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What drives startups to failure or success?

Updated: Aug 2, 2022

At Sircular we believe in a collaborative startup ecosystem. Today, entrepreneurship is more important than ever. With an exponential technological development, innovation is a driving force. That makes fast moving and innovative companies crucial for businesses of the future. They also become an important guide for established companies to develop their operations towards growth, profitability and, not least, sustainability.

With thousands of startups, investors and accelerators in the platform our ecosystem is growing and makes it is easy to connect, share information and do fundraising based on matchmaking. But which are the most common drivers for a startup to succeed?

What is the definition of a startup?

Let´s start to define a startup. In its broadest sense, it is a new business in its earliest stages of development. Last year 79 000 new business were started in Sweden (Ekonomifakta), that does not mean all of them are startups.

A startup usually has two important characteristics:

  • Innovation: A startup is testing assumptions that haven’t been tested before – sufficiently new technologies, products & services, or markets. You could also describe it as solving a problem in a new and more efficient way.

  • Growth: A startup has the potential to grow exponentially rather than linearly. It is scalable. This usually happens because technology provides leverage often with a very low marginal cost of production. This means you are gaining new users without increasing the costs of running the product or service.

So, a startup could be described as a business experiment with potential. This also means that startups are prone to failure by definition. They are testing assumptions, and it’s very likely these assumptions are wrong or just have the wrong timing. The more innovative the startup is, the riskier are the assumptions and the likeliness to fail.

The difference between bigger corporations and startups is that, big corps execute in existing business models whereas startups innovate on new business models and solutions driven mainly by convergence of different technologies and people" says Daniel Isaacs co-founder and CEO at Sircular.

When you put this new kind of risk on top of the traditional risks of starting a business (finance/cash flow risks, operational risks, team risks, marketing risks, etc.), it’s no surprise most startups fail. But beside that even failing startups provides valuable learnings, innovation and disruptive thinking, many startups actually become a success.

Since entrepreneurs and startups are so important to drive future business it is gratifying that Founders of a previously successful business have a 30 percent chance of success with their next venture (Skill vs. Luck in Entrepreneurship and Venture Capital).

Startups that can combine sustainability, profitability and a long term perspective will be interesting to attract capital and grow over time," contiues Daniel Isaacs.

Startup success factors

The following success factors are not based on scientific research, but on thousands interactions with entrepreneurs, startups and investors. The success factors are simplified and will be explained more in detail in coming blog posts.

1. Business idea - solve a problem better, faster or cheaper!

Solve a problem in a new way. Do research and be critical to the idea. If there is competition on the market, is it possible to provide the product or service in smarter way and get advantage in production, quality or price? The number one reason why startups fail is due to misreading market demand (CBInsights).

2. Learn to now your customers

The most expensive part is to develop your product. In this part of your startup journey you need to spend a lot of time and effort, but are probably not getting paid. Develop your product based on customer insight, your assumptions can turn out to be perceived in another way from the users. Early insights prevent you from develop product or services lacking market fit.

In this blog post our CPO Alexis Beaussant describe the benefit of grow and develop your product by using growth loops.

3. The team

Your dream team is one of the top three key factors. In the start, businesses are usually managed by of a few people who are responsible for several processes and a variety of tasks. Building a team of driven professionals who are competent, dedicated, and ready to put in the extra work is a predisposition for success. The team needs to be on the same page and share the same vision for the future, this create strength and keeps development on track.

4. Funding strategy

Your funding strategy is one of the most critical parts of your early startup journey. You’ll have a couple of options available like crowdfunding, angel investors or business accelerators. Depending on your method, you’ll first have to get acquainted with funders. Make sure to network and establish relationships with funders. There are investors and venture capitalists who will be willing to fund your startup, but you need to win their attention and interest. From your side you also need to choose your investor and evaluate how he or she can bring value to the company over time.

5. Growth strategy

Today it´s more important than ever that your business already in an early stage can show a long term growth perspective and a revenue model. To get investors interest and be able to grow over time, you need to have a plan for profitability. Depending on your product and potential to scale it can take different amount of time. Spend time on a business plan and make scenarios for different development curves.

6. Sustainability

Today it is a hygiene factor that companies generate value to their customers and also leave as small imprint as possible on our earth. By combining those two the advantage is even stronger; bring long term market value and make positive sustainable impact. Impact companies will also lead the way for larger companies to collaborate across borders, find new ways of working and create sustainable value chains.

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