Zombie Startups: How Come Entrepreneurs Are Failing To Grow Their Businesses?

The entrepreneurial model has evolved from founding and growing an enterprise to founding and then selling as quickly as possible, declaring oneself an experienced 'serial entrepreneur' and repeating the process without ever actually building a business.

The value of startup experience (versus subject matter expertise in growing fields like AI, AR and machine learning) may decline as it becomes more common and available, just as the value of data on which many startups are based will be subject to the laws of supply and demand.

While a long term view may never take hold among the majority of startups, learning how to generate sales to actual customers never goes out of fashion. JL

Jim Duffy reports in The Guardian:

Tech startups have been pitching models that don’t generate cash for venture capital investors, just customer data – in the hope that one day this data will be valuable.The UK is ranked third in the world for startups created but only 13th for the number that go on to become medium-sized. One in 10 firms that obtain seed funding in the UK receive later stage investment, compared with a quarter in the US. If we do not encourage startups and founders to focus on long-term goals and performance, then the statistics will not improve.
For all the support they promise startups, business accelerators are arguably not delivering. Too many startup founders are not getting to the finishing line of a big pay day on exit or stock market launch.
The UK is ranked third in the world by the Organisation for Economic Cooperation and Development (OECD) for the amount of startups created but only 13th for the number that go on to become established medium-sized companies. Lack of access to financing as a business matures is clearly an issue.
A government report has shown that fewer than one in 10 firms that obtain seed funding in the UK go on to receive later stage fourth round investment, compared with nearly a quarter in the US. Last week the Treasury announced it will set up a national investment fund to address an estimated £4bn funding gap between US and British firms.
But an often overlooked problem is that many startups take a disjointed short-term approach to growth which is killing the golden goose before it gets to market.Entrepreneurship has become a trendy career choice and the credit crunch has prompted people to start their own business as the jobs market has shrunk. Startups were formed at the record pace of 80 an hour last year, according to research by StartUp Britain. But along with the boom in startups there has been a race to the bottom to get investment. As these businesses mature their performance drops off, in part due to a lack of long-term planning.
In effect, they become zombie startups, the term for companies that keep going after funding runs out but don’t actually grow, and investors no longer see them as attractive nor worth a punt.
Once startups gain funding they need to perform well and demonstrate that they are worthy of more follow-on investment up the chain. Quick-fix goals don’t work. We need startup founders equipped with the right management skills and who can create solid teams that attract investors.
Having run a major equity-free business accelerator, Entrepreneurial Spark, for five years, I have seen beneath the veneer of the startup world. Entrepreneurial Spark helps to make entrepreneurs credible and investable, and produces an annual impact report on investments raised. But it is difficult to monitor what goes on after early seed rounds of investment as startups leave these programmes and go out into the world.

Let’s stop lauding that one unicorn that makes it and start putting structures in place for more ventures to progress

For years tech startups have been pitching models that don’t generate cash for venture capital firms and angel investors, just customer data – in the hope that one day this data will be valuable. But many investors now demand that the businesses they invest in generate proper sales to real customers. As Guy Kawasaki, the Silicon Valley guru, declared in his book The Art of Rainmaking, “sales fix everything”.
If we do not encourage our startups and founders to focus on long-term goals and performance, then the statistics will not improve, which will continue to have a damaging effect on the whole system of business building in the UK.
Let’s stop lauding that one unicorn that makes it and start putting structures and support in place for more early stage ventures to progress up the snake and ladders board of investment.