A good many entrepreneurial ventures are born on a napkin, built on sand, and grown through a series of flips and flops that would make even the most seasoned stunt pilot nauseous. It should not surprise then that longitudinal studies show that a little over 20% of new startups fail within the first year; the startup survival rate falls to roughly one-half around their fifth anniversary (Bureau of Labor Statistics Staff, 2016). Thinking more broadly and implementing effective organizational systems (i.e., planning, processes, procedures) may be the key to building, scaling, and sustaining a startup long-term.
Some researchers suggest the most common cause of small business failure is the lack of senior management focus on matters of strategy within the organization (Jennings & Beaver, 1995). At the most basic level, this falls to the focus on tactical challenges of the business, rather than broader strategic issues. More specifically, for example, it is firing a salesperson who did not achieve the stated sales goals or meeting quotas for the year while ignoring marketplace and demographic changes that render the product being sold increasingly meaningless, or at the very least, price-noncompetitive to the company’s customers. A more strategic approach could allow the company to look long-term at the marketplace, and using systems and processes that engage the market, the customer, and the sales team, create a plan for more stable and predictable long-term growth. This approach may seem difficult for entrepreneurs who are forced to live with the reality of today’s environment. In fact, some of this difficulty may be deeply rooted in the factors surrounding the startup itself.
There are two theories of startups. The Push Theory suggests that some form of hardship – unemployment, dissatisfaction with a current position, few employment options due to skills, abilities or education—“pushes” the entrepreneur into action to generate a stream of personal income (Islam, 2012). Entrepreneurs who might open retail stores, services business (e.g., cleaning, computer services, mechanics), or tackle similar ventures where specific skills and abilities become the fastest way to generate income, are likely to be driven by push factors. Conversely, those entrepreneurs driven by ambition—financial freedom, higher cultural or social standing, or “to change the world” with an idea or invention—are driven by pull factors (Islam). The fundamental difference here is the motivation: Is the entrepreneur being pushed into a venture due in large part to external circumstance, or pulled into the venture by his or her passion or ambition?
The “pull” entrepreneur is likely to have a formal plan, while the “push” entrepreneur may not. Not having a plan does not necessarily mean a startup is doomed to failure, but it does suggest a focus on the tactical, rather than the strategic matters of the venture. This is not to suggest a plan is something set in stone. To the contrary. A plan must regularly be revisited, fed new information, refined and retooled–blown-up if necessary—to allow for the “radical innovation” that is always needed for an entrepreneurial venture to survive (Peters, 1994). A plan is necessary for success, but it takes the entrepreneur’s deliberate desire to test the plan to make the business successful over time.
It would seem to have long-term sustainable growth an entrepreneurial venture must first establish a more solid foundation that allows it to produce for its target audience a desired product or service. The next steps are perhaps the most difficult: Make the desired product or service at an acceptable price and consistently deliver it at the time and place the customer desires. Successful entrepreneurship is not necessarily about creativity or invention; it is about process—getting from an idea to the hands of the customer. Not only that, but getting into the hands of the customer in some way that outshines the competition and gives the venture unparalleled top-of-mind awareness for whatever that product or service may be. That “delivery process” to the customer is just as important, if not more so than the product or service itself. Still, it cannot go unchecked if the business is to grow. One might argue, then, that the best reason to innovate—to continually review and improve—the process of getting the product or service into the hands of the customer is to ensure long-term business survival.
How can you innovate to get your product or service into the hands of your customers in a more meaningful way?
Bureau of Labor Statistics Staff. (2016, April 28). Entrepreneurship and the U.S. Economy. Retrieved January 28, 2017, from bls.gov: https://www.bls.gov/bdm/entrepreneurship/bdm_chart3.htm
Islam, S. (2012, March). Pull and push factors toward small entrepreneurship development in Bangladesh. Journal of International Business Management, 2(3), 65-72.
Jennings, P. L., & Beaver, G. (1995). The managerial dimension of small business failure. Journal of Strategic Change, 4, 185-200.
Peters, T. (1994). The Pursuit of Wow! Every Person’s Guide to Topsy-Turvy Times (1st ed.). New York: Vintage Books.
Image Source: Getty Images, Thomas Barwick
7 thoughts on “The importance of innovation for startup survival”
I was in the pull theory when I started my own mortgage company. I did this because I knew in my heart that I could deliver better customer service and better mortgage options for my customers than Bank of America did and the current mortgage broker I was working for. I tried to ignore this desire since my husband at the time did not want me to leave corporate American however it was a feeling that kept pressing down on me. I did have a formal plan and had had a bookkeeper as I moved from BofA into running a office for the mortgage broker. This allowed me to see exactly where I would stand if I went out on my own. While with this mortgage broker I established relationships with the banks they were already approved to work with and knew the sales reps. These things definitely made it so much easier to transition into my own company versus the “push” theory. What I did not predict was the financial crash in 2008 when all of a sudden all of my banks were shutting down their programs and the entire landscape changed. I would definitely say spending time “pull” theory is the better option to get the lay of the land.
I don’t know why Abby1234# is showing but this is Margaret
I’m not sure why that happened. I have edited it to reflect your name.:)
I understand the Push Theory all to well myself. Several of my businesses have been a result of being pushed or pushing myself into an opportunity. I agree that the Pull approach is a better option and if well planned can make the transition much easier. Yet external factors, such as the financial crash of 2008 you mentioned, can greatly affect even the most well-planned entrepreneurial opportunity.
I like the idea of innovation being constant reinvention rather a spark at the beginning. Constant change and adaptation seem to be the best approach. More questioning, more testing, A vs. B comparisons, etc.. I’m not sure I buy the whole “you have to be paranoid mentality” (Intel) but I think folks have to constantly be reassessing their assumptions.
The question of failure is a good one. Many folks think failure is essential to success. Without failure (or the risk of failure) folks may be too cautious. I totally agree that failure because of a poorly thought out plan or a lack of process isn’t very educational. But failure because you took on a huge challenge seems like an opportunity to learn and grow. And something that might help you in the next venture.
I totally agree. More questions. More testing. Iteration is important. Innovation does not come from planning, in my opinion. It comes from doing something. When I worked in the tech sector, the CEO told me once–If it’s a good idea, it’s worth doing poorly.” He was right. It’s the “Fail Fast. Fail Often.” approach. Iterative improvements are key.
I think failure, and the risk of failure, are indeed good building blocks for long-term success. I have failed enough to know where the problem areas may be and how to work around them. But, different circumstances sometimes cloud the lens through which we view risk. We have to be on guard against making the same mistake twice just because it was ‘red’ before and now it’s ‘blue.’
What comes to mind for me here is the difference between a small business owner and the entrepreneur for the push and pull concept. Both are solving a problem, but on different levels. Push is thinking of using the knowledge and skills to fix the dissatisfaction of their present state. Pull’s head has always been in the clouds devising a way to make a better product or service. The Push want change current circumstance around them. Pull wants to change the world. Both are needed to support the local and global economies. However the driving forces are totally different as you have explained. I can use those theories in conversation. Thank you for the resource.