A summary of a qualitative and quantitative investigation into what factors are present at time zero that increase the probability that a startup will achieve long term sustainability. The findings of this study will empower advisors and founders on how to improve startup survival rates.
Survival rates for startups in the United States (U.S.) are disappointingly low and economically inefficient. The data shows that the U.S. clearly lags its peer countries in the survival rates of startups. The U.S ranked an unacceptable 11th of 14 among its peer countries in first-year survival rates in recent years. Startup failure does not only impact the entrepreneur; it also impacts creditors, vendors, community stakeholders, and employees (Astrachan & Shanker, 2003). While it is commonly acknowledged that entrepreneurial businesses contribute to economic growth, the influential impact survival can have on economic growth within the community is often understated (Frick, 2016). Guzman and Stern (2016) clearly demonstrate the importance of improving startup survival rates. In their recent study, it was demonstrated that a doubling of entrepreneurial success led to an increase of 6.8% of the Gross Domestic Product. The economic impact of startups on the community makes this area of research even more vital. To avoid failure and improve the sustainability of startups requires an in-depth understanding of the factors that are causal and non-causal to sustainability.
While there has been significant investment and support by communities, government, and private foundations, startup failure rates remain virtually unchanged in the last two decades. In spite of the many years of research in the field of entrepreneurship, U.S. failure rates within the first five years average 53% (DOL 2016), regardless of the industry membership or economic cycles (SBA Office of Advocacy, 2012). Identifying factors that are causal and non-causal to the sustainability of emerging businesses is crucial to the founders and stakeholders.
Within this study, both internal and external factors that may be causal to the macro survival rate of U.S. startups were studied. The external factors were studied quantitatively, using data published by the Bureau of Labor Statistics (BLS), Federal Reserve Economic Data (FRED) and the Brookings Institute. A protocol of regression analysis and visual analytics were applied to evaluate the quantitative data. It demonstrated that external factors such as the change in real gross domestic product (RGDP), interest rates, and expansion of accelerators have had no significant effect on U.S. macro startup survival rates. Further, the findings confirm that neither geographic location nor industry membership impacted U.S. macro startup survival rates.
Author: Gilbert Gonzalez
Cite as: Gonzalez, G. (2017). What factors are causal to survival of a startup? Muma Business Review, 1(9). 97-114. https://doi.org/10.28945/3845