I was watching Michael Arrington interviewing Ron Conway and Paul Graham and this is what I learned and also my own view after several startups of my own and those of friends.
So Ron’s very simple data from 500+ startups on success and failure was:
- Ron Conway data shows a fail rate of 40% 2002-2010.
- Bubble years much worse – failure rate 77% (i.e. a total loss)
- Serial entrepreneurs better: 66% chance of success on repeat entrepreneur i.e. 20% edge on the second company i.e. vs 60% on current success rate.
- Regardless of economic climate, success probability is still the same i.e. any time is a good time to startup.
- Great defining companies are built at a faster rate than 10 years ago…now a couple of “mega” companies being built per year vs. one every 10 years.
- Younger entrepreneurs are more exciting, they will try anything and anything is possible.
- Trust gut and move faster – be decisive is also key to success.
* Success means still in business, a sale or not a total loss with no return at all.
OK so this data is from a small “gene pool” of companies that have managed to GET funded and doesn’t apply to all companies, also they will tend to be Silicon Valley companies and one’s where the founders have done a good job of working their network to get attention from Ron Conway…that’s a massive difference to the average startup – this is a very select group of companies already.
So from this select group who must have a big idea, a good basic team and have convinced their network to open doors in order to get funded in the first place…they have a current “success” rate of around 60% – what we don’t really know is what % actually got a good exit (yet) and therefore made money for themselves and Mr. Conway!
So what have we really learned from this then?
Only that if you are funded by someone as “networked” as Ron and can convince him then your odds are improved over the average…
So the learning for me is simple – pick your backers and investors very carefully and spend the time and effort to keep looking for funding until you get some “smart money” that will support and help develop you and your business. If you can’t get smart money then your risk goes up exponentially.
Additional comments from Paul Graham data from 400+ startup since 2005:
He didn’t get to say much but he saw some basic patterns for picking better startups:
- 4 person teams do badly, most likely security in numbers but this doesn’t work out after team formation. 2-3 optimal member teams.
- Men/women no difference. Couples good if they are stable.
- He has invested in 18-43 age range but no real difference based on age.
- Tough founders are best as they can weather the ups and downs vs. the others.
So my take from this is that you need a strong leader in a startup team and not a “committee” mindset. Anyone with the passion and drive can get started regardless of age, education or gender. If you have a team with a good mix of skills that has a good idea and that functions well then you are more likely to succeed (but that could be said of any team sport!).
In my opinion, Entrepreneurship is like “Chaos Theory” and that so many factors affect a good outcome that its hard to draw too much from these indicators other than what these big investors look out for when picking who to invest in – it’s not really a true indicator of success.