The bloody truth about the startup fairytale

Great White Shark, preditor, threat, risk,
A shark attack is rare, but not as rare as a successful startup business.

 

Sharks kill five people every year. Five out of 7.4billion (and counting). It’s hardly a significant proportion, is it?

 

In fact, it’s so unusual, every time a shark attack is reported anywhere in the world it becomes global news. It’s a big story and people are fascinated.

 

No-one cares that billions of people go swimming every year. There are billions of instances of that happening, it’s not unusual. But a shark attack… Wow.

 

That’s just how the news works. There must be some intrigue. There must be a break in the usual narrative for it to be informative and compelling. It must be uncommon to be newsworthy.

 

The misconception is that this only happens with ‘bad news’. That somehow something is only newsworthy if it is gruesome or negative – like a shark attack.

 

Wrong.

 

Introducing the fairytale of the successful startup

 

A quick search for “startups” and a scan through social media and online news channels paints a wonderful world of free stuff, unicorns and angels (fairytale anyone?).

 

We read inspirational articles in entrepreneurial magazines and quotes from those who have ‘made it’ telling us to: “dream big”, “be the difference” and “reach for the sky” … Okay, that last one might be Woody from Toy Story, but you get the idea.

 

This is news. It’s a break from the usual narrative. It’s a shark attack.

 

700,000 new startups in the UK every year

 

There are almost 700,000 new startups created in the UK every year (and that number is growing by the way). There is more than £1.5billion in seed funding invested into early stage startups by angel networks every year. The news is filled with rousing stories about how awesome it is to be an entrepreneur, how fun and exciting startupland is and how much funding is available to new businesses. The streets are lined with gold, don’t ya know?

 

Why no stories about startup failure? Why aren’t we hearing about those who go bust or don’t make it past that first year of happy-clappy startup school with the free beer and seed investment?

 

No-one cares

 

There are hundreds of thousands of them every year. It is so commonplace it’s not a news story. We don’t talk about it because it’s mundane – it’s the norm.

 

So WTF is happening to those 700,000 new startups and that £1.5billion angel investment every year? Where are the 3.5million businesses that have been created in the UK since 2011?

 

What are we doing?

 

I’m calling time on startup fairytales. We need to start learning the lessons of those serial catastrophic failures. We need to shout from the rooftops about what is going wrong. Why are 77% of seed-funded businesses not reaching Series A?

 

Sure, celebrate the successes, but understand the context in which they are successful. If the successes are the news, then there’s a shitload of work still to be done.

 

If you’re an entrepreneur on the front line of startupland right now, enjoying your new-found flexibility, cosy co-working community, the buzz of chasing seed investment and everyone telling you how brave you are: beware.

 

I used the analogy of a shark attack earlier so, keeping with the theme, if you are unfortunate enough to be one of the 90-odd people attacked by a shark each year, you still have a 90% chance of surviving.

 

Yep. Statistically speaking, you have a better chance of surviving a shark attack than you do getting your startup business from seed round to Series A.

 

Not such a fairytale after all, eh?

 

So, what’s the answer? Create fewer startups? Stem the tsunami of startup accelerators and business incubators flooding the market?

 

Nope. Of course not. We are experiencing a startup revolution. The UK is more startup friendly than it has been for a long time. Close to three-quarters of a million new businesses are being created every year and the vast majority are supported, in some shape or form, by the thousands of startup accelerators and support systems popping up all over the country.

 

That’s a good thing. No, that’s a great thing!

 

But therein lies the rub. We got so excited with all the ‘startup stuff’ that we forgot we needed to build businesses.

 

The average UK business accelerator programme now runs for just 21 weeks. Twenty-one weeks! That’s great for knocking startups into shape with a business model and securing seed funding, but 21 weeks is nowhere near long enough to build a sustainable business.

 

So what happens? More than 60% of those fresh-faced, inspired and energised startups go pop. Business survival rates are as poor (in fact, they are marginally poorer with ONS figures for 2006 recording five-year survival rates at 45%) than before our startup revolution began.

 

That’s simply not good enough.

 

We need to recognise that building a business takes time. Finding the right investor and nurturing relationships with staff and suppliers (not forgetting customers) takes time. By all means “move fast and break stuff”, but 21 weeks is even pushing it for Zuckerberg’s Facebook.

 

Not for startups who get excited by seed investment

 

We created Moonshot to partner with entrepreneurs interested in building multimillion pound ventures. Not startups who get excited by seed investment.

 

Our partnership is non-exclusive, we don’t insist our business builders only work with us and in fact many of our Moonshot businesses started out in one of the UK’s fantastic accelerator programmes. However, we are there to slingshot them from ‘accelerator graduation’ to multimillion pound exit. That’s what we do.

 

If you’re an entrepreneur on the front line of startupland right now, enjoying your new-found flexibility, cosy co-working community, the buzz of chasing seed investment and checking in with your awesome mentor: take heed.

 

You might feel comfortable in the tepid shallow water, but soon you’re going to take your seed funding and leave the kiddy pool to venture out into the cold, expansive ocean.

 

Are you prepared for what’s coming?

 

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