there is no startup industry that will give you a higher chance of success, even the one with a lower failure rate.

Is there any startup industry that gives you a higher chance of success?

Starting up is not simply about opening a store, selling a product or service, managing the business by ourselves, or being the business owner. Starting up, if only for a living, earning enough for 3 meals a day such as opening a small restaurant or a hair salon, is a piece of cake.  

However, starting up to create new and innovative products and breakthrough processes, build a scalable business, let money make money, have a work-life balance, etc. is challenging. So, the question is, how can you start a new business, and which startup industry will give you a higher chance of success?

1.  What is entrepreneurship?

As defined in Oxford Dictionary, entrepreneurship is basically understood as the process of recognizing an opportunity and then being willing to take financial risks to start and run the business to gain profit.

What is entrepreneurship
With this definition, entrepreneurship can be in the form of a small and medium business, or a startup. However, establishing a small and medium business is very different from establishing a startup.

2.    Types of Entrepreneurship

Small Business Model

starting up
In the small business model, the entrepreneur will open a small business. However, this business will have the same product or solution as many others available in the market. It has no innovation or vision to become a large company or a chain [6]. Although during running the business, the company may be successful and become a big one, e.g. operating a chain of stores nationwide or across the globe, or even franchising the brand, since the product is already available in the market in the beginning, the business will be considered as a small business model only, not a startup.  Examples of this type of entrepreneurship are a grocery store, a fashion company, a fitness center, or a local real estate company.

Startup Model

Companies that start their business with innovation are often called startups. This is a term used to describe companies in the first stage of their business development. It is the type of entrepreneurship that has been mentioned more popularly and expected the most these days. Besides, it is the startup model, rather than the small business type, that is linked with the contemporary definition of entrepreneurs who are expected to bring innovative solutions to the market. As such, these companies often have a high level of innovation. They often apply advanced technology to offer new/disruptive or innovatively improved products and processes to the market. Hence, they will meet the customers’ needs in a totally different way. Besides, these new solutions will be scalable. Therefore, when establishing the company, the founders have set their vision to grow the company, turning it to become a big or giant one. A typical example of this model is Uber – the ride-hailing app which has disrupted the normal sales and operation processes in the passenger transport industry.

3.  Will startups be the most potential path to success?

Our efforts do not always give us the expected returns. And the same goes for startups. Making 100% effort does not mean our business idea will be 100% successful.

3.1. The rate of success and failure of startups

startups fail across all startup industry
Establishing a new business, either as a small one or a startup, will have a high rate of failure.

The failure rate of small businesses

Despite the low failure rate of 18,4% after the first year [2], the number of failed businesses escalated over time. According to data from the Bureau of Labour Statistics, 30,6% of businesses failed after the second year, and 37.9% failed after the third [2]. And during the 5-to-10-year period, the failure rate has increased from 49.7% to 65.5% [2].

The failure rate of startups

According to a recent report by Startup Genome, 92% of startups fail as of 2019. And over two-thirds of startups cannot generate profits for investors [3]. The number of startups that fails over time is also higher than that of small businesses. The research on 500 failed startups by Statistics Brain [4] showed that the number of startups that failed after one year made up 25%. 35% of startups failed after 2 years and 44% after 3 years (See Figure 1). This indicates that startups have a higher failure rate than small businesses.

3.2. Will a startup industry with a lower failure rate give you a higher chance to succeed?

The failure rate by industries

According to Statistics Brain, the top industries with the highest failure rate after 4 years are Information (63%), Transportation/Communication (55%), and Retail/Construction (53%) [4]. And Finance/Insurance/Real-estate (42%), Education/Health, and Agriculture (44%) are industries with the lowest failure rate [4] (See Figure 1).
Failure rate by startup industry of 500 failed startups
Figure 1: Failure rate by industries from 500 failed startups [4]

The same startup industry may create different results for different startups

Top reasons why startups fail
In an article about recognizing business opportunities, Baron [5] compared two startups in the high-tech industry. One was successful, but one failed. The result showed that the failed one did not update its knowledge about the potential market, thus could not change its product to suit the new market needs, making the demand for its product decline. Meanwhile, the other startup has updated its knowledge about the potential market, recognized the opportunities, then adjusted its strategy and became successful. This example indicated that the success or failure of a startup does not depend on the success or failure rate of the startup industry that you choose but on our ability to recognize market opportunities based on our understanding of the market, the industry, customers’ demand, technology, regulations, etc. Meanwhile, it also depends on how we manage and run the business. This is because, during the early stage of the startup, despite whatever industries we run the business, we cannot avoid the risks of capital shortage, lacking experience, expertise, strategy, or having unsuitable companions, etc.
So, it is vital for entrepreneurs to prepare the necessary knowledge and experience to turn their business ideas into profitable businesses.

4.  Tips for starting up successfully

If you want to build a successful startup, having an idea alone is not enough. You should consider the following tips:

4.1. Select the startup industry that is right for you

There is no startup industry that will give you a higher chance of success, even the one with a lower failure rate.
On considering a field or a startup industry to start our business, we need to select the one that is not only desirable (i.e., having market demand), but also fits our interests and talent.

Select the startup industry and field that has market demand

The startup industry and field that has market demand is the one with a potential market opportunity based on the law of “Supply and Demand”. This means that the product or service will be desired by customers and meet either their explicit or hidden needs. According to Baron [5], it is the knowledge and understanding of a particular market, industry, customer group, governmental regulation, culture, technology, etc. has helped entrepreneurs recognize the market opportunity. Specifically, based on their prior knowledge and experience, entrepreneurs will construct their cognitive framework to evaluate and integrate information. They also form their exemplars. Then they will “connect the dots” with the new knowledge that they acquired from the external world such as various events, trends, or changes in the market, technology, policies, demographics, etc., and compare them with their exemplars to recognize the pattern which suggests new business opportunities. For example, if one person has a financial background and work experience, he will understand the market, industry, and customers’ problems. After that, by connecting that knowledge and understanding with his understanding of advanced technology and applications of new technology, he will be able to find the new fintech solution to solve customers’ problems.

Select the startup industry and field of your own interest and talent

According to the Theory of Effectuation, expert entrepreneurs will use the “Bird in Hand” principle, i.e., based on what we have in hand to decide their startup industry and field. Specifically, this principle suggests that selecting the startup industry and field should be based on three factors: + Who I am:  your startup industry and field should be based on your own interest, hobbies, or passion. + What I have: your startup industry and field should be based on your working experience and expertise. + Whom I know: your startup industry or field should be based on the experience and understanding of people you know. Or you should use your network to find the people with the expertise suitable for your business, to help you implement it.

4.2. Get your finance ready

running out of cash is top reason for startups' failure. Get your finance ready for starting up.
According to CBInsights, running out of cash and the inability to raise funds is the top reason for startups’ failure. This was reported by 38% of studied startups. Therefore, on your entrepreneurial journey, besides your personal savings, you need to find other sources of investment for your business. It can be the fund from crowdfunding, angel investors, venture capital firms, bank loans, reinvested profit, or IPO, depending on the stage of your business in the business life cycle.

See more: Business start-up costs

4.3. Starting up needs resilience, experience, and an open mind

For building a successful startup, having the business idea and funds is not enough. You also need resilience, making effort, strategic planning and management competency, the ability to develop a team and network, and an open mind to learn new knowledge as well as lessons learned from seniors. If you are still confused with a lot of questions to answer and decisions to make on your entrepreneurial journey, you can connect Kounselly – a consulting marketplace in business management and entrepreneurship. With the support of Kounselly, you will be able to connect with experts who are always willing to provide you with consulting services and help you solve your business problems. At the same time, you will be advised of new directions and solutions to help stabilize your business quickly. Especially, Kounselly has an e-magazine and a knowledge center for you to seek information, learning materials, and courses from top experts, helping you improve your knowledge and experience anytime you need.

Summary

There is no industry or field for your 100% success. And starting up does not always fail either. Starting up is not difficult but building a successful one is. Therefore, if you have the intention to start a new business, contact Kounselly – we are here to give your business idea wings to fly.
REFERENCES

[1] Stanford Online. “What is entrepreneurship”. Stanford University, Stanford Center for Professional Development. Available: https://online.stanford.edu/what-is-entrepreneurship

[2] K, Gustafson. “The Percentage of Businesses that fail and how to boost your chances of success”. LendingTree, 2022. Available: https://www.lendingtree.com/business/small/failure-rate/

[3] T. Eisenmann. “Why Start-ups fail”. Harvard Business Review, 2021. Available: https://hbr.org/2021/05/why-start-ups-fail

[4] https://www.techinasia.com/500-failed-startups-bankrupt-vc

[5] R. A. Baron, “Opportunity Recognition as Pattern Recognition: How Entrepreneurs “Connect the Dots” to identify New business Opportunities”. Academy of Management Perspectives, 2006.

[6] A. Hayes. “Entrepreneur: What it means to be one and how to get started”. Investopedia, 2022. Available: https://www.investopedia.com/terms/e/entrepreneur.asp

[7] Guidant. “2022 small business trends”. Guidant, 2022. Available: https://www.guidantfinancial.com/small-business-trends/

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