Skip to main content

Where do startups end up?

Business in the IT sector thrives on innovation and competition. The average company lifespan is shrinking and startups aren't doing much better. Some companies fail before they even start: lack of market research, financing, mismanagement and unexpected factors severely impair the longevity of any business. The closure rate (opens in new tab) for companies in most markets in the US hovers between 40 to 55 per cent after four years, while for IT it's 63 per cent. Rates for startups seem even more pessimistic. The numbers vary by source, but the majority of startups fail to return their investment, a slightly lower number shutter entirely and products fail more often than companies. It's expected that a startup will know how to exit the market before they even begin so investors know when to expect returns. Where startups end up depends on their exit strategies: Going public, being acquired or merging.


Acquisitions aren't necessarily failures though are sometimes treated as such. Though not everyone is a fan of Beats by Dre, being bought by Apple (opens in new tab) is not the worst outcome. Entrepreneurs often view being acquired as a goal, with the larger business absorbing them being able to apply greater resources to solve problems growing companies have to tackle like scalability, while acquiring these companies can help guarantee a proven IP. There are, of course, startups which are acquired for less than their investment- it's fair to say that's a failure, although not always a catastrophic one.


There are plenty of companies that simply become insolvent and, unlike the largest companies, startups can't expect a bailout or later resurrection. Some companies simply find themselves without a market to ply their goods in; they find that the competition is too strong, the demand too weak or the product isn't viable. Sometimes the business model works well at a small scale, but fails to produce when scaled up. And still others, particularly in the IT sector, fail because the service they relied on to provide their product's functionality stopped existing, like much of Twitter's API (opens in new tab). There are many stories (opens in new tab) dedicated to autopsying defunct companies; for every failed startup there are a handful of employees who had a passionate dream of success. Examining the remains no doubt provides some catharsis, along with insight to bring to their next endeavour.
For the majority of employees, a failed startup typically means a great deal of experience in a variety of roles and hopefully a great reference before they move on (or a spot in the next venture). For the owners, it may be the end of their dream or just another step. Success rates go up marginally with repeated attempts at a startup, but many try repeatedly regardless, hopefully wiser and luckier each time. Assuming the company wasn't grossly mismanaged, a good entrepreneur can sometimes maintain relations with their investors and start anew.


If a company hasn't exited or failed then it's at least nominally successful. The goal of many companies may be continual growth, but for some, sustainable business is a more desirable goal. That's not a minor goal if you consider the earlier statistics. Just maintaining in IT requires constant change. Software products require constant updates as platforms roll out new versions yearly and hardware requires almost as many upgrades. In other business lines, there are always concerns that have to be addressed- increased competition, regulations to be adhered to and new technologies, but in IT simply sustaining means anticipating frequent changes and adapting before the competition does. There's little wonder that many entrepreneurs aim for early exits or rapid growth.
In the long term, the IT industry doesn't have a lot of room for smaller companies. Particularly in hardware, a few giants come to dominate the market after awhile: for PC processors, the field eventually narrowed down to AMD and Intel, although the market for mobile processors hasn't narrowed that much. Similarly for graphics cards, from dozens of designers, the field narrowed to Nvidia and AMD. On the other hand, services like Twitter managed to survive and thrive while battling for visibility with other social networks like Facebook. New markets are more tolerant of upstarts, but anything that proves lucrative is a bait for industry giants. So, get in fast and either make it big or sell before a giant gets into the market.

Going Public

That being kept in mind: very few startups successfully go public. It's one of the most lucrative exit strategies. The level of success, product strength and business knowledge needed for a successful public offering is intimidating, not to mention finding a good window to do it in. There's a confluence of events and readiness required that few companies can muster. It's why slogans like “fail fast” proliferate in discussions about startups: keep learning and keep trying until it happens.