Why Businesses Succeed and Fail Harvard researchers answer 10 perplexing questions.
How can an BIZ Experiences position themselves to succeed when the majority of small businesses fail?
It helps to know which odds are in your favor. Paul Gompers, Anna Kovner, Josh Lerner and David Scharfstein set out to find why some BIZ Experiencess are more successful than others. They put together a Harvard Business School working paper, Performance Persistence in BIZ Experiencesship.
In it, they answer some burning questions. Do first time BIZ Experiencess have it harder? Does having a renowned venture capital firm behind you help? And most importantly, is successful BIZ Experiencesship a skill, or is it luck?
After scouring the 35 page document, here are the fascinating answers to all of those questions and more.
1. Do serial BIZ Experiencess succeed more than first time BIZ Experiencess?
Answer: Yes.
If you're a first time BIZ Experiences, outlook not so good.
According to the Harvard researchers, there is performance persistence in BIZ Experiencesship.
They write, "All else equal, a venture-capital-backed BIZ Experiences who succeeds in a venture (by our definition, starts a company that goes public) has a 30 percent chance of succeeding in his next venture. By contrast, first-time BIZ Experiencess have only an 18 percent chance of succeeding and BIZ Experiencess who previously failed have a 20 percent chance of succeeding."
2. Who is more likely to get funded by a VC firm, a new BIZ Experiences or a tried and true one?
Answer: A new BIZ Experiences.
Failed BIZ Experiencess are more likely to get funding than successful BIZ Experiencess from the same VC firm.
Strange but true.
3. Is BIZ Experiencesial success a skill, or is it luck?
Answer: Starting a company at the right time in the right industry is a skill.
Here's why: According to the Harvard paper, "The industry-year success rate in the first venture is the best predictor of success in the subsequent venture. BIZ Experiencess who succeeded by investing in a good industry and year (e.g., computers in 1983) are far more likely to succeed in their subsequent ventures than those who succeeded by doing better than other firms founded in the same industry and year (e.g., succeeding in computers in 1985).
"More importantly, BIZ Experiencess who invest in a good industry-year are more likely to invest in a good industry-year in their next ventures, even after controlling for differences in overall success rates across industries. Thus, it appears that market timing ability is an attribute of BIZ Experiencess."
Nothing indicated it has anything to do with wealth.
4. Does success breed success?
Answer: Yes.
BIZ Experiencess with previous successes can get their hands on more capital and services if suppliers think they are persistent performers.
"For example, high-quality engineers or scientists may be more interested in joining a company started by an BIZ Experiences who previously started a company in a good industry and year if they believe (justifiably given the evidence) that this track record increases the likelihood of success," they write.
5. Are companies that are funded by top-tier VC firms more likely to succeed?
Answer: Yes, with one exception (see next question).
The reason these companies are more successful is obvious.
It's either because the top VCs are better at identifying potential success, or it's because they're able to add more value to companies they fund. The Harvard paper assumes both.
6. If a company's founder has been successful before, how important is the VC?
Answer: If a startup is founded by previously successful BIZ Experiencess, then the VC firm doesn't really matter.
Basically, since successful BIZ Experiencess can easily obtain services and they have a better chance at success, then they really don't need guidance top VCs provide.
Harvard explains, "If successful BIZ Experiencess are better, then top-tier venture capital firms have no advantage identifying them (because success is public information) and they add little value. And, if successful BIZ Experiencess have an easier time attracting high-quality resources and customers, then top-tier venture capital firms add little value.
7. Where do most BIZ Experiencess get their ideas from?
Answer: From former employers.
Make sure employees sign those non-competes!
The Harvard paper cites a 2000 study by Bhide that finds "a substantial fraction of the Inc. 500 got their idea for their new company while working at their prior employer."
8. Will VCs give the same BIZ Experiences funding on their next venture?
Answer: Not usually. The same venture capital firm that funded you before probably won't give you money again.
You'd think successful BIZ Experiencess would have no problem getting funding from venture capital firms that previously backed them...but you'd be wrong.
According to a 2007 study by Bengtsson, "it's rare for serial BIZ Experiencess to receive funding from the same venture capital firm across multiple ventures."
9. Who closes VC funding quicker, serial BIZ Experiencess or newbies?
Answer: Serial BIZ Experiencess receive venture capital sooner than first-time BIZ Experiencess.
It makes sense. If you're established, it's easier to convince VCs you're worth betting on. "While 45 percent of first-time ventures receive initial venture capital funding at an early stage, close to 60 percent of BIZ Experiencess receive initial venture capital funding at an early stage when it is their second or later venture."
It takes an average of 21 months for established BIZ Experiencess to secure VC funding compared to 37 months for first-timers.
10. Who receives a higher initial valuation, seasoned BIZ Experiencess or new ones?
Answer: New BIZ Experiencess.
They were found to have higher initial pre-money valuations than serial BIZ Experiencess: $12.3 million compared to $16.0 million for first-time founders.
See Also:
33 Major Fail Tales From Startups That Died
Men VS Women BIZ Experiencess: Here Are The Facts
47 Mind-Blowing Psychology-Proven Facts You Should Know About Yourself
