It is usually a given that most startups fail within the first year or two of their initial launch. Many people tend to view startups that are very similar to the natural selection or “survival of the fittest” theory first proposed by Darwin.
The idea talks about how all surviving lifeforms have ancestors that survived harsh conditions long enough to procreate in very simplistic terms. In other words, a weaker lifeform would not be able to survive. Therefore it would have a far smaller chance of staying alive long enough to create offspring that carry its genes.
Natural selection entails that only the lifeforms with more robust genes among their species survived, passing their genes onto the next generation, and so on. While Darwin’s theories may not always be strictly accurate, their parallels in the modern business world are undeniable. Thousands of startups begin working with promising ideas and goals each year.
Yet, only a tiny percentage make it past the first year. The number of startups that manage to reach the five-year milestone is even rarer. Only the best can put down sustainable roots. Recent corporate studies conducted by NYU and Wharton may have discovered a common factor among businesses that fail (and, if done correctly, among companies that succeed). Read on to find out more.
The Wharton-NYU Findings
The Wharton School and New York University recently conducted a fascinating study into over 3,500 companies and startup ventures. The astonishing results may hold the key to figuring out why so many startups fail and what is shared among the small number that succeeds.
Startups that succeed usually scale up, adding significant support roles like vCISO services for better operations and functioning. Many even raise to the very top of their niche, based on how solid their initial business plan was and how willing they are to adapt to changing circumstances and market conditions.
However, having a solid business plan and the right team to deal with a fluid business landscape is pretty standard among successful and failed startups. So that does not offer much insight into the magic ingredients that separate a successful startup from a struggling or failing venture. That key factor is the opposite of the very first step too many entrepreneurs start with.
The research discovered that among over 3,500 firms, the most successful ones had a single founder instead of two or more partners. Sounds counter-intuitive? Read on to find out why it is, in reality, the most logical approach for startup founders.
Why Entrepreneurs Intuitively Look for Partners
A business vision and clear goals typically drive entrepreneurs and business founders. However, while both are key direction markers for businesses, on their own, they can’t do a business run indefinitely.
One of the biggest reasons entrepreneurs choose to partner with other business professionals for their start-up is capital. Additional partners can bring in more money, which is precisely the kind of liquid investment your startup needs in the early stages.
However, capital is not always the only reason a business founder may look for partnerships. Many entrepreneurs have the drive and determination, and a clear idea of the goals and directions they want. But this does not always translate into professional expertise.
Products or services that require extensive technical knowledge, for example, may exist far outside the average entrepreneur’s knowledge domain. Many business leaders try to meet skill and knowledge gaps like these by partnering with individuals that have complementary skills. The idea is to let each partner’s specific strengths compensate for the other’s weaknesses.
Why Partnership Startups Rarely Work
Of course, while it may seem intuitive for an entrepreneur to partner with other people, statistics indicate that partnership startups turn out to have a much lower rate of success than single-founder ventures. The reason behind this is far more logical than what was presented in the previous section.
A startup led by a single individual has one key advantage over partnership startups; unified leadership. A partnership has at least two leaders in varying degrees of power depending on the initial partnership agreement. Partnership disputes are common enough not to warrant an explanation. But the underlying core can often be a clash of personalities, visions, goals, and even leadership styles.
Too many cooks spoil the broth, and a partnership with friction can quickly put the brakes on your business progress and bring it to a grinding halt. You can also expect a much higher chance of disputes, dissolutions, and even litigation in extreme cases. The result, however, is essentially the same. The partnership falls apart, and with it, the growth prospects of the startup are suddenly in jeopardy.
By comparison, a startup founded by a single person may not have the capital strength or skill depth that comes with a partnership. But it has something far more critical: decisive leadership. With a single person in charge of crucial business decisions, the startup is more likely to stay on its desired course.
Without conflicting personalities, ideas, or egos, there is a far more minor delay in making decisions. This can be a make-or-break factor when it comes to time-sensitive business situations. Therefore, a startup with a single founder has a much clearer direction and a much more efficient decision-making process than any other kind of new venture. It also has a greater chance of maintaining sustainable continuity.