Research project on startups..

[TinaO]

Hey everyone,

I'm a grad student in the Strategic Design and Management program at Parsons and I am currently working on a research project on startups.
I am examining the current online and offline resources available regarding business knowledge and education. According to Bloomberg, 9 out of 10 entrepreneurs who start businesses fail within the first 18 months of starting their company. For the remaining 10% who have succeeded, there is a struggle to remain competitive in the market. My research seeks to understand why the failure rate is so high for startups and entrepreneurs despite all the current resources available, and the influence of education in the current startup scenario.

I put together an observation video for class based on some current and future entrepreneurs and what they thought about this. The next phase of my research is to do brainstorm possible opportunities for solutions whether it be a product/service. I'm just looking for some ideas! I would love to hear your feedback.

Research q: What elements of the experience of eager-to-learn entrepreneurs (young enthusiasts/professional business owners) can be implemented in a solution that aims to reduce failure rates?

Check out the video:
https://www.youtube.com/watch?v=27XhfeB6Bys

Thanks!

[Harold Mansfield]

I can cut to the chase really quick on this one. There are no tools, products or services that will make a start up successful.
Start ups fail because they are either:

1. Bad ideas in the first place that never had a chance long term. A get rich quick idea.

2. Bad management. Many entrepreneurs have no education in business management, accounting, or marketing and are slow to learn, or have too much false pride to think that they need to. Which goes into the number 3..

3. No experience in what they are doing. Don't listen to those that do. Want to change the world without understanding it first.

4. Unrealistic expectations. Many people go into business with the fantasy that being an entrepreneur is the key to success. They think it's easy, or that all you need is a good idea and the rest will magically take care of itself. And that's because that's what the media keeps telling people.

5. The person running the business just doesn't have what it takes.

I'm not trying to sound all doom and gloom, but many people go into business for all the wrong reasons, with unrealistic expectations, and when the fantasy of how they thought it would be in their heads doesn't pan out, they fold like a cheap suit.

Logistics, Human Resources, Accounting, Marketing, and whatever the skill, trade or service is can all stuff that can be learned. But the dedication and ability to adjust on the fly when things aren't going as expected can't be learned. You either have it or you don't.

[Paul]

It may be a matter of semantics but it is the individual business that fails, not necessarily the entrepreneur. Many entrepreneurs fail at their first attempts but are eventually successful because they learn the lessons that Harold referenced.

You have to differentiate between dedicated entrepreneurs that fail and learn and try again and those that fail and give up.

[Harold Mansfield]

Many also don't have enough money. The lore of bootstrapping from nothing and turning it into an international success is highly over stated. Opening a business takes money. How will you even make your first sale if you have no money to operate past the first month, have no marketing or ad budget, no website, no signage, fliers...nothing?

Take a look around past questions on this forum and you will see a ton of threads of people asking how to make money, or get customers, or get traffic to their websites without spending any money.

It's real simple. If you're opening a business and expect to rely on the internet for sales (for instance), yet don't have enough money to even build a decent website, you're kidding yourself. You aren't ready to open a business. Get real, save up, or do what you have to, but diving head first just because you think you have a good idea, yet no money to execute it is just wasting time.

There's no shame in knowing that you need to build up your resources first before diving in. The shame is in ignoring the obvious and then walking around scratching your head wondering why the phone isn't ringing.

Or at the very least, if you do start with no money and can't make it work, learn from what happened, brush yourself off because you're now better prepared to try again.

[turboguy]

I think a lot of people put the horse before the cart. They decide they want to be an entrepreneur and then try to find an idea to build their business around. It works much better when you find a need and then decide to find a way to fill it. They will find a product or service that they know little about and try to build that into a business. It works much better when you are an expert at something and then build a business around that skill.

I think also many underestimate the capital that will be required as Harold mentioned. Most business take a couple of years to produce a profit (of course some bad ideas never become profitable)

The other thing that comes into play is you need many skills to be a successful business owner (unless you have tons of cash and can afford to hire people with those skills). You need to understand marketing. You need to understand accounting and finance. You need to understand purchasing and inventory (depending on the business). You need technical skills. You need to understand HR, hiring and people management. You need to to have some knowledge about all aspects of the business you are entering.

I have started about 5 or more business during my time. Two were the main ones and in both those cases I had little to no capital. It can be done. In those two cases I have to say it was what many would consider a nightmare. I nearly didn't make it. In my current business I worked sometimes 72 hours without sleep and worked an average of 140+ hours a week. I would buy whatever was on sale at the grocery store. If hotdogs were on sale for 69 cents I would eat hot dogs for a week. If Mac and Cheese was on sale 3 for a buck I would eat that for a week. I can recall one day when I looked through my cupboard and saw a box of Bisquick that had been there for ages. I decided to make biscuits. I poured the Bisquick into a bowl and noticed there were dozens of maggots crawling around in it. I picked them out and made the biscuits. I figured the heat would kill anything left in there. I had no cable and used an antenna and got 2 fuzzy channels. I came close to having the Sheriff sell everything. When I pulled up to my place the first thing I looked for was to see if the Sheriff had padlocked the place. I can remember one time I had a unit sold in Montana. I would get about 5 grand for that unit. I built the unit but didn't have quite enough cash to drive to Montana and back. I had decided I would deliver the unit and drive back until I ran out of money and then hitchhike home, get the money and hitchhike back for my truck but the day before I left I got a few hundred bucks in which gave me the gas money.

I think Harold made a good point as well that you need to not fear failure and to look at it as a learning experience. I was originally in a marketing business for several decades. I always wanted to go into the manufacturing business. When I did I first came out with a fairly innovative product that sold well but was tough to make any real money in that business. Then I came out with a second product that was also very innovative. I introduced it at the Pennsylvania Farm Show we had a mob of interest and came back with 37 orders. Everyone looked at it and commented that it was a great idea that you could tell would work just from looking at it. Well, it didn't. At least it had a major flaw so I had to replace a major component in each one we sold. A year later we came out with our third product and that one is the one that really took off. That was 25 years and 10,000 machines ago. We sell them all over the world now. We came out with some other products later. Some flopped and a few have done well. Some people are lucky and hit a winner on the first try. For me it was the third try. You need to keep going and learn as you go. Mistakes can be a great learning process.

[Harold Mansfield]

I have started about 5 or more business during my time. Two were the main ones and in both those cases I had little to no capital. It can be done. In those two cases I have to say it was what many would consider a nightmare. I nearly didn't make it. In my current business I worked sometimes 72 hours without sleep and worked an average of 140+ hours a week. I would buy whatever was on sale at the grocery store. If hotdogs were on sale for 69 cents I would eat hot dogs for a week. If Mac and Cheese was on sale 3 for a buck I would eat that for a week. I can recall one day when I looked through my cupboard and saw a box of Bisquick that had been there for ages. I decided to make biscuits. I poured the Bisquick into a bowl and noticed there were dozens of maggots crawling around in it. I picked them out and made the biscuits. I figured the heat would kill anything left in there. I had no cable and used an antenna and got 2 fuzzy channels. I came close to having the Sheriff sell everything. When I pulled up to my place the first thing I looked for was to see if the Sheriff had padlocked the place. I can remember one time I had a unit sold in Montana. I would get about 5 grand for that unit. I built the unit but didn't have quite enough cash to drive to Montana and back. I had decided I would deliver the unit and drive back until I ran out of money and then hitchhike home, get the money and hitchhike back for my truck but the day before I left I got a few hundred bucks in which gave me the gas money.

Love this part.When I first started out I let my car get repossessed. Told them to just come get it. I figured I didn't need it since I was working from home, and I could use the extra money a month to live while I was trying to build up some clients. If I just had to go somewhere and couldn't get a ride, I had no problem taking public transportation to get there because I knew it was a temporary situation. That I would eventually make it.

This is around the time that I became pretty much an expert at doing EVERYTHING online from taking care of all business to shopping. Keeping internet was far more important than having a car at the time. I became the king of coupons at one point. I could eat for a week on $20 if I had to. I flirted with eviction quite a few times. I learned how to fix my own computer and other technology. If I could learn how to do it instead of paying someone, I did it. No matter how long it took me to get it right.

It eventually paid off , but that's a hard risk to take knowing that it may not work, or you may be wrong.

This is what it takes sometimes and many people aren't willing to sacrifice like this. They expect there to be no interruption in their lifestyle and that's just not realistic when you're bootstrapping.

Of course if you have a family depending on you, this is much harder or damn near impossible. I never could have taken those risks if I wasn't single at the time because I literally had no back up plan or financial support to call on and no Plan B.

The funny thing is that I did it and made it, but when other people ask me do I recommend it for them I always say "No" because most people don't have the fortitude to struggle that way and for that long.

[turboguy]

I got married shortly after starting my first business and it was tough for a while. Winter is the off season and we were living in a rented trailer and at the end of January I thought we might have to move in with one of the parents. I got a $ 97.00 commission check at the end of the month which gave me enough to pay the rent. I started driving taxi in the evening after working in my business to give us some income and joined the National Guard which gave me a little extra income as well. So, I would work the business during the day, drive cab at night and go to N.G. meetings on the weekends or drive cab. My wife got a job as well and we were able to mover to a rented decent house and after two years the business started to do better.

When I started the manufacturing business I was divorced and not having a wife was probably the only way I could have made it.

I do think having gone through things like that helps you appreciate things more when it does get better. I am probably more careful with money than I would have been if I had never struggled. I am sure with some it could have the opposite effect and send them off on a "thing" buying binge when they started to do better. I still like having no debt. I probably feel a need to carry more cash with me because of the days when you never knew if your credit card would work.

[Fulcrum]

I've got a story about a company that is the exception from some of the above recommendations and has been through the full range (startup, success, failure). I haven't seen the books, but I think it's one major repair ($1K+) away from being non salvageable.

The company was originally started in the 1950's (not the one that I referenced in another post) when a Dutch immigrant was given a beef as part of his salary for working at a farm. As he didn't have the space for all the meat, he sold half the animal off. The profit that he received from the sale made him say "I'm in the wrong line of work" and went and started his own abattoir. He knew nothing about slaughtering animals, but he was willing to work hard and learn (not to mention knowing how to scrimp and save after living through WW2 in Holland as a young teenager).

Through the 60's and 70's he was truly blessed. He had 11 children, 9 of which are still around today (one was buried on Wednesday this week) and his hard work inspired all 6 of his sons to either open or purchase their own butcher shops as well as 2 of his grandsons - one of which is the only true start from nothing butcher shop that I have heard of since the early 1990's.

He was also willing to help those around him. The most notable story from this that I can think of is the 0% interest loan he made (with a pay me back when you can term) to a concrete company in the late 70's to mid 80's (sadly the wife of one of the two partners of this company is being buried today). He also helped start an annual event that catered to much of the Frisian (Dutch) immigrant community.

Fast forward to today, and the home shop (still in the family) is on its last legs. It is not due to poor market share, undercutting, under funding, or many of the standard reasons. Due to bad accounting advice (even professionals get it wrong) and dependence on alcohol too much debt was racked up and, quite literally, flushed down the toilet.

[BusinessBySusan]

There are a lot of reasons why businesses start. In fact my book below (in signature) talks about some of the various reasons:

1. Undercapitalized -- does not have enough money

2. Lack of knowledge, training or industry experience

3. Does not understand marketing and the concept of target markets and customer needs

4. Lack of time or effort capacity

5. Using business to fix bad habits (including financially)

6. Bad Management

Etc. etc.