If we typically search for failure rate of Startups, we will come across a failure rate claim of circa 90% across quite several searches. And many would point out to a few select reports. For instance, Startup Genome’s Reports1, which in its 2019 edition, claims that only 1 in 12 entrepreneurs succeed in building a successful business. An Oxford & IBM study2 claims that 90% of startups fail within a year of their launch.
I must admit that defining failure is trickier than it sounds. For instance, the dictionary says failure is a shortfall relative to expectations. Now, the question that arises is, whose expectations and what expectations are we speaking of? Is it the Founder(s)? Is it the Investors? Is it Society? Based on what yardsticks? I firmly believe that we cannot box everything under the term ‘failure’, to mean shutdown, just because it is convenient!
How is this word ‘failure’ defined to make the claim of circa 90%?
If one carries out specific data-based research, the result is that this ‘claim of circa 90%’ refers specifically to venture-backed startups, and venture capital define failure as any result less than a 10X investor return on capital over ten years. I would like to quote Professor Shikhar Ghosh at Harvard Business School, which supports this, and he says “If failure is referred as failing to see the projected return on investment, then the failure rate is 70% to 80%. However, if failure is defined as declaring a projection and then falling short of meeting it, then the failure rate is a whopping 90% to 95%.”
So, the attempt in this article is to analyze the correctness of the claim of circa 90% failure rate, and I have used data-points from the Indian Startup ecosystem.
Indian Startup ecosystem
There are 55,000 plus Startups in India3 and growing, and when I say Startup, I am referring to it synonymously with Entrepreneurship. Until 2008, India had only 6,500 Startups4 and the concept of startup was unknown then. Since 2009, on an average nearly 4,500 Startups have emerged every year and this has accumulated to the number today. So, only in the last nine to ten years we have realized what a Startup is!
And only since the year 2015, with e-commerce & internet boom, the Startup ecosystem has gained prominence. So much so that in the younger generation today, there is always this Entrepreneurship (which used to be a taboo once) vs Employment internal war. Startup is becoming a popular choice! They want to be either creating or be part of a Startup.
Look at the number of VC firms, Angel network/platforms, Incubators, Accelerators, Mentorship platforms, Government schemes, E-cells, Books as resources, and let’s not forget the numerous business schools, engineering schools, and specific programs focused entirely on Entrepreneurship as part of their curriculum.
The increasing number of Startups is a huge confirmation that India is becoming a hothouse for innovation,
with 63 unicorns as of writing this article
Argument 1 against claim of circa 90% failure rate:
It is a fact that hardly 5,400 Startups have raised funds in India by 2020, and because it is across years, some
of them have raised next-next rounds in subsequent years. So, from a count perspective, the unique Startups raising money is only around 3,500 i.e., 6% of the total 55,0006.
Of the funded Startups, the ones that shut is close to 4003, i.e., 11% of the 3,500 unique Startups7.
So, the circa 90% failure rate is to be questioned as only 11% could not cope up. The balance of the Startups has shown resilience and courage to persevere, stabilize and grow.
Argument 2 against claim of circa 90% failure rate:
Research suggests that only a mere 6% as unique Startups of the total 55,000 are funded. What happens to the rest?
As per Inc427 and YourStory8 data, close to 40,000 Startups are active, which means 15,000 are inactive and might be non-existent. So, 27% of the 55,000 i.e., close to 30%, can be contested to have failed.
The balance 70%, excluding the unique 3,500 that are funded, have either raised monies from family and friends, or continue to remain bootstrapped; few are run by entrepreneurs from business families or successful past entrepreneurs; some have received grants like the social-for-profit startups that are focused on creating impact and are giving themselves reasonable time to space and pace. Some of them are happy with the progress and are not looking for external funding and pacing on their own terms. Finally, it includes those entrepreneurs who are mindful of the fact that to seek External Investor money, they need to gear themselves up to the massive expectations. They are fully aware that Investors want Return on Money and Return of Money manifold times.
These Entrepreneurs are smart, and they know it takes longer to validate ideas and come up with execution, and hence they do not shy from making necessary pivots, what is generally referred to as iteration as the way to success. They value feedback and take corrective actions on business model, product-market, pricing, etc.
Obviously, some do not cope, but many do & the 40,000 active Startups is the testimony to this fact.
Argument 3 against claim of circa 90% failure rate:
As we are aware, thousands of experiments are conducted in research labs, each experiment hoping to find a solution to a problem. But how many fail in this endeavor? The answer is 99%. To the question, how many scientists would come back for another attempt? The answer is a resounding 99%. This is because these scientists know and accept that experiments fail so that the research does not, and that every great successful scientific discovery first had to endure long periods of failure.
So is Entrepreneurship. Entrepreneurship is about being able to face failure, manage failure and succeed after failing.
It is a dichotomy that people are training for success when they should be training for failure as it is a common knowledge that failure is far more common than success; poverty is more prevalent than wealth and disappointment is more normal than arrival!
Honda’s founder, Soichiro Honda, has famously said that “Success is 99% failure” And so, failure in Entrepreneurship must be reframed as intentional iteration and experimentation!
The very fact that number of Startups have pivoted well during the pandemic to survive and stabilize, and other numerous examples of how many have been disruptive, creating jobs and adding to the GDP are a true deposition to the acronym: FAIL is First Attempt In Learning.
To conclude:
Success is not final, failure is not fatal, and it is the courage to continue that matters. The above view-points suggest that the claim of circa 90% failure rate is a tall claim! Yes, Startups fail, but some.
They say that ‘good things come to those who wait’, but Entrepreneurship, time and again teaches that ‘better things come to those who go out and get them’. And what differentiates the successful and the nobodies in the Entrepreneurial world is the resilience, the courage, the ability to cope up and the grit of Entrepreneurs.
