There is a lot of weight on the shoulders of many young Australian considering starting a business. With the government continuing it's investments into creating the "Ideas Boom", a lot of faith is being put into the capacity of the startups of today to deliver security for the future. Speaking to ABC about the Innovation Statement, the Turnbull Government released late last year, the Prime Minister demonstrated his credence in the power of startups to transform the Australian economy.
"We are in a world where the most valuable capital is human capital," he said. "That's why it is very important to retain our best brains, to create an environment where they can grow businesses and try things out, use their imagination and innovation, but also [to ensure Australia is] attractive for talented people from other parts of the world, whether they are students here or not."
With this support, it is easy to feel confident that your next big idea will turn into a prosperous business. However, while conditions may be good, it is important to consider that many small businesses don't set off down a road to success. In fact, according to a study by McCrindle Research, half of new Australian businesses will have ceased to exist after only four years of operations.
Timing accounts for 42 per cent of the likelihood that a startup will succeed or fail.
What one thing can make or break a startup?
While there is no guaranteed recipe for success when starting a company, there are some clear indicators that prosperity is on the cards. Serial entrepreneur, investor, and co-founder of the successful incubator IdeaLab, Bill Gross explored this in an inspiring TEDTalk on what makes some startups work and others fail. With a passion and appreciation for startups that rivals that demonstrated by our Prime Minister, Mr Gross looked at over 200 companies and isolated five factors conducive to success: The idea, the team, the business plan, the funding and the timing.
To his surprise, one factor emerged as being most capable of predicting success. It wasn't the business plan or the idea. It was the timing that accounted for 42 per cent of the rate of success. He gave us an example of a company that got it just right: Airbnb.
"[Airbnb] was famously passed on by many smart investors because people thought, 'No one's going to rent out a space in their home to a stranger.' Of course, people proved that wrong. But one of the reasons it succeeded, aside from a good business model, a good idea, great execution, is the timing."
"That company came out right during the height of the recession when people really needed extra money," Mr Gross explained, "and that maybe helped people overcome their objection to renting out their own home to a stranger."
Even when all the other boxes are ticked, timing can still force a startup into the ground. Take, for instance, an idea Mr Gross took to market in 1999 – the online entertainment company, Z.com.
"We were so excited about it – we raised enough money, we had a great business model, we even signed incredibly great Hollywood talent to join the company. But broadband penetration was too low in 1999-2000. It was too hard to watch video content online," Mr Gross said, "you had to put codecs in your browser and do all this stuff, and the company eventually went out of business in 2003."
"Just two years later, when the codec problem was solved by Adobe Flash and when broadband penetration crossed 50 percent in America, YouTube was perfectly timed. Great idea, but unbelievable timing."
Having learned a lot through failures and successes over the years, Mr Gross' insights are incredibly valuable. But sometimes, even a great idea has trouble taking off.
"It's essential you do as much research as possible to ensure your idea has the best chance to succeed."
Business owners wish they had skilled up before starting up
A research project from the UK-based Association of Accounting Technicians (AAT) asked SME owners what they wish they had known before they took their idea to market. Overwhelmingly, it was critical business acumen that was lacking, with 20 per cent citing finances as the biggest trouble, 12 per cent feeling clueless about marketing, and 11 per cent lacking the legal expertise to confidently make decisions. In fact, out of all aspects of operational knowledge, SME owners wished that they had formal marketing education before they begun their journey.
"Starting your own business can be a daunting process," commented Head of Business Development at AAT Rob Alder.
"If you have a business idea, it's essential you do as much research as possible to ensure your idea has the best chance to succeed. Being confident in yourself and your idea is excellent, but you should still ensure you get as much advice as you can, from multiple sources."
While many budding entrepreneurs can't wait to get started, if the timing isn't right and their skills aren't quite up to scratch, it can be a road to disaster. Luckily, you can skill up and work towards a sound business plan at your own pace and from anywhere with a Diploma of Leadership and Management at LMIT.
Published by: LMIT