Why the odds are against you and your startup?

Everyone knows that odds of succeeding in a startup are against you. It is more difficult to succeed in a startup than you think it is.

Let me prove that with a series of statistics

#1. Ask 100 people if they consider themselves smart and probably more than 80% of them will say they do.

This is also called as the Lake Wobegon Effect.

Assuming smart people are the ones that will work on startups, the potential for a large number of startups exists.

However, this observation can’t be true if we look at the statistics related to lopsided wealth distribution. In fact the wealth distribution statistics show an exactly opposite phenomena. The top 20% of the people hold keys to 85% of financial wealth. Of course this assumes that there is some correlation between smartness and financial success.

This means either one of the two –
a) we still lack a large majority of people who can get engaged in startups or
b) a lot of people who think they are ready for startups are really not ready for startups

#2. Nine out of ten startups won’t see the light after the first year of operation.

This is unfortunately true.

But why?

The third statistic may provide an answer

#3 Less than 16% of the people are early adopters of technology.

If we assume that the most startups are doing something innovative, the above statistic is supported by the widely accepted technology adoption life cycle below:

For innovative startups to succeed, they have to first catch hold of the attention of people who will use what they have to offer. This means they have to focus on those 16% of the people who will listen to them. Since that percentage is so low and the same people are bombarded with MANY offers, reaching them would require lot more money and effort than many startups can afford to spend.

Adding to this, it’s not sufficient to just capture the attention of early adopters but also to cross the chasm ( the gap between early adopters and early majority as popularized by Geoffrey Moore) to attract early majority.

In summary, it is difficult to succeed in a startup because most startups have inadequate capacity to sustain and adapt to the point their product or service reaches the critical mass of adoption.

So, before you start chasing your startup dream, think about the following 10 questionable reasons to start a company

1. My friend did it so can I

2. You want to get out of the box

3. I can make a ton of money

4. I have a great idea!

5. I have a project from my current employer

6. My friends and I want to create something together

7. My company makes all the money from my efforts

8. Everyone loves me!

9. I have inside information.

10. I have a lot of business connections.

Have a great weekend.

Note: Thanks to Jignesh. I update the title  and also a link to support the first statistical claim.