Entrevestor recently completed its second survey of Atlantic Canadian startups, and one of the striking figures was the number of companies that vanished in 2014.
Here are the basics. Of the 290 companies we surveyed last year, eight were acquired or merged with other startups. Nine moved outside the region. There were 43 that either went out of business or never really moved beyond a group of dreamers with an idea.
So the headline number is that about 15 per cent of the startups we were tracking at the end of 2013 went under or never got going. But the deeper truth is more complicated, nuanced by the makeup of the startup community and by its attitude toward failure.
In many respects, the startup community is a pyramid, with a clutch of strong companies at the top and a broad range of the weak and experimental at the bottom. The bottom tier includes teams that intend to develop into companies but in actual fact are just a few people coming together to work on an idea. We include them in our dataset because some do morph into robust companies, and it’s impossible at the early stage to tell who will survive.
The strength of any startup community is that you have this mishmash of talent and ambition at the bottom. They come together and try something. If it doesn’t work, they break apart and try something else.
One of the catchphrases heard frequently is “fail fast, fail often.” The community operates off lean methodology, under which you come up with an idea and ask several potential clients what they think. If you find problems, you adjust your business model to fix them. If you find lots of problems, you abandon your idea promptly before you spend too much time and money on a fruitless venture. Then you try something else.
It’s a model that works, as some of the most successful entrepreneurs in the community went through failures. And the startup types frequently talk about “celebrating failure” because persevering is a badge of honour.
Again, the truth is more complex than getting giddy about failure. Startups are hard work, and people can give up too soon if failure is too viable an option.
What’s more, these ventures often accept government money. The departments that write these cheques understand that some businesses will fail, but taxpayers rightfully want to be assured that the number will be kept to a minimum.
And people suffer when bona fide companies go bankrupt. The 43 that failed last year had employed 58 people on a full- or part-time basis at the end of 2013.
That actually understates the pain, as one had laid off more than 20 people a few months before it collapsed.
In total, about four of these startups were bona fide companies that six or more people depended on for their livelihoods. Obviously, dozens of people suffered from the closures.
Meanwhile, 26 of the failed companies had no paid employees.
Startup failure is indeed a complicated subject. But one more metric produced from the survey is that about 63 startups launched in Atlantic Canada in 2014.
Startups open. Startups close. And some linger to become big.
This article first appeared on Entrevestor.