What we can learn from 1 in every 10 startups failing in the first 5 years?
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According to the most recent data collected, just around 90% of all startups fail within 5 years of their creation. It is commonplace in the academic world to scoff at entrepreneurs, instead opting for more stable careers within big industry. Interestingly enough however, is that word: stable. As of 2022, the average tenure of employment for men in the US is 4.3 years, resulting in an average of 12.5 jobs during their lifetime. If we were to run by the numbers that means 1 in every 10 startup fails within 5 years, while the average lifetime of an employee in corporate America falls just below that threshold.
So why is a career in entrepreneurship viewed as some kind of strange anomaly? Common cases against the career argue that the mishandling of finances, poor product pricing, or being out competed by larger companies (to list a few) lead to eventual liquidation. While there is some truth to this, I believe there’s much more to it than meets the eye.
Over my career, I have brushed shoulders with people who sat in meetings with Steve Jobs, Michael Dell, and Elon Musk. Whenever I ask how it was being in the same room with some of these entrepreneurial legends, they always say the same thing, “they weren't all that special”. As goes the old adage: never meet your heroes. The truth is, for a lot of Silicon Valley’s greatest success stories, it was a simple case of being in the right place at the right time.
Now, that isn’t to say some of the wealthiest men on the planet were just lucky. It required an incredible amount of work to get to where they are today. But that shouldn’t intimidate a person from trying to build something for themselves. 24 of America’s billionaires never received a college degree, and that’s excluding those who were admitted but dropped out like Mark Zuckerberg and Steve Jobs.
Entrepreneurial success is a numbers game, and you don’t need to be good at math to play it! I find the real problem with people’s new ideas is that ideas are a dime a dozen. Chances are, someone somewhere on this globe has probably had the same idea. What happens to young inventors is they get excited about an idea, do some surface level research, then dump their life savings into it. Don’t believe me? Try looking up frozen yogurt shops in the area. With surface level research, so many people saw frozen yogurt as a trending snack in America and decided to capitalize on it. Next thing they know, they’re in a saturated market fighting tooth and nail for each customer.
Find your niche
Step one of successful entrepreneurship starts with a niche. What does the market want? How does one even look for an answer to that question? Watch the world around you. Look for the small inconveniences in life. Once you’ve found a few, do some light research on them and see how widespread the issue is, then try to see if your pain has found its way into other markets.
Usually upon discovering that their issue is extremely widespread, a young inventor is ecstatic. That’s red flag number 2. If a problem is that well-known, chances are there’s a larger company out there trying to capitalize on it. Tile recently learned this lesson, taking the common pain point of missing keys and luggage. What Tile failed to plan for was Apple inevitably releasing a similar device to accompany its 2015 FindMy app. As a small startup, you don’t have the resources to compete in the big leagues. Success awaits you in the smaller, underserved markets. One such of these markets is new mothers.
Anyone with parenting experience knows what a headache breastfeeding can be for working mothers. Yet what options are out there? A $500 pump that takes swathes of time out of your day? That is an underserved market that’s niche enough that larger companies don’t give it much thought. Now there’s a population willing to pay for a solution to their problems, and with no major competitors in the space.
When I offer that advice to clients, their knee-jerk reaction is almost always along the lines of, “but doesn’t that mean there isn’t as much money?”. Absolutely. And that’s ok. Selling your startup for $2 million instead of $2 billion isn’t as appealing, but $2 million is $2 million. While they may view wealth as an annual income, I believe wealth should be viewed as your ability to survive financially without working. If you were fired today, how long could you survive? 3 months, 6? Don’t get so caught up in the allure of wealth that you ignore the goldmine of underserved markets.
Rely on those you know
Step two of your venture comes down to networking. Who do you know, and who can you rely on? Equity is an extremely valuable thing, but sometimes that must be sacrificed to work more efficiently. If you’ve never started a business before, you are re-inventing the wheel every step of the process. Bring people onto your team, whether in the form of investors or co-founders to help eliminate some of those headaches.
With investors comes money, the inevitable nail in the coffin for most startups. The typical “dump your life savings into a venture” situation should be avoided at all costs. There should be no reason to risk losing your money on an idea you came up with 3 months ago. Work as lean as you can. Build a scrappy prototype. In our example of mothers, this could be as simple as a tube with a cup attached. Bring your “prototype” with you and start asking questions. Pitch it as a handheld pump tht can be descreetly used on the go, and see what they think. They might hate it, and if they do, you only spent $15 building your prototype. If they love it, keep refining your model.
Don’t waste money if it doesn’t need to be. I see so many young entrepreneurs paying someone to build an elaborate website, or make expensive casting molds for an idea that was doomed before they even started.
There are also a suprising number on entrepreneurial competitions with cash prizes, often in your local area. Capitalize on these and if possible, fund your ideas with free money!
Failure breeds success
Step number three is to embrace failure, because its going to inevitably come. As stated before, ideas are a dime a dozen. So many founders become love-struck with their “golden idea” that they get tunnel vision and eventually spiral. In our example of the prototype for mothers, if they hate that prototype, scrap it. Throw it away, and start over. Take what positives you may have gotten and work from those. Being rejected doesn’t mean you need to completely move away from the niche either. Often, if there is a real problem, all that is required are small course corrections.
I recall a story of a team of entrepreneurs looking for a solution in car shop waiting rooms. Their initial idea was to find a way to get a customer on their way while their car is being worked on without having to spend hours in a waiting room. Upon visitng some shops, they discovered that people really didn’t have a huge issue with waiting, or if they did, they arranged their own transportation. Disheartened, the young entrepreneurs decided to turn back.
However, on their way out of one shop, they heard cursing coming from the garage. Curiosity gave way to their discovery of a frustrated technician trying to get their computer system to reload. And in that moment, they realized the pain they were after wasn’t for the waiting cutomers, but the waiting employees and their poor operating systems. When our mother’s say they hate our prodotype, good entrepreneurs are listening for the cursing in the garage.
By now, it should be clear that starting a business requires an incredible amount of thought and work. But finding success in such endeavors doesn’t have to be more difficult than securing a 6-figure job either. Reining in expectations and settling in for the long haul are small sacrifices in the light of working for yourself on your own time. Just as wealth is a measure of how long you can last without income, it is also freedom to choose how you live your life to the fullest.
And so, whether you have an idea for the next iPod or big YouTube channel, just remember: “If you don’t chase your own dreams, somebody else will pay you to chase theirs.”
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