Of the 600,000 businesses that startup each year in America, only 1/2 will survive to see their 4th anniversary.
In a new study published in the journal Science, a duo of MIT economists argue that a handful of few key factors seem to be associated with the potential for success. They have developed a mathematical framework that lets them predict how the far a company or even a whole innovation cluster can grow.
Here’s a summary of their findings:
- The Right Name. Names tend to be key indicators, for example — companies not named after their founders that have their names trademarked show potential. Companies that have names that are short and/or contain words associated with technology are more successful than those that don’t. According to the study, company names that are less than three words long are 50% more likely to grow.
- Proper Formation. Startups that are properly incorporated are more than six times more likely to grow than companies that aren’t incorporated.
- Location. Startups located in California are much more likely to succeed than in other locations.
- Publicity. Getting early exposure is often key to building the momentum necessary to gain investor confidence and snowball funding.
- Intellectual Property. Having a patent or other valuable intellectual property is also a success factor. According to the study, registering your company properly and having a patent increases the likely success 200-fold.
On the other hand, there is a bevy of anectodal and other accounts identifying the factors that have been tied to startup failures. Some of them include:
- Bad location – starting up in a small market with insufficient access to investors and technical know-how
- Obscure niche / lack of appeal to mainstream
- Derivative idea that draws from existing IP or ideas belonging to other companies
- “Competing with Pepsi” – entering a saturated market already dominated with power-players
- Unworkable business model – meaning that the business won’t make money
- Unscalable – the profitability of the business can’t be scaled to grow
- No specific audience / No audience – there are no real buyers for whatever product/service the startup is selling
- Unrealistic expectations – the founders are not honest/realistic about the problems with their idea
- Bad presentation – great concept, wrong founders
- Warring founders – lack of solid direction / agreement about direction of company between founders
- Hobby – insufficient time, energy, heart put into startup by the founders & founding team
AXIS Legal Counsel’s Business and Corporations Practice provides legal advice to numerous startups at the pre-seed, seed and growth stage, including investor-backed ventures. AXIS can help with formation matters, governance, co-founder’s agreements, insurance, licensing, and assist with investment agreements, convertible notes, tax elections, and numerous other matters that startups deal with, including startup formations, contracts, deals, and transactions, business administration, corporate governance, operations, risk management / insurance, labor/employment matters, intellectual property, healthcare, crisis management, directors/officers, private/data security, technology, statutory/legal compliance, and business litigation. AXIS represents California and Delaware startups, C Corps, S-Corps, LLCs, LLPs, Partnerships with a wide variety of legaltasks. AXIS represents businesses, corporations, LLCs, LLPS, partnerships, and startups in need of a corporate lawyer, for business legal matters as well as business litigation, such as disagreements, non-solicit agreements, non-competes, trade secrets, cyberlaw, intellectual property, and others. We are also experienced in providing assistance to business clients concerning business contracts, corporate formation matters, contracts and transactions, business litigation, business legal advice for Corporations, LLPs, LLCs, Partnerships, Small Business, Startups, and others involving corporate law.
For information on retaining AXIS Legal Counsel to represent your startup in connection with any legal matter, contact email@example.com or call (213) 403-0130 for a confidential consultation. Axis’ managing attorney Rabeh M. A. Soofi is ranked as one of the “Top Women Lawyers of Southern California” by SuperLawyers Rising Stars, and is a Los Angeles Startup Lawyer representing businesses and start-ups throughout Los Angeles and California.