where your firm is heading. When you understand which aspects of business are critical to the growth and establishment of your startup, you will be able to devote the necessary resources to these areas. Knowing how to read and monitor KPIs allows you to fine-tune strategy points and processes. It also makes it simpler to assess whether the strategy put in place is having a favorable or adverse impact.
Below are some common KPIs used in modern business:
• Customer Lifetime Value
The amount of money you will make over the course of your engagement with a customer.
• Customer Acquisition Cost
The amount of money required to attract a new customer.
• Burn Rate
The rate at which your organization spends capital.
• Conversion Rate
The percentage of people who contacted your company or visited your website and later became clients.
Monitoring these KPIs should give you a fair picture of how your company is doing and whether your startup growth plan is doing its job.
The factors described above are critical in developing a strong startup growth strategy. These measures might help to give the market a much-needed jolt. They are also instrumental when you want to be the competition.
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