Why do startups fail? For the same reason markets succeed, as a recent post by Tim Worstall of the Adam Smith Institute explains.
Looking at the phenomenon of “unicorns”—private companies valued at over $1 billion dollars—Worstall notes that the vast majority of startups fail. The most common reason they fail? Their business models weren’t viable.
This is actually good news. The market process, and the failure of startups, shows that people are experimenting. They’re trying revolutionary new ways to solve problems. Often, they fail—but other times, the success radically improves everyone’s lives.
The success and failure of businesses is how the market rewards businesses that provide value (through profit) and punishes businesses that don’t create value (by not making a profit). As Worstall explains:
That is, exactly how those failing start ups fail, by not having that viable business model, is precisely how the system of market experimentation makes us all richer. Because we’re exploring all the new opportunities of the greater technological space and rejecting those that don’t add value.”]
The beauty of the market is that it rewards people for creating value for others. Discover new means of creating value means trying new things, being entrepreneurial, and, yes: failing.
Want to hear more about startups and entrepreneurs? Check out our video below.