Failure of Imagination Dooms Start-ups

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Scott Shane wants entrepreneurs to take responsibility in their decisions.  He rejects assertions that most start-ups fail because of outside forces beyond control of the people who start the start-ups.  And he especially rejects the notion that start-ups struggle because they can't keep up with rapid growth.  Rather, Shane, Professor of Entrepreneurial Studies at Case Western Reserve University, argues that entrepreneurs set their new companies up for failure by choosing to enter industries that are "unfavorable to new companies."  From Small Business Trends:

Many entrepreneurs start companies that stand little chance of out-competing other businesses. Data from the Panel Study of Entrepreneurial Dynamics reveals that nearly 40 percent of the founders of new companies don’t think that their businesses have a competitive advantage. (Because entrepreneurs are an optimistic lot, if a business’s founders don’t think the company has a competitive advantage, what are the odds that it does?)

Not enough entrepreneurs have experience in the industries in which they are starting their businesses. Academic research shows that working in an industry for several years before starting a business enhances the survival prospects of a start-up, but a sizable fraction of entrepreneurs start businesses in industries in which they have no work experience.

Many entrepreneurs fail to take the actions that research shows help businesses to survive. Academic evidence shows that putting in place careful financial controls, emphasizing marketing plans and writing a business plan increase the odds that a new business will survive, yet many founders fail to write plans, have inadequate financial controls and don’t focus on their marketing plans.

Read Why Do Most Start Ups Fail? here.


Posted 09-27-2011 10:16 AM by Graham Griffith
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