Five of the Most Surprising Statistics About Startups

Business is a numbers game. Here’s how to make sure the odds are always in your favor!

How to avoid being a statistic on the journey to success

Life is a numbers game, and so is business. But that doesn’t mean you can’t be smart about how you play the numbers. Much of that is understanding where the risk lies and what you can do to minimize it.

What I’ve listed here are five of the most important statistics that you need to understand in building your business. Each one says something empirical about the plight of a small business, but also tells a story about where the biggest pitfalls and challenges are, and how to avoid them.

My suggestion is to tack these up to the wall in plain sight and think about how you are navigating the growth of your business to avoid being a statistic on the journey to success.

1. 50% of all new business fail within five years.

This is one of the most often quoted statistics, so it’s not surprising by itself. However, here’s where it gets interesting. Unlike humans, who are more likely to die in the following year as they age, businesses that survive past the first two years are less likely to die in each subsequent year. So, while 25% of new business don’t make it past year one, only 10% of the business that make it past year 5 will die off in the following year, and only 6% in the 10th year. Part of this is due to building a customer base, refining the business model, and creating cash reserves. But here’s where you need to be cautious. Rather than try to go for broke in the early years, consider building your foundation so that you can take greater risk in outlier years when you do have the safety of an established business to fall back on.

2. You’re more likely to succeed if you’ve failed than if you’ve never tried.

Now this has to be one of the most counterintuitive statistics. Although founders of a previously successful business have a 30% chance of success with their next venture, founders who have failed at a prior business have a 20% chance of succeeding versus an 18% chance of success for first time entrepreneurs. You can probably guess why. Although you learn a lot from success, failure also teaches valuable lessons about what not to do. If you’re a first time entrepreneur you haven’t learned those lessons–and without the benefit of an experienced advisor you will learn them first hand. The advice? Bring someone on board, at least as an advisor, who has been there before. Or, do what many of my grad students do, which is to try your hand at a few startups before venturing out to build your own! (source)

3. 95% of entrepreneurs have at least a bachelor’s degree.

We’ve idealized the role of college drop-outs as successful entrepreneurs, Bill Gates, Steve Jobs, Mark Zuckerberg, Oprah, and many others all took the back door out of college to start and grow their companies. My HS-age son always points this out to me when we talk about college. But the numbers speak for themselves. The odds are overwhelmingly in your favor if you stay in school and develop not only the knowledge and discipline, but also the connections that will serve you well as you go forward. (source)

4. Scaling too fast, too soon is the number one reason most new companies fail.

Nobody ever started business thinking, “Gee, this is going to take a lot longer than I thought it would!” But it always does because the vision in your mind is always far ahead of where the market is. If it wasn’t, someone else would already have done it! Give yourself the runway and set the expectation to be patient with your dream. (source)

5. Two founders, rather than one, significantly increases your odds of success. You will raise 30% more investment, grow your customers 3 times as fast, and will be less likely to scale to0 fast.

In my own experience it has been nearly universal that startups do better when they have two balanced and fully invested partners. The ability to rely on each other to share the burden, temper risks, collaborate creatively, take on specific areas of responsibility, and to motivate each other are all absolutely critical during the early stages of growth. Having the entire pie to yourself is tempting, but all of a very small pie is rarely as good as half of a much larger one. This is one case where 1+1 is definitely more than the sum of the parts. (source)

This article was originally published on Inc.

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Tom Koulopoulos is the author of 10 books and founder of the Delphi Group, a 25-year-old Boston-based think tank and a past Inc. 500 company that focuses on innovation and the future of business. He tweets from @tkspeaks.tom