Answer

Article Summary and Analysis

https://review42.com/resources/what-percentage-of-startups-fail/

Summary

The article used for this assignment is written by Chernev (2021) for review42.com. The author explores key statistics on entrepreneurship in the USA. Thus, it presents a current and detailed insight into entrepreneurship’s foundation, the entrepreneur’s mind, designing functional business models, and creating an effective business plan and forms of business ownership. The article covers six main themes. It begins by exploring the percentage of startup firms that fail. The author notes that in 1999, start-up contributed towards the creation of 4.7 million jobs in the USA, compared to 2019, where it accounted for 3.1 new job opportunities. Chernev (2021) explains that in 2020, 90% of the start-up and 75% of venture backed startups failed. It is expected that 50% of these startups will reach their 5th year, and only 33% will survive to the 10th year. The article further notes that out of this start-ups only 40% make profits. 82% of the failure is a result of cash flow problems. Chernev (2021) explains that startups fail because of the following major reasons. First, failure to allocate capital to marketing activities. Secondly, team problems arising from incompatibility among team members. Third, lack of experience among directors and CEOs. Lack of competence in leading and managing an organization could lead to dynamic pricing and a lack of long-term plans. Inexperienced founders are also likely to make bad decisions, such as purchasing wrong inventories. Poor advice from family and friends could further lead to losses thus business failure.

On the contrary, conducting market research is one of the main reasons for startup success. The most susceptible industry to failure is the information industry, which reported the highest failure rate, estimated at 63%. The chapter on success rate notes that there are likely to be more unicorns in the coming years. The term is used to refer to successful startup ventures with valuations over $1 billion. By the end of fiscal 2020, there were only 475 active unicorns globally. Chernev (2021) also notes that startups’ success rate is increasing because of venture capitalism, advanced technologies, and the availability of knowledge on business management. These improvements are pushing entrepreneurs to strive for success rather than becoming part of a failure rate statistics. Global trends on entrepreneurship show that 63% of the new entrepreneurs from Europe could choose to start their business in Europe than in the USA. 20.2% of the entrepreneurs would consider returning to employment when their ventures failed, while 62% were optimistic that they would launch new startups. Statistics further show that Vancouver is the most favorable city for startups globally. Concerning startup finance, Chernev (2021) notes that 58% of the startups in the US begin with less than $25,000. Men own 73% of the startups, and 71% of the founders conceive and implement the ideas from their basements or at home.

Analysis

The article by Chernev (2021) captures important entrepreneurial activities and trends from around the globe. Even though the article does not cover all the countries, the author mentions some of the best countries to start a business, such as Vancouver in Canada. He further presents statistics on the start-up landscape in Europe, where more entrepreneurs prefer Britain than the USA. This claim by Chernev (2021) contrasts the Global Entrepreneurship and Development Index (GEDI)’s entrepreneurship-friendly nations, which rank the USA as the most entrepreneurship friendly at 83.4%, while the UK comes 7th with an index of 71.3. The article further contrasts Scarborough and Cornwall’s (2019) claim that men are twice more likely to start a business than women. Chernev (2021) instead notes that men own 73% of start-ups. Interestingly the article also notes that 57% of the entrepreneurs start businesses while over 50 years of age. Scarborough and Cornwall (2019) note that business founders are likely to start their businesses at 35 to 44 years. The article seems to second the class readings by noting that some of the drawbacks of entrepreneurship include uncertainty of income and the risks of loss that could hinder the business.

Relevance of the Topic of Discussions

The topics discussed in the article by Chernev (2021) dissect most of the content covered in chapter one on entrepreneurship foundations. The topics discussed are relevant since they enable the learner to compare the ideas and knowledge shared in class. The article seconds some of the topics learned in class. For instance, it explores the world of entrepreneurship. Although it fails to describe an entrepreneur, it highlights some of the characteristics that make entrepreneurs. They include being competitive, desire for responsibility, risk-taking tendencies, and willingness to break the rules. The article also hints at the benefits of entrepreneurship, such as the independence and ability to employ self and optimize returns on investments. Chernev (2021) discusses some of the setbacks of entrepreneurship, which include the lack of skills and experience and cash flow challenges. Covering these topics makes the article relevant to the course and, thus, the reason for its selection for analysis.