Factors that lead to start-up failure and influence the general failure rate

Abstract

Objectives The main objectives of this study were to identify and evaluate the most significant factors and patterns in start-ups that lead to their failure, identify the reasons for the high start-up failure rates, and identify the main factors that influence the probability of success/failure.

Summary Start-ups as generally known have a staggering high failure rate, and the failure rate has remained recurringly high year by year. This bachelor's thesis is focused around that fact and expands on the objectives mentioned. The research was conducted through interviews. There was an extensive amount of questions, and the questions in the interviews were tailored by what was covered in the literature review and by the main objectives. The Interviewees chosen had been through the process of starting up a company. Regarding the interviewee’s start-ups, one was a success, one had quite recently started to stagnate, and one was a complete failure. From the collected data, analysis was performed, and comparisons were made to the factors covered in the literature review. Followed up by an evaluation of their significance.

Conclusions Overall, with the given data the study concludes that perhaps some factors are possibly undervalued regarding their significance and influence on start-up performance. One, for example, is the importance of contacts and another is the importance of the founder or founders being a certain “type”. Regarding the traditional deemed reasons for failure e.g., finance, no demand, etc., there were lots of similarities in the results. However, there were outliers, for example, the timing of a start-up was concluded to not be that important in most cases. Regarding factors contributing to the high failure rate in general and for individual start-ups, it was concluded that the number of start-ups set up by only one founder was a heavily contributing factor to the high failure rate. This is because many start-ups are set up alone, and it was concluded that having multiple founders increased the chance of success greatly. Other significant factors affecting the failure rate included, for example, no high-quality research beforehand, motivation, finance, location, etc.