Businesses trading today, including multi-billion multinational corporations have commenced their operations as start-ups and have grown to their current sizes due to a range of reasons, including offering competitive products, and services, engaging in effective marketing exercising strong management etc.
Comprehensive study of these success factors is important for new start-ups so that common mistakes can be avoided and chances for success maximised. This article represents a brief critical analysis of the reasons of success and failure of start-ups. The article starts with discussing the major reasons of success and failure for start-ups and this is followed by the illustration of real-life examples in order to justify the opinions.
Reasons of success and failure for start-ups
There is range of reasons that can make or break start-ups. The level of familiarity and experience of the owner in the relevant industry is a factor that plays a significant role in the future performance of a start-up. In other words, highly successful start-ups tend to have owners that have a high level of experience, and professional and personal interest in the business they are initiating.
On the contrary, the majority of start-ups initiated on the basis of the personal interest alone, or for the sake of following a popular trend tend to face significant challenges in various aspects of the business due to the lack or even absence of founder’s experience and knowledge in a given industry.
Competitive advantage associated with a business idea is another major factor affecting its success. Competitive advantage is defined by Khosrowpour (2007, p.108) as taken from Braun (2006) as “a condition that enables companies to operate in a more efficient or higher quality manner than the companies it competes with, which results in financial benefits”. Accordingly, start-ups that have stronger competitive edge are more likely to succeed. Moreover, the majority of modern successful start-ups adopt innovativeness and creativeness as a competitive advantage and this strategy is proving to be an effective approach.
Cash drain is one of the major obstacles for start-ups. Specifically, cash drain involves a situation where there are no financial resources left to sustain the operations before the revenues are received (Johnson, 2000). This situation can be avoided by objectively identifying the level of finance required in the planning process and securing adequate funds through various sources, and closely monitoring expenses once business is started.
Another important factor impacting upon the success of start-ups relates to the leadership style exercised in the new business venture. Leadership can be defined as “a process whereby an individual influences a group of individuals to achieve a common goal” (Northouse, 2009, p.3), and effective leadership style exercised in a start-up is able to motivate the members of staff to an extent that profit maximisation objectives can be achieved with less financial inputs.
Conversely, even though a start-up business plan looks great on the paper, unless its initiator possesses effective leadership and management qualities it would be highly challenging for the business objectives specified in the business plan to be achieved.
Moreover, founder’s interpersonal skills also play substantial role in determination of the fate of a start-up. This is because a start-up founder would need to deal with various stakeholders of the business venture and the quality of these interactions largely contributes to the success or failure of the start-up.
Real –life examples of successful and unsuccessful start-ups
There are many real-life examples for successful and unsuccessful start-ups. However, it is important to note that while it is easier to find case studies for successful business start-ups, the cases of start-up failures are not usually well publicised despite there are many of such cases.
Nevertheless, the illustration of real-life business start-up case studies can be linked to start-up success and failure factors discussed above. For example, a start-up success factor of competitive advantage can be effectively illustrated through referring to the story of Facebook – the largest social networking site in the web.
Namely, Facebook’s competitive advantage – the first mover advantage has greatly contributed to its current size that include more than 3500 employees and 901 million monthly active users (Key Facts, 2012, online).
The impact of leadership style on start-up success, on the other hand, can be explained by mentioning another well-known brand – Apple Inc. Founded by Steve Jobs and Steve Wozniak in 1976, Apple’s success has been aided by the leadership style of Steve Jobs. Specifically, it has been noted that Steve Jobs had “a leadership style that helps tp create an environment that nurtures and enhances the creation of technology-based products, many of which become highly successful” (Pride et al, 2011, p.180).
Moreover, there are many real-life case studies that prove the interpersonal skills of founders to have a decisive role in the success of the start-up. Coffee Republic, one of the popular coffee chains in UK is a classical example to illustrate this point. The founders, brother and sister Bobby and Sahar Hashemi have associated their brand with their exceptional communication skills and this fact has helped the start-up to become successful (Stokes and Wilson, 2010).
Business start-up is an attractive idea for many people, however, ensuring growth of the business once a start-up is launched and achieving its basic objective of profit maximisation is associated with achieving positive impact of a range of factors.
As it has been discussed in this paper major factor affecting the success and failure of business start-ups include, but not limited to the level of familiarity and experience of the founder in the relevant industry, the strengths and effectiveness of competitive advantage associated with a business idea, cash drain issues, the level of effectiveness of leadership style exercised in the new business venture, and founder’s interpersonal skills.
Well-known, highly successful brands of today such as Facebook, Apple, Coffee Republic and many others had to deal with the issues faced by all start-ups at the initial stages of the business. However, they were able to achieve their current level of profitability and brand value partially thanks to the ability of their founders to achieve a positive impact of factors discussed in this essay.
Johnson, V.R. (2000) “Enterpreneurial Management and Public Policy”, Nova Science Publishers
Key Facts (2012) “Facebook” Available at: http://newsroom.fb.com/content/default.aspx?NewsAreaId=22 Accessed May 18, 2012
Khosrowpour, M. (2007) “Dictionary of Information Science and Technology” Idea Group Reference
Northhouse, P.G. (2009) “Leadership: Theory and Practice” 5th edition, SAGE
Pride, W.M, Hughes, R.J & Kapoor, J.R. (2011) “Business”, 11th edition, Cengage Learning
Stokes, D. & Wilson, N. (2010) “Small Business Management and Entrepreneurship” Cengage Learning