First-time founders only have an 18 percent chance of success
Two significant challenges often emerge for startups during the scaling-up phase of their life cycle: successfully raising funds from investors and gaining access to experienced management. The good news, however, is that solutions exist for both of these problems.
One of the main challenges of successfully scaling startups is accessing enough capital to sustain the company until it achieves commercial success. Since launching startups involve innate risks, a single stumble along the way can lead to capital sources quickly drying up. Venture capitalists must manage their own portfolio risk and provide good financial returns to their limited partners.
Meanwhile, the need to raise capital can distract entrepreneurs. To be most effective, founders and C-suite executives must lead their businesses, focusing on the technology and market. Fundraising can fritter away their valuable time and energy.
Given these common pitfalls, most startups run out of capital before realizing their dreams. According to an article in Harvard Business Review, “More than two-thirds of [startups] never deliver a positive return to investors.” Embroker only gives first-time founders an 18 percent chance of success.
To mitigate this risk, identifying the right capital partner is imperative. While taking this approach might seem like pumping the breaks on traction, it’s worth spending time upfront to find an experienced partner who is philosophically congruent with you and will endure a few missteps along the way. Taking money from anyone willing to back you in the short term may ultimately cost you in the long term.
With both strategies, the goal is the same: freeing leadership to focus on building the business by establishing a source of ready-made capital that’s available as needed.
One common characteristic of entrepreneurs or inventors is that they are inherently bright and often believe they can lead the company all by themselves. Still, launching startups involves navigating past landmines first-time entrepreneurs would likely not foresee since they have never ridden the startup roller coaster before.
To address this risk, we at Innventure created a stable of serial entrepreneurs, each of whom has participated in multiple startups. My team and I refer to this group as “serial CXOs” and insert them into each new startup we launch.
Not every business has the benefit of C-suite executives with decades of experience, however. Luckily, corporate advisors can plug these gaps. It’s common for people not to know what they don’t know, so try to be honest with yourself. If you don’t already have a lot of training or experience in a given area – such as legal matters – it’s best to assume that you would strongly benefit from expert advice.
Bringing experienced management into the company as early as possible will undoubtedly reduce the probability of failure. When it comes to scaling up a startup, nothing beats an experienced leadership team.
Finally, we advise entrepreneurs to be honest with themselves about whether their ventures are ready to scale up. Make sure your enterprise has proven its market validity with sufficient initial customer orders before attempting to move to this stage of the company’s development.
These early sales prove your startup has identified the right price and specifications for your product or service. Otherwise, the risk that consumers will fail to adopt your innovation can lead an already cash-strapped startup to burn through its runway, triggering the dreaded “death spiral.”
The good news, however, is that having a dependable source of capital and an experienced management team can save startups from attempting to scale up prematurely.
Bill Haskell, CEO of Innventure, has spent over 30 years building high-growth businesses. He has directed over a dozen private and public companies. Innventure specializes in founding, funding, operating, and scaling companies in strategic collaboration with Multinational Corporations (MNCs). Its business model allows Innventure to recognize and cultivate assets with the potential to reach a valuation in excess of $1B within five years.
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