Drugi jezik na kojem je dostupan ovaj članak: Bosnian
According to a report by the Global Entrepreneurship Monitor, more than 100 million start-ups are launched every year around the world, which is around three per second.
How many of them reach the initial financing phase?
Studies show that at least 90% of start-ups fail within five years of launch. That’s not all, though. Look a bit closer at the motives of entrepreneurs launching start-ups and you’ll see their goal is rarely just to survive or break even. It’s exponential growth and success proportional to risk and effort. But there’s always substantial risk and effort when you launch a new business.
In my opinion, the number of truly successful start-ups – ones that meet their goals and achieve success proportional to the risk and effort invested – is far less even than the 1 in 10 people generally think succeed.
With this in mind, let’s go back our 100 million start-ups a year and take a look at some interesting statistics that speak unambiguously to the reality of start-up success (or failure).
According to Forbes, fewer than 0.05% or around 50 000 manage to secure funding from angel investors in any given year. And only around 0.0015%, or 1 500, reach the first Venture Capital (VC) stage.
And that’s not even close to the end of the journey. More than 75% of start-ups supported by VC still fail. Ultimately, only 0.000375% of all new start-ups survive the first five years and achieve exponential growth. That’s a fact!
There have been lots of studies into the rate of start-up failure, but we still don’t have a soundly argued and 100% confirmed explanation for this slaughter of the start-ups that is universally accepted in the business world or beyond.
I have mentored dozens of start-ups and now, after a long corporate career, I am launching two start-ups of my own with global ambitions, so I’ve decided to take some time with this topic and see if I can’t draw some conclusions that will help both me and others understand the reasons behind this catastrophically low percentage of successful start-ups.
Testing research and theories
First, I decided to approach the issue from a different angle by looking for a similar problem outside the realm of business. One way I find simple solutions is to look for situations in which similar problems arise in some other field.
For example, you can learn a lot about productivity and effective teamwork in business from the perfection of Formula 1 Pit Stop teams, which can change the tires on a racer in seconds. Or about crisis situations and leadership in them from a fire brigade chief. Or about processes and structure and ways to increase productivity within a corporation from beehives, where 20 to 80 thousand bees can pollenate 3 million flowers in just one day. Bees have been making honey the same way for 150 million years and there is good reason for it.
By thinking in this way, and after making lots of comparisons and looking for appropriate similarities, I guess I have finally found what I consider an unbelievably similar phenomenon. It includes a similar rate of failure to that of start-ups. I am, of course, talking about sperm! Their similarity to start-ups is so striking that it’s strange no one has hit upon it before.
So, I have decided to use this analogy to develop a new perspective, resolve my dilemma, and see if I can’t confirm or refute the explanations and reasons offered so far for start-up success or failure.
What have start-ups to learn from successful sperm? What factors are most important for success in the race of life?
Given all the above, the best place to start will be with the basic similarities between start-ups and spermatozoa.
As I have said, the global market produces an average of 100 million start-ups a year, while a male produces between 50 and 250 million individual sperm per ejaculation. Beyond the numerical similarity, start-ups and sperm also have similar rates of success. In fact, the competition is even tougher for sperm because only around 200 will pass through the woman’s reproductive tract and only one will live to become a baby and achieve “exponential growth.”
Comparing sperm and start-ups is so interesting precisely because of the similarities in evolutionary development. Comparison can help us create start-ups with greater chances of success from the off, as well as help investors choose which start-ups to back later on.
8 KEY FACTORS FOR SUCESSFUL SPERM AND START-UPS
After detailed analysis, I have come up with eight factors I consider crucial to the success of both sperm and start-ups in their race to life:
- Fertile Days / The Right Time
Fertilisation can only take place during ovulation, when the fully mature egg cell is ejected and available to sperm for fertilisation. And start-ups have to be launched at the right time, i.e., a fertile period when the new business can be fertilised.
If the market has not matured and consumers are not ready for your product, or the technology needed for your solution isn’t there yet, or there aren’t enough quality suppliers, or the market is short in human and material resources, then the time simply is not right yet – it is an infertile period.
Let us pursue the sperm analogy a bit further. Scientific research shows that sperm which have not spent enough time in the female genital tract cannot fertilise the egg. If sperm can survive in the uterus for 2-3 days, it seems reasonable that start-ups launched 2-3 years before the market is quite ready will perform better, as they can respond to initial signs and trends that suggest approaching opportunities.
The signs may be stronger or weaker but are always there. Just as a woman gives out signs of nearing her fertile period, the market emits signals to show a time of new business opportunities is approaching.
Interestingly, during her fertile period, a woman can seem to don rose-tinted glasses that make the world seem a more beautiful place. Her partner suddenly becomes more attractive, as previously glaring flaws slowly fade. The woman’s kinder disposition during this period also makes her more attractive to her partner. This rosy period brings forth new life and a new period in the life of the couple. It is the same in business. The market and everybody on it don rose-tinted glasses during their fertile days and everything seems much nicer and more optimistic. Start-ups plump more easily for adventure, are more attractive to investors, and more prone to taking risk, just as consumers are readier to try new things.
Nothing is more powerful than an idea whose TIME has come – Victor Hugo.
Which is why being in the right place at the right TIME is the primary factor in successful fertilisation and in business.
- New life/New Idea
As a man whose whole life has been spent in creative work, I have always valued ideas highly, be they in communication or in business. And I have always thought the same about ideas in entrepreneurship.
I considered new business ideas of such vital importance because they are the beginning of new life, whether in business or entrepreneurship. A new business idea is the starting place for any start-up. If not properly set up, then everything will go wrong.
In the start-up world, many value execution over ideas. I have always been of the opinion that the idea is the lode star for any business’ success, but especially for start-ups. If the business idea is wrong, excellent execution will only get you to the wrong place faster. The same logic naturally applies in reverse, because no matter how good an idea is, there will be no success without good execution. But more on that later.
Given the contradictory opinions around on the idea’s importance for start-up success, from completely minimizing to outrageously maximising its role, this may be a good time for a road check using our sperm analogy. Starting with what constitutes an idea in the world of sperm.
The goal for sperm is to create new life. Imagine how a microscopically small spermatozoon and a tiny egg cell form an embryo which develops into an initially helpless baby that in time grows to become a completely independent entity that can itself create new life and help others.
But it isn’t all quite so idyllic. For an idea to be good, it must prove attractive to its target audience. It must also be presented by a person of trust one might want relationship with, even if only a transactional one. With sperm, you can have the perfect product (genetic material) and the perfect idea of your lovely a goal in making a new baby, but it’s not worth a thing if your target group or market does not want a baby, at all or just with you. Your target group may be in its “fertile period” and the conditions right for a positive result from relations, but it still isn’t a good idea, if it doesn’t solve a problem or enhance the life of the intended recipient.
There are various ways the idea can be rejected over the life cycle of the sperm, from avoiding sexual relations, though contraceptive measures, to abortion. Imagine being the victor out of hundreds of millions of competitors only for your target group to abort you!
I think this argument is strong enough to get across how important the idea and its reception by its intended audience are, both in the world of start-ups and in that of spermatozoa.
Now we realise how important fertile periods and new ideas, as the primary two factors of success, are, we can move on to others of at least equal importance in our comparative analysis.
- Quality Sperm/A Quality Team
To win a race against tens of millions of opponents, the winning spermatozoon has to be of exceptionally high quality and healthy in every regard.
Sperm quality is measured in terms of build, form, size, and genetic material. A mature spermatozoon is made up of four parts: the head, the neck, the middle, and the tail.
The race to life is incredibly taxing for sperm. In the female reproductive tract, they encounter a complex chemical and physical environment.
The first challenge is the pH balance in the vagina, which can be deadly to sperm. They have to escape the deadly acids in the vagina and penetrate the thick cervical barrier (which is around a hundred times denser than water), then they have to endure uterine contractions, and finally find the small opening that leads to the fallopian tubes, and they must do all this before they are overcome by the white blood cells in the uterus. All of this happens before the sperm pierce the second protective layer around the eggs. This may all sound too difficult for small spermatozoa, but those barriers exist to weed out the unhealthy and substandard.
A spermatozoon can be underdeveloped and so unable to fertilise the egg cell. Sperm swim through the cervix and the length of the fallopian tube. On the way, a healthy, quality spermatozoon undergoes chemical changes that help it mature so that it can fertilise the egg.
This process is similar to the life of a start-up.
A developed start-up needs a head and a tail and a middle to connect them, viz. its founders and key team members. The race to life is just as challenging and draining for start-ups as for spermatozoa. A start-up grows stronger and more mature as it swims through dangerous waters on its way to its goal. If a start-up doesn’t have a good, effective, and complementary team, then it has no chance of beating out the competition and achieving exponential growth.
Sterility is just as characteristic of start-ups as of sperm.
Expert analysis of the quality of start-ups and of the teams they comprise would be an important diagnostic of their fertility. A start-up may look completely healthy but still be of insufficient quality to conceive a successful new business. Some start-ups, like some men, have serious problems related to low levels of the male hormone – testosterone. Men and women both have testosterone, but it is of vital importance for start-ups, because without it they won’t have the required determination and “aggression,” characteristics that are key in the initial phase of business.
Medicine has made significant strides in understanding and treating fertility issues. It is reasonable to expect similar advances in business and the treatment of start-up sterility. We could start with a reliable test to measure the quality of start-up teams. Just as we have spermiograms, we should have startograms.
In looking at the quality of start-up teams (especially the founders and key members of the team), one could then implement a baseline “startogram” to determine whether the people in all the main positions (head, neck, middle, tail) are good and expert enough and complement each other. And, given everything that lies ahead on the way to our goal, it is just as important for the team to display capacity and readiness in all four human dimensions, viz. the emotional, mental, physical and spiritual, (by which I mean a deeper motivation, separate from material interest), as without them there will be no overcoming the difficult obstacles in the race ahead.
Sperm, semen, or ejaculate is made up of male sex cells (spermatozoa) and secretions from various glands. The secretion is there to feed the spermatozoa and protect them from the acidic environment in the vagina, which is a hurdle to fertilisation. Without resources no goal can be reached, not even fertilisation of an egg by sperm.
Just as sperm require nourishment, start-ups, which are underdeveloped business organisations, require financing. Particularly in the early stages, start-ups will not be able to reach their high-bar goals independently and without initial investment (bootstrapping, pre-seed, seed), followed in most cases by additional financial injections – “supplementary feeding” (bridge round, Series A, B, C).
Once large private Venture Capital funds become involved, it will generally be a matter of global ambitions and serious investments.
There are, in essence, two reasons why start-up financing fails. First, the start-up is under-financed, or, second and more rarely, it is over-financed. In his book Unicorn Tears, Jamie Pride compares over-financing to offering a starving man a heavy meal that results in death from over-eating. In most cases, however, over-financed start-ups just ease up on the gas and turn their focus to new office equipment and designing business cards instead of developing their hypotheses and value positions.
I completely agree with Mr Pride’s notion that there is a correct balance in financing start-ups during the earlier phases and that failing to respect that balance can have negative consequences, including the failure of otherwise potentially successful teams and ideas.
- Mobility / speed, flexibility, and endurance
Sperm’s mobility is such an incredibly important factor because the winning sperm faces a long and difficult journey in a very short time to win the egg, and it is competing against a huge number of other sperm who are all also extremely fast (for spontaneous pregnancy, 40% of the sperm must be fast, so one is generally dealing with tens of millions of fast sperm in direct competition). Which is quite like the situation with start-ups, which have to have speed, agility, and flexibility in their DNA.
Basically, sperm and start-ups can be fast or slow, but they can also end up moving or, better, “spinning” in place, or even completely immobile.
Implementation saves the start-up, the idea is the icing
No matter how important the idea is in assessing a start-up’s chances of success, it is still overrated. Few start-ups have “bad” or “unimaginative idea” written on their death certificates. The cause of death is usually diagnosed as chronically poor execution and realisation, or just being slower than their competition, who reached the goal before them.
Given how exhausting the journey to the egg is, it is unsurprising that new studies have identified the key factor in victory as not the head or some other seemingly important part, but as tail of the sperm.
The head makes up just 10% of the sperm’s length and is not nearly as important a contributor to its success as the tail, which is very long and built for movement. The fastest sperm can reach the egg in just 45 minutes, while it can take up to 12 hours for the slowest. Defects in the build of the tail can result in poor mobility, and, regardless of any other superior qualities, such sperm are not equal competitors in the race to life, let alone likely to win it.
Pursuing our analogy, let us look at what the tail and its function symbolise in our start-ups. Obviously, it is all about speed, flexibility, and endurance. These characteristics play a key role in start-up success, just as they do for sperm.
Given this important fact, in evaluating the potential success of start-ups (especially as an investor) don’t look at just the head, look at the start-up’s tail too, because of its role in reaching that final goal.
- Successful fertilisation / a successful business model
There is no business without a successful business model!
Just as a spermatozoon is a highly differentiated and independent cell capable of fertilising a female egg cell, a start-up should be a highly differentiated, independent organisation capable of fertilising a new business.
Even though I have just stressed the fundamental importance of sperm (and start-up) mobility, we mustn’t forget direction, which is just as important as speed and flexibility.
So long as sperm are travelling in a generally straight line or in large arcs, they are said to have progressive mobility. There is another non-progressive type of mobility. The sperm are moving, but not in a straight line (progressively). They may in fact be moving in tiny circles, fast but getting nowhere.
Drawing our parallel with start-ups, we may conclude that start-ups need not just flexibility and endurance but an appropriate business model.
What does this mean in practice?
Every organisation’s business model, and this includes start-ups, must have the following four essential parts:
If a start-up’s products or services are not in demand or available on the market, then what are the chances of fertilizing the business? The most common reasons for this are poor understanding of the problem it is solving for its target group or offering a solution to a problem that the target audience don’t see as one.
Similarly, whatever the sperm’s other fine qualities, without “desire” between the partners, there will be no intercourse and no egg fertilisation.
As mentioned above, sperm feed on the secretions of various glands in order to reach their final goal and fertilise the egg.
If we are to fertilise a business to success, its product or service must be feasible. It will only be feasible if they have the resources they need, which may be knowledge and skills, or the processes or structures to allow the desired product or service to be created, or the necessary time, or appropriate human and material resources. All of which must be balanced just right. The chain breaks at the weakest link.
If any of a business’ major elements is unprofitable then there will be no business in the long term. Whatever the business organisation, it is normally a condition for success, for survival, that profits outweigh costs. This is the fundamental law of business gravity.
Lots of start-ups have survived for years while defying this law of gravity. They have succeeded by focusing on revenues and growth, while ignoring expenses that were growing even faster and the consequent negative profit margin. Their investors had bet on multiple start-ups and deployed their money to support the most promising and not just the thriftiest.
In some ways, they were mimicking sperm, who also play a game of big numbers. It is less important how many sperm are lost than that one is successful. It’s the final result that counts.
Even when one of the hundreds of millions of sperm successfully manages to fertilise an egg, it has not yet achieved its final goal. In some ways the battle has just begun. By this I mean the fight to keep the embryo alive until it develops into something as unbelievably magical as a human being.
And the same is true of start-ups. Even if a start-up secures the investment it needs and creates its new business, the story doesn’t end there. That is only the beginning, Maintaining steady growth can be more difficult than outrunning the other start-ups.
Professor Steve Blank of Stanford University has a famous definition of start-ups: “A startup is a temporary organisation designed to search for a repeatable and scalable business model.”
The story doesn’t end when the start-up finds its successful business model, however, because of all the external and internal factors there to endanger the new system’s sustainability. Adaptability and constant improvement are crucial to any successful business organisation and so to successful start-ups too.
- Friendly fire / competitive environment
You only need one spermatozoon to fertilise an egg cell. So why does having less than 20 million spermatozoa render a man infertile?
A fertile man produces 2 to 5 ml of ejaculate. Every millilitre contains around 100 million spermatozoa. If the concentration falls below 20 million per ml of semen then there is a fertility problem. Which still looks like a tremendous number. So what is the problem?
Part of it lies in the fact so few of the sperm that enter the vagina end up in the uterus. And even fewer find their way to the fallopian tubes. And of them even fewer make it to the egg.
The second part of the problem is that even when the egg is ready for fertilisation it doesn’t embrace the first sperm that comes along to fertilise it. The egg is surrounded by a thin protective layer that serves as a blockade to prevent sperm penetration.
For one sperm to reach the egg, lots of them have to “attack” the protective layer. Without enough competitors, no one will be able to finish. This is natural selection at work, making sure only the healthiest sperm gets to pass its genes on to future generations.
If we transfer this logic to start-ups, we see that start-ups in countries, regions and cities with a highly developed start-up community enjoy the biggest chances of success. This may seem strange, but the more start-ups there are around you, the greater your chances of success. Exactly like with spermatozoa.
- The winning sperm / Strength of will
Only a few dozen sperm reach the egg. The rest are trapped or lost, travel down the wrong tube, or simply die on the way up. Even for the lucky few that do get within reach of the egg, the race is not over. They still have to work at a frenzied pace to break through the outer layer of the egg and reach it before the others.
While all this is going on, the egg itself is travelling through the fallopian tube and, should it meet a healthy sperm cell along the way, magic happens. The two combine in the process called fertilisation. They begin to create new life.
Winning sperm never gives up. The same is true of the winning start-up. There is only one way to fail, which is to give up. If you mean to win, you can’t lose.
Overall, this list of eight key factors for the success or failure of a start-up may surprise some people familiar with start-up life. For me, it confirms the logic of everything we know about the phenomenon so far.
Many will ask why eight and not seven or nine factors.
My answer is that for anything in life you need a drop of luck, and with start-ups you need much more than a drop. There is a well-known Chinese belief that eight is the luckiest number and brings riches. The word eight in Chinese sounds almost exactly like another Chinese word, which means “to become rich.”
And then, there is my personal interpretation of the number eight, which is that it is the only number to gain in meaning and symbolism when it “falls” (a toppled 8 is the infinity symbol).
The infinity symbol may be the best way to show the lust to create something new and is a great fit for the attitude most entrepreneurs express and live by – CONSTANT MOTION.
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