[04.11.14]

In recent years, we have seen the number of start-ups flourish, with over half a million being founded in the UK in 2013 alone.

There are arguably a number of causes for this, one being the credit crunch of 2007 onwards making it much harder to get a corporate job, or perhaps people are looking to do something they thoroughly enjoy, rather than doing a job they hate only to finance their enjoyment elsewhere? It may also be worthwhile to consider globalisation in this argument, as it has had the general effect of making the world a single market, greatly increasing the opportunities available to a start-up, in that it can both source materials and employees and sell its goods and services worldwide.

The potential benefits yielded by launching your own start-up can be tempting – especially to someone trapped in a corporate schedule of a job they don’t particularly enjoy. One very attractive aspect of running a start-up is that it allows an individual to pursue what they feel passionate about, therefore meaning that they often enjoy working significantly more. Start-ups are also often popular with people seeking to be able to work to their own schedule, and start-ups can usually accommodate this as their working hours are often largely flexible. It can also be the case that people working in a large organisation can feel that their contributions are not recognised or appreciated, which is unlikely to happen in a start-up as there are only usually a few employees.

However – start-up companies do not come without their drawbacks. One major drawback is the risk involved. Research by Shikhar Ghosh, a senior lecturer at Harvard Business School, found that three quarters of venture capital backed firms in the USA failed to return the original investment. Based on data from more than 2000 US firms, Ghosh found that for every 10 start-ups, 3 or 4 fail completely, another 3 or 4 fail to return the original investment, and 1 or 2 produce substantial returns.

The above graph shows that only 37% of start-ups in the Information Sector were still operating after four years, meaning nearly two thirds of Information start-ups fail in their first four years. This may seem extreme, however there are many reasons a business start-up might fail:

• You don’t have the necessary expertise to operate in a particular industry.
• Your employees aren’t good enough.
• Your customer base isn’t big enough, or you didn’t ensure it existed.
• You followed competitors movements rather than focusing on your own business.
• Your product was a fad.
• Your customer service is bad.

However – not all start-ups fail, and there are plenty of success stories worth looking at. The founders of a few well known/growing start-ups have spoken about the most common mistakes they see, and more importantly how to avoid them:

“Start a company that’s on a mission.” – Alan Johnson, co-founder of Treehouse.

“Never take no for an answer… there will always be people who tell you that something is impossible.” – Pete Weijmarshausen, CEO of Shapeways.

“The biggest mistake we made was not believing the business was going to be a big success. So we did next to no planning ahead” – Collis & Cyan Ta’eed, founders of Envato.

“Securing funding and finding the right team was our toughest challenge.” – Christian Reber, founder and CEO of 6Wunderkinder.

“Don’t be afraid to back yourself and invest when you think it’s important.” – Collis & Cyan Ta’eed, founders of Envato.

“Customer Feedback has been critical to our success from the beginning.” – Levi Cooperman, co-founder and VP of Operations of Freshbooks.

“One of our biggest lessons learned is that in start-ups, everything takes much longer than you think it will.” – Shamir Karkal, CFO and co-founder of Simple.

“Give the best support you possibly can.” – Jack McDade, founder of Statamic.

Castletons Accountants