Startup Generation

By Israel Rojas-Moreno '16

Successful startups are critical to our economy. They deliver innovative products or provide fresh insight that can lead to new ways of doing business. Still, a majority of startups fail to reach their potential (or simply fail). Why? Given the societal value they create, should we do more to support them?

What makes these startups fail?

What makes these startups fail?

Now, I can hear it already… “Let the market decide!” Yes. Not all startups are genius ideas or have any actual market need, as shown by the folks at CB Insights. But it seems the next three reasons startups fail (ran out of cash, wrong team, and outcompeted) could be mitigated through additional support.

We all know cash (flow) is king. Given the investor capital in the market, it seems the availability of cash is less of a problem than a startups utilization of it. This could stem from inexperience managing new, large sums of money or general lack of guidance. The startup might lose sight of its objectives and prematurely celebrate its success. It’s also possible some startups simply struggle to attract sufficient financial support because they don’t appear to offer lucrative enough returns.

What about the “wrong team” finding? This could mean startups lack sufficient technical skill or business savvy. Alternatively, it might lack experienced and trusted advisors to guide the startup as it attempts to navigate new challenges. Potentially, the startup may have even been affected by unsavory or combustible personalities.

Finally, we consider the “outcompeted” failure reason. It’s not easy taking on established markets or dominant industry players; there is a reason we have legislation protecting competition. Given what we hear about the intensive, all-hands on deck startup stories, it is difficult to imagine startups getting outcompeted simply due to a lack of effort. Likely, the startups insufficient access to financial and human capital hindered its ability to compete.

Of course, we’re familiar with the superstar startups that overcame all odds. But, how many equally deserving startups fell by the wayside because their hard work never caught a lucky break? If we want to see more startups succeed, perhaps we should consider providing more resources and support, even beyond the programs and incubators that already exist.

At this point you might be tempted to say, “well, this was stupid, of course we should support startups.” If so, great! Now, re-read this article and substitute “startups” with “minorities.” Still on board? To be clear, minority doesn’t refer exclusively to race -- gender, sexual orientation, religious, low-income -- many of the same arguments apply. Lack of financial capital? In many cases, yes. Wrong team? Yes, there is often a lack of skills or professional advisors available to many from these communities. And outcompeted? Well, when the competition gets a running start, it’s awfully tough to win the race.

The author strongly believes in supporting socioeconomic pioneers.