Premium Market Analysis, Trader Education, Software, and Trading Strategies. Thirty Years Of Skin In The Game


The Startups Of Broken Dreams

Most startups fail, and entrepreneurs go broke or end up in debt. The chances of success for startups are low, some say less than 1 in 10.

An article in Forbes magazine not long ago detailed some of the key reasons startups fail and what the 10% that make it do right. It is a good article, but I may have to add that unless there is a trade secret or a patent, failure may be inevitable due to competition and diminishing returns.

Startups are the new virtual boulevards of broken dreams. Most entrepreneurs would be better off becoming school teachers or engineers. The chances of succeeding without specific and solid intellectual property rights are low and the probability of becoming the next Gates, Zuckerberg, Musk, or Bezos is for all practical purposes zero unless luck plays its role.

I am not trying to discourage anyone; I am only taking a pragmatic stand. If someone has a new formula for a drug that can cure a disease or a patent, then trying the startup route may be justified. The same holds for someone with a good product design that can serve specific needs. Trying to create another virtual reality headset, another game for social media platforms, an application for finding the best restaurant or hotel, or even a space travel company with toy rockets, will probably lead nowhere. The same holds for ambitious self-driving cars and robot designers. Note that most robot-advisor startups have already failed and this is because there is no barrier to entry, resulting in competition and lower profit margins.

If someone wants to gamble, then a startup may not be a good bet. Most startups will fail the same way that most aspiring actors and actresses never make it. Those who push young people to take the startup route are not gamblers; they are like the casinos that take advantage of the law of large numbers. Those “financiers” know that if one in 100 startups does an IPO, then they will profit many times. They will not share the profits with the 99 that never made it but provide the diversification hedge. This is not fair but it is how things work. And ambitious entrepreneurs who look for angel financing but have no tangible edge should realize that. At the same time, those who have the edge should pursue their goals because their chances of success are higher. Knowing when one has an edge is the key.

Subscribe via RSS or Email, or follow us on Twitter.

Disclaimer:  No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.