The startup success paradox
Entrepreneurs, by their very nature, are fearless individuals. They have to be. They don’t have the luxury of being able to sit back and embed themselves within an organisation that is likely to succeed, whatever happens. Furthermore, they are the organisation and every day they take off impacts its success.
One of the most interesting pieces of research that demonstrates this was conducted by Sebastian Quintero and is freely available on medium (go read it). To surmise, it investigated nearly 36,000 startups from 1990 to 2010 to answer two critical questions: How often do startups exit a particular point in the journey? How frequently do they move from one stage to the next?
The results were extremely insightful. At each stage, the failure rates are so high that they are difficult to comprehend. As can be seen below, the failure to exit Seed is 97%. Or, alternatively, the glass is just 3% full. The other stats also show just how challenging the whole process is, a feature repeatedly expressed by the lucky few that complete it. At no stage is there any sense that founders can simply kick back and drink the ‘Kool-Aid’. Instead, the ‘Kool-Aid’ appears to be more a requirement to keep a startup’s culture in sync while the chaos unfolds. Furthermore, this research omits the countless other entrepreneurs at incubators, accelerators (and in their bedrooms) that fail before they can get Seed funding.
Table illustrating startup success rates (available on Medium).
Sadly, for most entrepreneurs, this analysis is rarely taken into consideration. Articles like this are the opposite of clickbait that preys on ambition. They also go against the typical entrepreneurial mindset. For hopeful entrepreneurs at the start of the journey, any pessimistic thought just can’t be entertained. For seasoned entrepreneurs in the midst of it, negative thoughts might increase their likelihood of buckling under the pressure.
Enter the success paradox
For us, however, we can think a little differently. With these stats in mind, we can consider the entrepreneurial mindset through a new lens.
And this is (hopefully) where it gets interesting. This is because entrepreneurs typically follow an approach that involves collecting and analysing metrics from day 1. They should, you might think…
But it doesn’t stop there. In their desire for more and more stats, they invariably choose to use methods that are commoditised. The only reason that dashboards on Google Analytics and Facebook look so nice is because millions of other people are glued to them in the same way. There is no uniqueness, minimal opportunity for differentiation and minimal likelihood of success.
Taking a step back, in every industry the routes to market are by and large the same. You create a website, you think how to get people to it, you check how you are doing and so on. This means that you will be following an approach that is being trodden at this very moment by many companies doing the same thing with sizeable teams devoted to the pursuit. We’ve shown this previously in our analysis of actual marketing budgets. The budgets for major brands are staggering. Even mid-sized business’ or later stage startups will have budgets that are almost impossible to compete with.
This success paradox can be extremely difficult to overcome because the metrics and dashboards quickly become addictive. They negate anxiety and become a way of controlling an inherently irrational life choice (see failure rates again).
Understand the softer stuff
Of course, this is where the nuance comes in. The data presented at the top of this article doesn’t actually provide a complete picture. In fact, it is extremely misleading. Of course, the raw facts about success are what they are. There is no changing them. Having said that, how an entrepreneur will naturally interpret them is wrong.
If you are starting out (at Seed stage), the natural way to take them is personally. You’ll read this to mean you have a 3% chance of success, which goes against what you believe. So, you’ll just rebut them in your mind.
However, what the stats are really saying is not this at all. They aren’t presenting any light and shade. They are just summing up.
The reality is much more interesting, thankfully, although perhaps not more reassuring. The reality is that certain ingredients predict success, and they certainly aren’t to do with an idea. We covered this previously in another piece of research. We answered nine questions about how successful businesses begin.
Entrepreneurs that understand the importance of these are, of course, usually the lucky few. There are many founders, particularly in the States, that intensely cultivate these ingredients before launch to ensure greater success. The connections possessed by founders on Danny in the Valley (a highly recommended podcast) are regularly a topic for discussion.
Sadly, however, these insights tend to go in one ear and out the other with most entrepreneurs. This is because we are all conditioned to believe that we can achieve anything, so long as we work hard enough. Unfortunately though, for most entrepreneurs passion and work ethic will be insufficient to result in success if these initial ingredients are lacking. That said, there is much more to success than just these initial ingredients.
Implement the immeasurable
And this is where we can discuss how to overcome the success paradox. It’s actually pretty straightforward if you think about it. As we’ve presented at the top of the article as clearly as we can, chances of success are so small that being an entrepreneur is an irrational decision. On that, I hope we can all agree.
This also gives us something to work with, doesn’t it?! Maybe you (me/we) should embrace this irrationality and embellish it. You’d be in good company. Isn’t that what the ‘think different’ strap line actually means?!
Clearly, if you decide to swim upstream, then potentially keep swimming, it might be a quick route in the end. If you go against your instincts and try to control the risks by measuring everything, then you’ll keep turning back. You’ve got to do the things that no one’s thought of, take risks that no one else has considered, and find ways of buildings relationships that established businesses can only dream of.
Of course, this is not a mere opinion. This opinion was formed by the research that we conducted on the growth hacks that were used by the successful businesses that we mentioned earlier.
Use data wisely
And this brings us to the end of this ramble (sorry, blog). The point, if there is one, is that to succeed as an entrepreneur you’ll have to do things that can’t be informed by data. That doesn’t mean you shouldn’t use data. It just means that you shouldn’t expect everything to be measurable and with that predictable. If you want to sit behind a dashboard, then you can be well-paid doing that for someone else. You’ll even have a team beside you.
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