An idea, however brilliant, does not guarantee the success of a business. However, five other criteria are fundamental to the success or failure of a startup.
What makes a startup successful. Or leads to its demise? A vast question to which the young startup rating specialist EarlyMetrics provides some answers in its study What makes European startups grow or sink, published in October 2019. The study of more than 1,700 European nuggets enabled her to uncover some factors of a successor, on the contrary, the causes of the failure of young innovative companies.
And the first criterion is not necessarily the one we believe. The study thus cites the ability of startups to protect themselves from their competitors, whether presumed or established. Only 7 startups scored highest in this respect, thanks to the filing of patents or the introduction of barriers to entry to their market. On the contrary, 10% of the startups studied by EarlyMetrics received a zero score! “This is the most important warning sign for potential investors to watch out for,” says the startup.
More expected, speed of execution and business agility are the second most important growth drivers for companies. “With small teams and no pre-existing framework, startups are theoretically more agile than traditional companies,” says EarlyMetrics. However, only 17% of the startups surveyed scored highest. Not having the right human resources, having too limited financial resources or being slow to turn around are all pitfalls that threaten startups.
The team, always decisive
Finally, there’s no question of ignoring what is on the minds of investors: the team – and, more specifically, the founders. The three other criteria are all related: the availability of the management team, the ability of the founders to convince outsiders to join the project and their professional network are all assets to be weighed when assessing the chances of success of a startup company. And warning signals to be taken into account if the conditions are not met from the start of the project.
In fact, 30% of founders scored less than 4 out of 5 in terms of availability and therefore did not give their project enough time, according to EarlyMetrics. “However, the first five years of activity are crucial for developing the product, finding the right talent and building the business model,” the study points out. Equally crucial, the network is nevertheless lacking for many founders: 16% of the startups scored top marks in this area, while nearly 40% scored 2/5 or even less. Social networks, but above all, commercial contacts can thus enable the company to take off more quickly.
A lack that most entrepreneurs make up for with their charisma. For example, nearly three-quarters of the companies were awarded a brilliant 5/5 because of their founders’ ability to convince third parties to join the project. In contrast, only 14 companies received only 1/5. Most of the companies can, therefore, rely on their founders to act as leaders and attract the attention of potential partners, investors and customers. By combining these five criteria, startups are giving themselves every chance.