Which New Businesses Are Most Likely to Succeed?

The business of entrepreneurship is booming once again. The number of new companies has been growing year after year since 2010, but it is not back to pre-recession levels just yet, suggesting a market that still has room to grow.

That said, only two-thirds of businesses survive their first two years, and less than half survive for five years or longer, according to the Small Business Administration. Starting a new company has always been a risky venture, but what are the common points of failure, and what are the common traits of success?

Read on to learn how to set your business up for success.

Three Common Points of Failure

Business failure is a hard reality. According to Fundera, 20 percent fail in their first year, 30 percent bust in their second year, 50 percent collapse within five years, and 30 percent default within ten years. While recessions and wars play a critical role in a company’s failure, the U.S. Bureau of Labor Statistics has explained that the economic climate is not the primary driver of business failure. A lot more companies fail for the following reasons.

Failure to Investigate the Market

The golden phenomenon that dictates business is supply and demand. A crowded market has punishing effects on new businesses—too many competitors can act as obstacles to growth, and a limited consumer base can fail to nourish sales-hungry startups.

An underserved market, on the other hand, can be more forgiving, giving startups the time they need to grow and adapt. Even though the digital marketplace can make almost any business a global one overnight, failure to perform systematic analyses of different regional factors in the market can sink a company just as quickly.

The Depletion of Capital

Liquid cash is water for new businesses, and a common cause of failure is capital drought. Startups need to be able to support themselves on the long journey to becoming cash-positive, and bumps along the way (there are always bumps) will require sporadic doses of cash.

New rounds of loans are not always available for struggling companies and having a healthy reserve of capital can be critical to weathering the early storms. Companies that plan for the unforeseen by calculating the need for extra capital are the ones with a better chance of survival.

A Lack of Adaptation and Innovation

Markets are not static. All businesses need to read macro and micro trends, react to customer behavior, and pivot their products and strategies to match. While established organizations may have a safety net to take risks in their adaptation and expansion, startups have to be more cautious—scaling up too quickly is a common reason for startup failure. For new firms, expansion and adaptation require the same ample planning, resources, and research that their original business model did, as one wrong move in the early stages of growth can prove fatal.

Three Common Qualities of Success

A lot of factors determine the success or failure of a company. While there are many things entrepreneurs, founders, and executives can do to ensure their company’s success; however, the number one quality of success is never quitting. You can fail ten times, but if you keep trying, and that 11th time, you succeed, you wouldn’t have failed.

Outside of infinite determination, there are other, more specific and tangible ways companies can find success.

Demonstrate a Value

At the core of the most successful startups is a reliable and intuitive value proposition. While many first-time entrepreneurs think they need to reinvent the wheel to start their business, sometimes all that is required is a little tweak—filling a need rather than creating a new desire.

However, having a value proposition is not enough on its own. New businesses also need to be able to communicate that value in a clear and relatable message that reaches the prospective customer who is waiting to hear it. This nexus of economics, innovation, and marketing is the engine of practically every successful new business.

Utilize a Network

The idea that successful entrepreneurs do it all alone is a myth. From gathering market research to getting mentor advice, securing funding, establishing a client base, and hiring the right talent, a new business needs a strong network of diverse and capable individuals to succeed.

A plethora of resources already exists for building a powerful and influential network early on and leveraging that network for success. This can take form in a friendly lunch meeting with a former coworker or a warm intro to funding partners, both of which could be the beginning of something new.

Follow a Passion

If you’re going to fail, you might as well enjoy doing it. Those with a passion for the work are more likely to make the best decisions for their business. Researching the market, putting in the extra hours, and communicating the value proposition all become more natural when you’re passionate about what you’re putting together.

It is important to note though that passion can have a downside. It can blind people into pursuing a venture that is not statistically wise. However, passion can also lead to a little bit of luck in catching onto a trend that has yet to go mainstream.

Three Business Trends for New Ventures

Entrepreneurs should always be aware of the next big thing. They should be following the news, reading new research, and talking to industry experts on a regular basis so that they can build the best product or service. Below are a few emerging trends in business and technology.

Artificial Intelligence

Data-driven business models have always been high performers, but the contemporary usage of artificial intelligence is not just zeroes and ones. AI algorithms allow more customer personalization than ever before, refining themselves with continued use, and thereby encouraging customer loyalty, and the massive amounts of data gathered through interactions with customers only serve to refine the process and better serve future customers.

While AI is not new—the technology has been around for decades, and its applications have gone mainstream in the last several years—AI’s potential to change our entire world and how we live, work, and co-exist is dramatic.

“Everything we have of value as human beings, as a civilization, is the result of our intelligence,” explained Stuart Russell, a computer scientist at the University of California, Berkeley to Business Insider. “What AI could do is essentially be a power tool that magnifies human intelligence and gives us the ability to move our civilization forward in all kinds of ways. It might be curing disease, it might be eliminating poverty. I think it certainly should be preventing environmental catastrophe. AI could be instrumental to all those things.”

Human Interaction

Social media can connect business and customers more efficiently than ever before, and a digital presence is an absolute must even for brick-and-mortar establishments. However, an over-automation of processes has resulted in a backlash that now puts a premium on human and personalized interactions.

For example, customer service is renowned for being a terrible experience. Customers despise waiting on hold or for an email response to resolve their issue. It was an industry ripe for disruption, but the way startups attempted to do so was by removing humans from the equation and putting customers in touch with chatbots. However, just as customers hated waiting on hold, they hated talking to robots who couldn’t understand the context behind their issue, which is where Directly came in.

The technology company uses technology to connect unhappy customers with other, more knowledgeable customers to solve the issue—effectively reintegrating human interaction into customer service while leveraging the power of technology. Technology cannot solve all issues. Businesses who are authentic and deliberate in how they use technology to augment human connection will be more successful than those who do not.

Community Building

Another trend for successful businesses is the creation of communities amongst customers. This means providing customers with resources, content, and an opportunity to interact with one another outside of the buying cycle—which can be tied back to the previous example with Directly.

Customers are a company’s best marketing tool. By regularly engaging with customers, companies can reinforce brand loyalty and raise awareness within new networks. Community building can happen in different ways, such as loyalty programs, business partnerships, and philanthropic work. The key is to build a community around your brand in a way that is authentic to you and the company.

Outside of the above points of failure, qualities of success, and business trends, there are other factors founders need to consider when setting off on a new endeavor. Geography, for example, is critical. Companies need to know what the landscape of symbiotic and competitive firms looks like and understand how their business model will fit into the existing ecosystem.

Retail startups have shown a 56 percent success rate since 2011, which is better than average, and possibly correlated to a boom in e-commerce, with the low barriers to entry that go with it. Perhaps surprisingly, the tech industry, which has a booming startup image, has produced only a 45 percent success rate since 2011.

Entrepreneurs should be aware of the spaces most ripe for disruption. Some of the top performing industries for new businesses in the last decade include healthcare, agriculture, and manufacturing. However, they tend to carry high entry-level costs and require experienced entrepreneurs with institutional backing. Starting a new venture requires not only an awareness of macro-level trends but an understanding of their nuance and context.

Even with hard work and passion, a startup often needs a little luck to beat the odds. The trends will reverse, the market will shift, and customers will be fickle. Luck is the intersection of talent and opportunity, and in that way, luck favors the resilient.

Even though most companies fail in their first five years, that failure need not be total. Entrepreneurs with previous success are more likely to reproduce it, and entrepreneurs with previous failures are more likely to succeed than first-timers. A dedication to business fundamentals and an inner resiliency against the common failures makes each new business more likely to succeed than the last one.

Matt Zbrog
Matt Zbrog
Writer

Matt Zbrog is a writer and freelancer who has been living abroad since 2016. His nonfiction has been published by Euromaidan Press, Cirrus Gallery, and Our Thursday. Both his writing and his experience abroad are shaped by seeking out alternative lifestyles and counterculture movements, especially in developing nations. You can follow his travels through Eastern Europe and Central Asia on Instagram at @weirdviewmirror. He’s recently finished his second novel, and is in no hurry to publish it.

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