Is a lack of financial support the key driver of start-up failure?

The business ecosystem has never been more supportive for start-ups and entrepreneurs in the UK. Effective support – be it financial, strategic, legislative or otherwise – is essential in creating a vibrant environment for new firms to succeed in 2016...

A research study commissioned by O2 found that the survival rate for new start-ups that come through an incubator programme is as high as 92 per cent, compared to the national average of 75 per cent for all new businesses. The time spent in an incubator (be it 12 or 18 months) is crucial to any new firm’s chance of long term success. In these trying economic times, there is very rarely a margin of error when it comes to making money, as the fail fast culture highlights.

These incubator programmes offer invaluable support to entrepreneurs entering the market, with strategic advice, financial support and legal assistance all high on the agenda. It is perhaps no wonder that start-ups that can call on the experiential benefits of proven businesses perform so much better than those that are left to go it alone.

Perhaps just as pertinently, the study found that accelerated start-ups are more likely to secure additional financial investment – no doubt due to the influence of incubator mentors, with an average of £68,000 offered to new businesses that have graduated through one of these programmes. This, naturally, is of significant importance as far as meeting short-term financial and operational targets is concerned.

The good news for entrepreneurs in the UK is that the number of incubator programmes is on the rise, with a 110 per cent increase in mentoring schemes in the past three years. And, as The Telegraph reports, these aren’t just limited to the digital industries as was previously the case, with new programmes supporting start-ups in the food, healthcare and fashion sectors.

Of course, this is just one model of support that is available to new firms in the modern age, but given the survival statistics it is clear that the insight and investment offered is essential in navigating a start-up through those often precarious operating periods.

Read more: 10 unknown advantages of business failure and rejection

The most obvious benefits of acceleration include the marketing and brand expertise that the parent company will have at their disposal, access to third party investment and – perhaps most crucially – the experience and nous to be able to advise on what works and what doesn’t in this ever-changing business landscape.

At the time of writing there are more than 60 incubator programmes in the UK alone, and these are supported by a government that has been at pains to enhance innovation and enterprise amongst the business community.

Hard work and good luck

The financial incentives provided by an incubator programme are only one piece of the puzzle, however. Realistically, the success – or indeed failure – of a start-up will largely be determined by the quality of a product and its suitability for its target market. Without this, even the best of ideas can fail to germinate from their initial seed, and those old chestnuts of hard work, motivation and an ability to accept failure are also part and parcel of success. There is only so much that investment can provide; the rest is inextricably linked to the skill and the passion of the people involved.

Read more: My good friend failure

In reality, many start-ups don’t survive their initial flurry of success – research from the insurer RSA found that more than half of new businesses don’t survive beyond five years. The same study found that the biggest barriers to growth for UK companies are a perceived lack of bank lending, the costs attached to running a business/starting up, and cash flow issues. In a sense, then, it is clear that financial support could well reduce the amount of failure experienced in the new business sector.

That said, it’s not all doom and gloom as we launch into 2016. The Barclays and Business Growth Fund Entrepreneurs Index found that company dissolutions fell from 193,699 to 170,359 last year – the first time that a decrease had occurred since 2012. Some of the credit for this can go to more agreeable tax conditions, but the increased support network must also be considered a key contributor.

A whole suite of finance options are available to entrepreneurs looking to set up their own business, both through government-approved routes and private equity. As the statistics show, there has never been a better time to start up a new business, and while financial considerations are clearly still the key contributor to success (and a lack thereof a pre-cursor to failure in many instances) there is so much more to commercial achievement than just the monetary bottom line.

​​This is a guest blog and may not represent the views of Virgin.com. Please see virgin.com/terms for more details. Thumbnail from gettyimages.

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