What is the probability your business will succeed?

One of our favourite news stories in recent weeks was of Gareth Wild, the Tesco Bromley shopper, who spent the last six years trying to park his car in each of the store’s 211 spaces. Bless him. But thanks to his heroic endeavour, we can glean vital insights into parking behaviour. Assuming a round six years, with four weeks off each year for holidays (when the weekly shop is not needed), it took him 288 attempts to park in all 211. That’s a 73% probability you will be able to park in a different space each time. We can take it a stage further, and assume that the first 200 spaces were easy to fill, only taking 200 attempts because there were plenty of empty unvisited ones. In which case, the probability of getting a decent spot –one of those close to the shop door and easy to escape from afterwards- plummets to 13%.

Most of us could have lived our lives happily without such insight, but the exercise might help shed light on more important subjects. Such as why 90% start-ups fail. There are various sources for this statistic and they range from failure being partial to total, from within 12 to 36 months. The point is a lot of start-ups don’t succeed and they struggle to survive. Even the most promising ones, those that secure seed funding from investors, are less likely to exit or indeed secure follow-on funding in each subsequent round:

Any discussion of start-up failure leads inevitably to the CB Insight  list of top 20 reasons. You know it - the one citing 42% of failure is down to there being no market lead. This list is, to say the least, simplistic. Lots of things determine the viability and appeal of a solution. You can’t determine the absence of market need until you have taken thousands, perhaps hundreds of thousands of decisions, to create product, devise marketing strategies, craft value propositions and optimise customer experiences.

The truth is that markets kill off badly designed and configured businesses. But the root cause of failure is the poor design and configuration, especially if uncorrected before the business hits the end of its cash runway. This is echoed by business school research, which shows that the majority of causes of business failure are internal. This should give every entrepreneur hope, because it means that most causes of failure are avoidable. You are in control of your own destiny. No pressure.

But there is something curious lurking here. Why are so many founders taking so many decisions that lead to failure? If we take a step back, it does not paint a rosy picture of entrepreneurship. Is this fair or even true? We would argue not. Our experience is that founders have a lot of decisions to take, and they generally make them well. Not just within their sphere of expertise, but in those areas outside their zone of comfort. The entrepreneurial learning curve is steep, but founders are resourceful enough to find a path.

How do we explain those high rates of failure? How do we square the circle of founders making mostly good decisions and 90% of start-ups still failing? This is where Tesco car parking comes in. Or rather, probability.

Try this simple exercise. There are thousands of different variables that determine whether something succeeds or fails. But imagine there are eight dynamics that will make the biggest difference. Think of them as the major battles you have to win. Our list would be: 

1.     Management: the ability to plan and execute your vision

2.     Competitiveness: out-performing rivals as you chase down opportunities

3.     Product and customer experience: delivering the best and staying ahead

4.     Customer: attracting and retaining at scale

5.     Funding: raising enough money to keep you afloat

6.     Commercial: generating positive cashflows

7.     Talent: attracting and retaining the skills you need

8.     Ecosystem: creating or shaping the business environment to your advantage

You can come up with your own list. But when you have it, rate your chances of succeeding on each dynamic within three years. Give them each a likelihood score out of 100%. Since most start-ups are, by definition, embryonic organisations with incomplete capabilities, very few would rate themselves at 100% for each. That would reek of a lack of realism. A strong start-up may look like this:

This sounds like a great business. But even with such high odds in your favour on each dynamic, the combined probability of success is only 17%. All those 20% gaps soon add up to reduce your overall chances.

Moreover, if you get just one of these dynamics badly wrong (and by bad you turn out to have only half the chance of succeeding you initially estimated), then your combined probability of succeeding falls to 8%. That’s a 92% chance of failure, which sounds suspiciously like the 90% rate we have been discussing.

Probabilities of the future are, of course, entirely speculative. If you decide only five criteria matter, you can get a dynamic badly wrong and still have a 20% chance of success. There is no mathematical rule here. This is, however, an instructive exercise because a different picture of start-up entrepreneurship emerges. Not one where markets kill off businesses or inexperienced founders make silly mistakes, but one where strong, embryonic businesses have the odds stacked against them. One where disaster can strike on any number of fronts, and where one significant blow could be enough to threaten survival. This sounds like the reality of the start-up experience.

What can you do as a founder to improve your odds? This is simple. Work out the battles you need to fight and win, and then design and configure your business so that you do. Success is not a zero sum game: for you to succeed, everyone else do not have to fail. You need to be strong enough in each area to have a very high chance of succeeding within the next three years. Your goals over this period will be limited, but they will give you a platform from which to launch the second phase of your venture.

So the next time you are driving round the Tesco car park looking for a spot, remember the odds of getting that perfect spot are low, but they do happen, and, if you are willing to try for long enough, you will get it in the end. The same can be true of your business.

UP AND TO THE RIGHT.