Home > Run and Grow > Risk Management > Risk, Insanity, and the 50% Startup Rule

Risk, Insanity, and the 50% Startup Rule

By: Dave Berkus


Risk Insanity and the Startup Rule

Fifty percent of all businesses formed fail within the first two years.

There are many variations of this number since there are a number of ways to measure failure. But the number is a startling reminder that creating a business is not easy, nor is it any assurance of success.

How to define “success” for a startup?

After speaking with many entrepreneurs over the years, each defines success in his or her unique way. To some, it is independence from the dictates of a boss who doesn’t appreciate that person’s talent, foresight, or abilities. To some it is financial security, building a base of wealth created from the increased value of the enterprise at the end point of sale or at an IPO. To others, it is simply a way to express a talent for art, cooking, consulting, management, development or more.

Vision, risk and capital, oh my!

Everyone has a vision when starting a business. And few think of the risks that increase over time as initial capital is expended. We all see the examples of well-known successful entrepreneurs, many in our chosen field, who achieve success by anyone’s measure, and we optimistically expect to emulate these role models with at least some level of success.

Can you take the risk?

The best advice to anyone considering this course of action is to measure one’s ability to take the risk. That ability varies with economic status, age, responsibility to family, and more. If there is enough freedom to make that leap, then the journey can more safely begin. If not, there are alternatives, such as raising initial capital from friends and family, before leaving the life boat of a present job.

Some say that taking the leap, burning the bridges, the life boats—or whatever security is left behind—forces the entrepreneur to focus like never before and succeed because there is no alternative. Although investors may respect that bold a move, it is so dangerously risky as to be a bit insane. Then again, with the fifty percent rule, aren’t all entrepreneurs a bit insane to start?

Next week: The eighty percent acquisition rule…

Published: January 25, 2019

Source: Berkonomics

Trending Articles

Stay up to date with
a person

Dave Berkus

Dave Berkus is a noted speaker, author and early stage private equity investor. He is acknowledged as one of the most active angel investors in the country, having made and actively participated in over 87 technology investments during the past decade. He currently manages two angel VC funds (Berkus Technology Ventures, LLC and Kodiak Ventures, L.P.) Dave is past Chairman of the Tech Coast Angels, one of the largest angel networks in the United States. Dave is author of “Basic Berkonomics,” “Berkonomics,” “Advanced Berkonomics,” “Extending the Runway,” and the Small Business Success Collection. Find out more at Berkus.com or contact Dave at dberkus@berkus.com

Related Articles