Most businesses fail

Most start-ups fail because the market is missing

How founding teams can make a more reliable forecast for the course of their company's business

Wiesbaden, June 17, 2015

According to a current evaluation of over 100 public founder reports by the US analysis service CB Insights, most start-ups fail because the market for their product is missing. Jörg B. Kühnapfel also believes that a reliable sales forecast is the basis of a business plan when founding a company. "But it is especially difficult for start-ups to create a forecast - practice teaches that its accuracy is not in good shape: the average percentage error is - depending on the study - 45 to 65 percent," warns the scientist in his guest post on the knowledge portal Springer for professionals. In his book series at Springer Gabler Springer essentials published volume Forecasts for start-ups Kühnapfel provides a fundamental understanding of the particular problems involved in creating forecasts for company start-ups and develops a methodology that allows a more reliable forecast of the business development of start-up companies

“There is no such thing as an 'optimal' mechanism for start-up forecasts,” says Jörg Kühnapfel, remaining realistic. Sales forecasts for start-ups are difficult for three reasons. Firstly, there is no experience with the new business model and therefore no expertise in it. Second, there was no historical data that could be extrapolated. And thirdly, founders are prone to distortion of perception: "They love their idea and look at opportunities and risks through rose-colored glasses." Nevertheless, it is not possible without forecasts, because these not only serve to estimate business success, but are also the basis for resource planning and planning thus the capital requirement. In addition, they made sure that deviations from the plan become measurable - for example for milestone plans and to monitor the founders. And last but not least, the investors asked for a business plan and a forecast for business development.

For Kühnapfel, the two most important success factors for a good start-up prognosis are methodological knowledge and objectivity. The former could be present in the founding team, the latter rather seldom. The author therefore recommends seeking outside help: "Either the investors themselves support the founders with business planning and forecasting, or a third party is called in." An external consultant should know the specifics of start-up situations, forecasting methods Control and be objective - that means, for example, not to be involved in the success of the start-up. His job is to dissect the planning - i.e. to identify sensitive parameters, calculate alternative scenarios and anticipate the effects of disruptions and delays. In addition, he must observe how the founders deal with risks and create a scoring model in order to measure the quality of the forecast. Since there is no historical data at a start-up, expert-based procedures are usually used. None of them are 100 percent reliable: "Whether estimation groups, a Delphi survey or individual estimates: the procedure is always unsatisfactory in terms of method, because it is subjective and the result is volatile." In the end, it comes down to adjusting the results and evaluating the probability of occurrence the author's conclusion: “There are auxiliary procedures that can estimate the degree of uncertainty and thus the investment risk. What remains is a banal, but effective instrument: Take the founders at risk! "

Professor Dr. Jörg B. Kühnapfel is Professor of General Management, especially Sales Controlling, at the University of Ludwigshafen am Rhein.

Springer essentials (www.springer.com/essentials) are knowledge modules from the fields of business, medicine, natural sciences, technology, social sciences and psychology. The electronic and printed books in short format provide the latest results from research and practice and thus present the expert knowledge of Springer authors in a compact manner. They are particularly suitable for use as an eBook on tablet PCs, eBook readers and smartphones.

Jörg B. Kühnapfel
Forecasts for start-ups
2015, 46 pp.
Softcover € 9.99 (D) | € 10.27 (A) | CHF 12.50 (CH)
ISBN 978-3-658-08897-2
Also available as an eBook

Image: Cover image of the bookForecasts for start-ups by Springer Gabler | © Springer

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