Failure is definitely the commonality. The BLS reports typically that 1/2 of all new businesses (in the US) will formally fail within five years. One can safely guess that at least half of those remaining are something between zombies and hanging on by a thread. 1/4 or fewer will make it 15 years or more. And of course it varies by sector, restaurants notoriously have an exceptionally high failure rate. For all businesses the failure rate is around one in five in the first year [0]; for restaurants the failure rate is ~60% in the first year, and ~80% fail within five years.

[0] And again, don't forget to assume the figures are even higher because the figures will never fully account for zombie businesses or quasi-zombies and the equivalent.

I’m wondering about the failure rate for technology companies. It may be higher or lower than restaurants, I have no intuitions.

There is somewhat fuzzy on where you even draw the line. Does someone moonlighting on their Wordpress side hustle count as a company? There are many of those which seem unlikely go bankrupt - the most frequent end state is the sole proprietor quits due to lack of work or interest.

90%+ for "tech startups," although it's very hard to find data that sorts through all the startups and separates them into tech and non-tech startups. Good source is https://www.failory.com/blog/y-combinator-failures#:~:text=O....

Those figures also do not account for selling all of the company's property with some profit and closing it down; the equivalent of an acquihire for small and medium companies is counted as failure. Running it successfully for a couple of years and changing your mind is counted as a failure too.

I don't have a link on hand, but I've seen studies from people that counted how many business actually closed due to money problems. The actual rate of non-problem business after 5 years is close to 80%.

I would expect it to be close to 100%. The difference between the 80% and the 100% is the ones that grow in spite of and sometimes because of their problems. Every business will run into trouble, sooner or later. In fact I don't recall a year in the past decade without some kind of crisis that needed fixing. Some self inflicted, some just circumstance and some outside malice. Never a dull moment if you run a small company.

>Every business will run into trouble, sooner or later.

Even large businesses that have comfortable cushions and safety nets?

Yes. But they are better positioned to deal with it and will likely survive. But even the IBMs, HPs and Boeings of this world are not immune.

> But no less unusual than building a successful company to begin with.

Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped.

Think about it this way: from the perspective of VCs, the most successful apps of the iOS era were Uber and AirBnB. But from the perspective of entrepreneurs, the most successful app of the iOS era was the Flashlight app.

Which one do you think was easier to build?

I sort of don't doubt that VC-funded companies are less likely to succeed than bootstrapped companies, simply because bootstrapped companies can keep afloat with consulting and VC-funded companies can't. But vastly lower odds of product success sounds like something that'll need a citation.

It seems likely that VC-funded app store pure plays without a recurring revenue SAAS component are much less likely to succeed than indie app store pure plays, but that's because VC is obviously the wrong model for one-and-done app store transactions. If you have a good idea for an app, don't raise for it (you'll have a hard time raising for it anyways).

IIRC each time you raise a round, your chances of success go down by ~10x. Can't find a good cite offhand though.

Every time you raise a round, the outcome you're shooting for is magnified. If you're raising an A round, you're not getting acquired after your seed; you're rolling the dice on getting a much better outcome. If you're raising a B round, you've got some facsimile of product-market fit, and you've decided to take the company to the point where the only "successful" outcomes are denominated in hundreds of millions of dollars, etc.

So it's not surprising that there's a stat somewhere that says "committing to a 500MM sale decreases your odds of success over satisficing with a 50MM sale", right? Very few software companies of any provenance end up going public, but by the time you're raising a C, that's essentially what you're saying you're going to do.

For down rounds the stats are probably much, much worse.

It gets even worse, because a proportion of those raising another round are doing it because they're failing to grow fast enough, and are grabbing more cash before it's too late.

So you get a mix on those rolling the dice one more time in the hope of that next 10x, and those unable to get an exit, and unable to earn enough, but able to convince investors one more time that this round will pay off, and who will rarely pay off well for founders or early investors, if at all.

I've both been in companies like that and worked for a VC analysing round data to avoid putting money in companies like that...

In a company like that, I once got 10k for my original 25% stake when the company was finally acquired... I left after the 4th round or so, and there were at least a few more after I left (I stopped.paying attention. The company was acquired for only 40% above the size of the A round.

Right, but that blows up the causality of the stat proposed above.

Once you're in the VC cycle though not being able to raise another round when you need it is a 100% decrease in your chance of success. So I'm not sure if that follows for any but the first. Essentially you need to keep raising until you either reach profitability at scale, are acquired or IPO, and even the latter won't help you if you aren't eventually profitable.

> Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped.

Any citation for this? I’m highly skeptical of this claim.

The definition of "success" is different between a bootstrapping business & a VC funded business. A consultant can define success as "making enough money to live off of". A VC funded business has a different definition.

So how would a study be conducted? A survey asking if the business was "successful"?

Actually, that's not a bad idea. Surveying founders at 5, 10, and 15 years after founding whether they were happy with the outcome could be enlightening. A little bit like the 7-up documentary series. It would be very interesting to see which path tends to provide the best outcomes according to the founders.

Maybe for some of them just getting the VC funding is success. Pay yourself enough, last long enough, make good contacts... And if it fails, start over with the extra experience and contacts, or join an existing startup at a high level. Failure doesn't seem to hurt the careers of executives that much.

For this to be a true comparison, you should look at how many flashlight apps were built.

You're right that in numbers of survivors there bootstrapped ones are going to outnumber the VC ones. But in terms of total # of employees, total $ of turnover and profits I would expect it to be the reverse.

But for any individual founder, if you want to aim for 'successful enough to be relatively wealthy and worry free' then 'bootstrapped' is the way to go. If you aim for an outsize success, wealth for the next N generations and massive impact on the world (for good or for bad) it's going to be very hard to avoid the VC track.

I wrote about this long ago, but it is still quite relevant:

https://jacquesmattheij.com/three-roads-to-the-top-of-the-mo...

> But in terms of total # of employees, total $ of turnover and profits I would expect it to be the reverse.

In general, the less money that startups raise, the better their returns:

https://techcrunch.com/2016/10/15/overdosing-on-vc-lessons-f...

There are a number of reasons for this, a big one being that marginal revenue is always the least profitable:

https://techcrunch.com/2017/10/26/toxic-vc-and-the-marginal-...

This is fully compatible with the OP's point. They mentioned total $. Returns are percentages.

The revenue can be 0. As long as the shares are worth a lot, you are still a very rich person.

Seeing that you wrote the article 12 years ago, I am curious how did it work for you. Did you make it to the top of the mountain?

Well over and beyond my wildest expectations.

I am glad to hear that! So hard work pays out if you have determination.

And lucky... don't discount the luck factor. If not for a few small twists it would have all come to nothing.

What is the Flashlight app developer success? At best the app sales supported them for a year or two. By this metric a failed VC funded company also has supported its founder (plus employees) for a year or two.

>Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped.

I'd wonder if taking VC money five times, failing 4 times and building a large and growing company 1 time, isn't better than bootstrapping a small and profitable company just 1 time.

The article is specifically about this value judgement. If you do not value making a profit as a company you have to find value in something else. Which is fine, different things motivate different people and should, but at least be clear that it is fundamentally a values conversation.

Businesses are about profit not values. An NGO is a better vehicle for pushing values than a business.

Disagree, it’s often best to leverage the profit motive as a tool for achieving your values-based mission, and companies are usually the best way to do that.

Companies scale up more effectively than NGOs, attract investment much more easily, and can undertake a wider array of activities to achieve their mission. Then there’s C-corps etc if you want to make it explicit.

The more companies talk about values and missions, the more likely they are to turn frauds.

No, I do not have stats for that. It is an observation.

Sure, most initiatives fail. But successful ones are not so rare that you don't expect to see one.

If you go all the way until you realistically start a company, you are more likely to succeed than to fail.