Why Some Small Businesses Succeed and Why Others Fail

By Katelyn Smith • February 21, 2011 at 4:45 PM

Researches from Harvard University try to decipher the often-perplexing science of why some small businesses succeed and why others fail in their study of Performance Persistence in Entrepreneurship. If you are someone who is considering beginning your own business, it is helpful to know what factors may help or hinder you in your entrepreneurship.

It looks as though if you are a first time entrepreneur, the odds are slightly against you. If you are an entrepreneur who has previously started a company that has gone public, you have a 30% chance of succeeding in your next venture. On the contrary first time entrepreneurs have a significantly more difficult task in front of them, with only an 18% chance of succeeding. Furthermore, individuals who have attempted to start their own business have a 2% better chance at succeeding the second time around than those who have never attempted to do so before. Although the new entrepreneur has a statistically lessened chance of success, they are however more likely to get funded by venture capital firms.

It also appears that success breads more success when it comes to entrepreneurship. Those who have been successful before are more able to be able to acquire more capital and services. It is simply based on the notion that if an individual has had success before, then they are more likely to have it again, particularly if in the same field. This confidence equates in a more willing investor to invest in a business.

Although these statistics may seem a bit discouraging and as if there is a great deal of luck involved, but according to this Harvard study, skill not luck, has everything to do with it. "The industry-year success rate in the first venture is the best predictor of success in the subsequent venture. Entrepreneurs who succeeded by investing in a good industry and year (e.g., computers in 1983) are far more likely to succeed in their subsequent ventures than those who succeeded by doing better than other firms founded in the same industry and year (e.g., succeeding in computers in 1985). Making market timing ability is the most important attribute of entrepreneurs.