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6/9/2009
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How To Calculate Your Odds Of Business Success

Calculators provide clear concise answers -- that's the appeal, but for a question as complex and abstract as "will my business succeed" reducing probability to a single percentage is more parlor trick than useful tool -- fortunately a new free online calculator looks (a little bit) deeper.

Calculators provide clear concise answers -- that's the appeal, but for a question as complex and abstract as "will my business succeed" reducing probability to a single percentage is more parlor trick than useful tool -- fortunately a new free online calculator looks (a little bit) deeper.Calculators are great tools (we offer quite a few calculators here at bMighty), but just as employing the right tool for the job allows you to complete the task better and faster, using the wrong tool can muck things up. But fortunately, a new "Odds of Success Calculator" from StartupNation provides some context that could be helpful to entrepreneurs -- particularly those with little experience.

Let's start with what's not helpful about the StartupNation calculator: the odds of success. Yes this is the marquee result, but if I'm thinking of starting a business or already running one, plugging some information into a Web 2.0-style widget (no matter how clever) to generate a number isn't really going to change what I'm doing.

Based on the responses I entered to these 8 questions (StartupNation identifies these as 8 key risk factors):

  1. About how much debt and equity capital has been provided to your business?
  2. How long do you think it would take to obtain additional funding for your business?
  3. How often do you evaluate your cash flow status/plan?
  4. What's your degree of business planning?
  5. What's the approximate annual growth rate of your market?
  6. How many years of management experience do you or your team have?
  7. How many years of industry experience do you or your team have?
  8. Over what timeframe do you want to know your chances of success?

Here's the prospects for my hypothetical (and deliberately in the mid-range of all the available options), which is generated online instantly and delivered via e-mail:

StartupNation notes that companies that have been in business for 4 years or less are the target for this new free calculator. The data behind the results comes from StartupNation partner EquityNet's proprietary Risk Quantification System, which is claims is a proven methodology for assessing risk. This system purports to analyze 30 important business variables including industry sector and enterprise age and then compares them to data about companies that have failed or succeeded to generate a the resulting risk/success number.

In a statement about the new calculator, StartupNation co-founder Rich Sloan said, "Helping people understand their odds is yet another way we're equipping people for success in business. Addressing unnecessary risks early on avoids big problems later on. We're excited to work with EquityNet to provide the Odds of Success Calculator, a great tool to identify strategies and solutions that will increase success rates, whether you're starting up or already in business."

Though I'd contend the percentage number isn't that useful, what could be helpful to some entrepreneurs -- particularly in light of how tough it is to get VC funding right now -- is the secondary results that explain what factors improve your chances of success and what factors drive it down.

For example, here's what bolstered my result toward that underwhelming 60% mark (again, based on random entries as midrange as possible within the available options):

And perhaps more valuable (though I'd like more depth here) are the factors that kept my entries from rising higher than 60%.

In total, the intent of this calculator has value, but reducing business success probability to 8 responses offers -- at best -- a very narrow glimpse of how your business may fare.


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