M&A Factoid #11: The 14 Predictors of Startup Success
Only a Few Recipe Ingredients!
Success Factors
In Factoid #10 we described research showing some industries are more welcoming to newcomers than others.
For instance, founders of software companies succeed on average about half the time whereas only about 1% of newbie farmers do. (Success in this case is defined as whether the startup had been acquired, had acquired another company, or IPO’d.)
In fact, by itself the industry in which a entrepreneur competes explains only about 3% of whether that venture will succeed or fail.
Indeed, researchers have identified another 13 key factors that together seem to account for the great preponderance of reasons why certain startups succeed.
The chart below lists all 14 factors in declining order of predictive importance beginning with the startup founder’s “Execution/Operational Efficiency.”
Here’s the same data with a visual rather than textual emphasis.
Now in the real world, no factor exists unaffected by the presence of others. Any factor can combine with others to create outsized synergistic or multiplicative contributions to startup success.
For example, both variations in the personality types of a startup’s founders and the number of founders greatly multiply chances of success. Founder combinations like Leader (high openness and assertiveness), plus Accomplisher (high conscientiousness and extraversion), plus Developer (balance of traits) create the highest success probabilities.
Startups with three or more founders regardless of personality type are 2.6 times more likely to succeed compared to single founder startups.
Winning Personalities
The green rows in the first chart above describe certain founders’ personality factors which are together responsible for about 35% of startup success. See below for more detail on how those personality factors contribute.
BTW, personality types aren’t immutable - only about 50% of them are inherited. So if a would-be founder were aware of which critical characteristics were lacking, presumably there’s a way to enhance them.
Next Step: Apply This Information
See my The 12 Characteristics of Successful Entrepreneurs for a user-friendly questionnaire that touches on many of the factors above and can help you determine how well the stars may align for a successful entrepreneurial life.
And see the following research sources for more detail on the key factors I described above:
Execution and Operational Efficiency: Why Startups Fail - HBR
Product-Market Fit: CB Insights - Top Reasons Startups Fail
Market Timing: Bill Gross TED Talk
Founder Industry Experience: Gompers on Serial Entrepreneurs
Team Personality Diversity: Braesemann et al. Paper on Personality and Startup Success
Personality Traits (Openness & Conscientiousness): Zhao on Personality and Entrepreneurial Performance
Founder Networks / Social Capital: Anatomy of an Entrepreneur - Kauffman Foundation
External Market Conditions: NBER - Economic Cycles and Startup Performance
Luck / Random Events: Nassim Taleb on Randomness
Regulatory Environment: Source: McKinsey on Regulatory Compliance
Ryan Kuhn is managing director of Kuhn Capital, a Silicon Valley investment bank whose principals have closed over $3 billion in tech industry transactions. © Kuhn Capital 2024