It’s Not as Easy as It Seems!

Popular media reports often make it seem like dozens, if not hundreds, of new companies are achieving quick success.  However, the reality is that launching and building an emerging growth company is challenging adventure that typically takes a substantial amount of time.  One study of companies in high technology industries in the US found that 80% of new start-up firms exited the market after one year and that among firms that actually survived until the fourth year, the exit rate within the following year remained over 60%. In fact, it was not until the seven or eighth year that firms could anticipate more than a 50% survival rate into the future, which means that it generally takes that long for the company to establish sufficient credibility in the marketplace and build an inventory of resources that can be used for sustainable growth.  For those firms that were able to survive long enough to establish a foothold in the target market, there was a strong likelihood that they would eventually be integrated into the operations of another company.

Another study of technology-based firms that were all formed and organized in the 1960s indicated that a third of those firms had been acquired, including by merger, by 1980 and in that survey the mean age of the acquired firms was 6.4 years when the deal was completed.  In their comprehensive study of the evolution of emerging companies, researchers from the University of Chicago Graduate School of Business found that, on average, it took six years for the 49 companies included in their study group to move from their earliest business plan to the date that they released their third annual report following completion of an initial public offering.

Entrepreneurs generally understand and accept these enormous risks of failure; however, that doesn’t mean that they shouldn’t try to avoid some of the most common reasons that emerging companies fail.  In order to be smart, entrepreneurs need to be mindful, in advance, of some of the hurdles they’ll need to overcome.  This means, for example, considering the following list of “10 Reasons Why Emerging Technology Companies Fail”:

 

  • Myopic or extraneous market research
  • Product development guided by internal perceptions and biases
  • Over optimistic marketing plan
  • Incomplete product
  • Undifferentiated products
  • Weak or confused market focus
  • Vague messaging and poor positioning
  • Channel confusion
  • Executive thinking that promotion is marketing
  • Marketing and sales teams disconnected

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