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8 out of 10 Start-ups(!) fail, not businesses. There are loads of businesses that have a very low failure rate, but also a very low quadrupletuple-the-evaluatio

by erikb 11y ago

8 out of 10 Start-ups(!) fail, not businesses. There are loads of businesses that have a very low failure rate, but also a very low quadrupletuple-the-evaluation rate. Example: You work for company X and build wordpress blogs for companies A,B,C since 5 years. Now you think it's not reasonable to have company X in the middle since your relationship to A,B and C is good enough. So you quit and work with them directly as a freelancer. At that point you started a business and the risk of failure is as low as your estimation of the relationship to A, B, and C is as good. If you are not too unrealistic you only do this when it is very likely to succeed. But your business value may stay about the same the next 5 years.

dpark 11y ago
A startup is just a new business. In the first year of existence, every business is by definition a startup unless created by spinning an existing unit out of a business. Some people might say that the term "startup" is only applicable to new tech companies aiming for absurd growth, but those people are defining too narrowly. The "8 out of 10 startups fail in a year" claim also rings hollow without a citation, even if restricted to "tech startups". Is there some source that demonstrates that 8/10 high-growth startups fail within a year or is this as unsupported as the more general claim?
- erikb 11y ago
  In general you are right. Start-up should be the word for any new business. But in recent years the venture capital driven fast growing new-tech business type was mostly associated with that word, especially on HN (since Y-Combinator is a school for exactly that kind of business). That's why I gave an example that is pretty much on the opposite scale. It's also a new business but not what people think about when they hear the word "start-up".
  - dpark 11y ago
    I edited to address this a little more specifically and you likely missed it. It's still unverified that even high-growth tech startups fail 80% in the first year. How many "Facebooks for {foo} and Uber for {bar}" actually fail in the first year? If you define a high-growth tech startup from the time it takes investment or the time it incorporates, I bet you still don't hit 80% failure rate in the first year. (If you count abandoned ideas that were never meaningfully pursued, then sure, but in that case I've got a dozen failed startups under my belt and a similar number of failed restaurants.)
  - k__ 11y ago
    Was start-up really simply the word for new businesses in (american?) English? I heard it only for the business you describe, but lately every newly created design/tech-consultancy here calls itself a start-up.
    - Ntrails 11y ago
      I'd say if a company takes venture capital it's a start up, whereas something based on bank loans and self capitalisation is just a business. But I don't have any justification for that - just my association of the word.
      - k__ 11y ago
        I thought a start-up needs to have a product/service that aims for ultra-high-growth.
        collyw 11y ago
        That seems to be a relatively accepted definition around here, but not a dictionary definition.
    - erikb 11y ago
      Yeah, it became popular, so no definition is really true anymore. Everybody tries to claim it for themselves to get the coolest tech people and the most VC dollars.
      - k__ 11y ago
        It's often a bit confusing. I get a job offer from people who say "We are a start-up" and then they are just another dumb agency. If I want agency work, I freelance.
    - collyw 11y ago
      The way people I hear people use it to describe their own businesses, it seems to describe a business that isn't making money yet (large or small).
  - rconti 11y ago
    If I start a McDonalds francise, even if it's my first-ever business, it's DEFINITELY not a startup.
- api 11y ago
  It's a fuzzy definition like any other social category, but I'm not sure a restaurant is a startup unless it aims for significant growth via some novel approach to running and scaling restaurants. What's "significant growth?" That's one fuzzy area. I'm not sure you have to be aiming to become Fortune 500 in less than 10 years, but the aim should be for at least one or two standard deviations above normal for the sector. The best definition I can think of is that a startup aims to deviate significantly from the industry norm through the application of technology or higher order conceptual reasoning about process.
- squeaky-clean 11y ago
  > A startup is just a new business I've only ever heard of startup used to refer to a new business that hopes to become extremely scalable. In my opinion, starting a burger restaurant isn't a startup, unless you're hoping to be on every streetcorner competing with McDonald's in the next 5-10 years. It's just much easier to scale with a tech/software company. The 8/10 claim is still baseless any way you define it though. The Forbes article this presentation links to only cites "Bloomberg.com" as the source, not linking to any specific article.
  - amackera 11y ago
    > I've only ever heard of startup used to refer to a new business that hopes to become extremely scalable. I think the recent popularization of the Facebook story, Google rise to dominance, and Apple's romanticized origin story have all contributed to many people thinking of "startups" as isolated to tech or to high growth scalable business. But before this, the term "startup" was used to refer to many things. A chemical company goes through iterations of plant "startups", even while railing many hundreds of millions in capitol, that will only pay off after a decade of plant operation for example. Personally I don't like to think I'm starting a "startup", but rather founding a business.
  - brandall10 11y ago
    It does seem to be the definition bandied about here as espoused by pg's essay: http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html As a software engineer working nearly 2 decades, prior to discovering HN some 5 years back I always just thought it was a small, relatively new tech company that was designed to grow beyond a lifestyle business. I never thought about the hypergrowth factor. I still use the term in that fashion. Interestingly enough, my gf works in commercial finance and they use the term to apply to any new business where there is no like prior for the applicant. In your example above a brand new burger business is certainly a startup until they open up a second location. IOW, they're no longer a startup once they've proved successful enough to grow to a second location with the ability to use the first as collateral reducing their inherent risk.
mattmanser 11y ago
This has been shown to be a nonsense myth too. Someone's put some hard figures here: https://www.quora.com/What-is-the-truth-behind-9-out-of-10-startups-fail https://www.quora.com/What-is-the-truth-behind-9-out-of-10-s... sama also posted some stats here a while ago about yc companies that were wildly different from the "8/10 startups fail" myth.

by erikb 11y ago

dpark 11y ago

A startup is just a new business. In the first year of existence, every business is by definition a startup unless created by spinning an existing unit out of a business. Some people might say that the term "startup" is only applicable to new tech companies aiming for absurd growth, but those people are defining too narrowly. The "8 out of 10 startups fail in a year" claim also rings hollow without a citation, even if restricted to "tech startups". Is there some source that demonstrates that 8/10 high-growth startups fail within a year or is this as unsupported as the more general claim?

erikb 11y ago
In general you are right. Start-up should be the word for any new business. But in recent years the venture capital driven fast growing new-tech business type was mostly associated with that word, especially on HN (since Y-Combinator is a school for exactly that kind of business). That's why I gave an example that is pretty much on the opposite scale. It's also a new business but not what people think about when they hear the word "start-up".
- dpark 11y ago
  I edited to address this a little more specifically and you likely missed it. It's still unverified that even high-growth tech startups fail 80% in the first year. How many "Facebooks for {foo} and Uber for {bar}" actually fail in the first year? If you define a high-growth tech startup from the time it takes investment or the time it incorporates, I bet you still don't hit 80% failure rate in the first year. (If you count abandoned ideas that were never meaningfully pursued, then sure, but in that case I've got a dozen failed startups under my belt and a similar number of failed restaurants.)
- k__ 11y ago
  Was start-up really simply the word for new businesses in (american?) English? I heard it only for the business you describe, but lately every newly created design/tech-consultancy here calls itself a start-up.
  - Ntrails 11y ago
    I'd say if a company takes venture capital it's a start up, whereas something based on bank loans and self capitalisation is just a business. But I don't have any justification for that - just my association of the word.
    - k__ 11y ago
      I thought a start-up needs to have a product/service that aims for ultra-high-growth.
      - collyw 11y ago
        That seems to be a relatively accepted definition around here, but not a dictionary definition.
  - erikb 11y ago
    Yeah, it became popular, so no definition is really true anymore. Everybody tries to claim it for themselves to get the coolest tech people and the most VC dollars.
    - k__ 11y ago
      It's often a bit confusing. I get a job offer from people who say "We are a start-up" and then they are just another dumb agency. If I want agency work, I freelance.
  - collyw 11y ago
    The way people I hear people use it to describe their own businesses, it seems to describe a business that isn't making money yet (large or small).
- rconti 11y ago
  If I start a McDonalds francise, even if it's my first-ever business, it's DEFINITELY not a startup.
api 11y ago
It's a fuzzy definition like any other social category, but I'm not sure a restaurant is a startup unless it aims for significant growth via some novel approach to running and scaling restaurants. What's "significant growth?" That's one fuzzy area. I'm not sure you have to be aiming to become Fortune 500 in less than 10 years, but the aim should be for at least one or two standard deviations above normal for the sector. The best definition I can think of is that a startup aims to deviate significantly from the industry norm through the application of technology or higher order conceptual reasoning about process.
squeaky-clean 11y ago
> A startup is just a new business I've only ever heard of startup used to refer to a new business that hopes to become extremely scalable. In my opinion, starting a burger restaurant isn't a startup, unless you're hoping to be on every streetcorner competing with McDonald's in the next 5-10 years. It's just much easier to scale with a tech/software company. The 8/10 claim is still baseless any way you define it though. The Forbes article this presentation links to only cites "Bloomberg.com" as the source, not linking to any specific article.
- amackera 11y ago
  > I've only ever heard of startup used to refer to a new business that hopes to become extremely scalable. I think the recent popularization of the Facebook story, Google rise to dominance, and Apple's romanticized origin story have all contributed to many people thinking of "startups" as isolated to tech or to high growth scalable business. But before this, the term "startup" was used to refer to many things. A chemical company goes through iterations of plant "startups", even while railing many hundreds of millions in capitol, that will only pay off after a decade of plant operation for example. Personally I don't like to think I'm starting a "startup", but rather founding a business.
- brandall10 11y ago
  It does seem to be the definition bandied about here as espoused by pg's essay: http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html As a software engineer working nearly 2 decades, prior to discovering HN some 5 years back I always just thought it was a small, relatively new tech company that was designed to grow beyond a lifestyle business. I never thought about the hypergrowth factor. I still use the term in that fashion. Interestingly enough, my gf works in commercial finance and they use the term to apply to any new business where there is no like prior for the applicant. In your example above a brand new burger business is certainly a startup until they open up a second location. IOW, they're no longer a startup once they've proved successful enough to grow to a second location with the ability to use the first as collateral reducing their inherent risk.

mattmanser 11y ago

This has been shown to be a nonsense myth too. Someone's put some hard figures here: https://www.quora.com/What-is-the-truth-behind-9-out-of-10-startups-fail https://www.quora.com/What-is-the-truth-behind-9-out-of-10-s... sama also posted some stats here a while ago about yc companies that were wildly different from the "8/10 startups fail" myth.