What makes new companies successful, and why other businesses fail? 1M data points from 100 audits reveal clear insights.
Decoding what makes new companies successful
What makes a new business successful, and why most businesses fail? What separates the 10% of thriving businesses from the 90% that are destined to close in a few years? These are questions that most new business owners ask.
Having millions of market research data in our databases, we decided to connect the dots and decode what branding and business concept qualities successful companies have, and what are the common traits of businesses that fail.
What can we learn from this analysis?
The research is focused on revealing the following two insights:
- What sets of qualities winning businesses have?
- What sets of shortcomings losing businesses struggle with?
Where is the data coming from?
In our research, we were looking for general business characteristics that can be applied in most industries and sectors. The basis of the analysis is the market research data set we collected from 100 business concept audits from 5 different industries. This is over 1,000,000 data points in total.
The companies are:
- 20 hotels and resorts
- 20 tech startups
- 20 non-tech startups
- 20 e-commerce stores
- 20 professional service (b2b) companies
Why companies purchase business concept audits with Brand Auditor? There are a number of reasons. In most cases, companies want to validate their business model and pricing. Other use cases include:
- Already established companies want to fine-tune their business model
- Unsuccessful businesses looking for insight to troubleshoot their business model
- Angel investors requesting verified market feedback insights as a supporting document
All audits by Brand Auditor are based on targeted market research feedback.
Why this research is important?
A successful business is the dream of new entrepreneurs and people who desire to leave their full-time careers to start their own ventures. The sad reality is that over 90% of new businesses fail. 10% of startups fail within the first year. Across all industries, startup failure rates seem to be close to the same. Failure is most common for startups during years two through five, with 70% falling into this category.
According to Embroker.com, the most common why startups fail is due to misreading market demand — this is found in 42% of cases. Our brand and business concept audits to confirm the same.
Most businesses only seek help when their performance is in a critical state
Over 70% of clients requesting a Business Concept Audit are already on the verge of going out of business. Not surprisingly, over 80% of those who request us to audit their business concepts are getting negative feedback from their target customers. They launched their business without validation or any representative market research.
Other major reasons for startup failures (at least 10% or above) are pricing/cost issues, user-unfriendly products, poor marketing, and product mistiming.
The 30% of Business Concept Audit clients are using the audit as a proof of concept. Their intention is to understand what aspects of their business will be attractive or questionable for their future customers — so they can get back to the drawing board to address any issues before entering the market.
The purpose of this analysis is to draw connections between various business characteristics and the likelihood of sustainable business success. These insights will help new entrepreneurs tremendously to focus on developing those aspects of their businesses that matter.
Key findings about successful businesses:
Observing what qualities successful startups have in common, connecting the dots to understand the importance and connection between each.
1, Great product-market fit
Product/market fit, or written as product-market fit, is the degree to which a product satisfies existing market demand. Product/market fit has been identified as a first step to building a successful business in which the company meets early adopters, gathers feedback, and gauges interest in its product.
87% of companies with successful business results scored 7 out of 10, or higher in their perceived product-market fit.
2, A winner business concept
A business concept is a full, well-thought-out construct of all of the key items required to build a profitable business, including overall offering, specific products/services (at least to start out), who would pay for that product/service, how the product would be delivered to the target audiences, and why the concept is unique enough to succeed.
79% of companies with successful business results scored 8 out of 10, or higher in perceived business concept qualities.
3, Clarity in brand positioning
A positioning statement clearly defines your brand’s position — that is, the “space” in your audience’s consciousness that you want to establish as belonging solely to your brand. Positioning is about differentiating your brand from your competitors, so the language that describes your positioning is very important.
83% of companies with successful business results scored 7 out of 10, or higher in their positioning.
4, Earned credibility and demonstrated expertise
You know how important it is for any business to proactively demonstrate its expertise. It makes a real difference when the marketplace you want to serve sees you as an expert — in an area that demonstrates an understanding of the market and solves a problem that the market has.
76% of companies with successful business results scored 6 out of 10, or higher in their perceived credibility.
Key similarities of failing businesses
Observing what failure startups have in common — connecting the dots to understand the importance and connection between each.
1, No market demand — proper market research was never done
Market demand is an important economic marker. Demand reflects the competitiveness of a marketplace, a consumer’s willingness to buy certain products and the ability of a company to leverage itself in a competitive landscape. If market demand is low, it signals to a company that they should terminate a product or service, or restructure it so that it is more appealing to consumers.
59% of companies with poor business results scored 4 out of 10, or lower in their perceived product-market fit.
2, Unattractive business concept, wrong packaging, and pricing issues
An idea that may seem outwardly absurd may not necessarily count as a bad business idea. Bad business ideas are typically ill-thought and under-developed; which makes them highly likely to fail in the business world.
There are a number of forces at play that can contribute to the failure of a particular business concept. These include lack of available resources, lack of demand for the product/service, poor marketing/positioning, and a number of other factors
68% of companies with poor business results scored 5 out of 10, or lower in their perceived business concept.
3, Unclear positioning and mixed marketing messages
Failure to correctly position a brand will leave your potential clients and customers confused. They will compare it with wrong alternatives, misunderstand unique differentiators and your brand values. There are four common causes of wrong positioning, which are:
- Under positioning: here the customer’s have a blurred and unclear idea of the brand
- Over positioning: the customer’s have too limited awareness of the brand
- Confused positioning: when the customer’s have confused opinion of the brand
- Double positioning: it happens when customers do not accept the claims of the brand
72% of companies with poor business results scored 4 out of 10, or lower in their positioning.
4, Failure to demonstrate the related skills and expertise
Misuse of facts, shallow content that lacks and scientific or logical substance — it is easy to the red flags when someone does not know what he is talking about. Same with business marketing communications. People are not stupid, the notice if claims and theories do not add up, and will undermine the credibility of the company.
55% of companies with poor business results scored 4 out of 10, or lower in their perceived demonstration of expertise.