What Factors Are Causal to Survival of a Startup?

Copyright © 2017, Gilbert Gonzalez. This article is published under a Creative Commons BY-NC license. Permission is granted to copy and distribute this article for non-commercial purposes, in both printed and electronic formats 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. 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. Internal factors were studied qualitatively, using a grounded theory protocol. The qualitative research did uncover three internal factors that were causal to survival of the startups studied. Those internal factors were: • Career Autonomy – The entrepreneurs motivated by career autonomy were significantly more likely to achieve long-term sustainability. • Allies – The entrepreneurs who identify and utilized allies were more likely to survive. • Purposeful Margin of Safety model – Startups whose founders had a rigorous understanding of the margin of safety (MOS) and its underlying elements of pricing and breakeven analysis were more likely to survive. This qualitative study provides significant evidence that, when these three causal factors are present, the likelihood of sustainability is high. These findings extend our knowledge on how to improve the probability of sustainability for the firms. This study demonstrates that the U.S. can and should improve its startup survival rates by focusing on the internal factors that are necessary at time zero to ensure sustainability and survival. 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.