A study by MIT researchers Scott Stern and Jorge Guzman tried to identify what separates a successful startup to a failed startup. The researchers analyzed California business registrations between 2001 and 2011 and looked at data from the US Patent and Trademark Office and Thomson Reuters. They looked at various factors to determine which ones played a role in a company’s success – in this case, a company was considered to be successful if it achieved an initial public offering or an acquisition within six years after it was founded. Here is what the study found:
One finding was that companies who have short names (three words or less) are 50% likely to succeed than companies with long names. Additionally, companies that are named after their founders are 70% likely to succeed than companies that are not.
The study also found that trademarked companies are five times more likely to do well when compared to non-trademarked companies.
Incorporated companies are six times more likely to succeed when compared to non-incorporated companies.
This includes California companies that incorporated in Delaware to take advantage of tax policies.
Furthermore, patented companies do a staggering 25 times better than those without.
A California company that incorporated in Delaware and has patents is 200 times more likely to grow than a company who has done neither.
Of course, none of these factors guarantee success and the research is still developing into a more complete algorithm. What is most important is that “founders need to have ambition and potential so that those choices make sense in their overall business plan,” said Stern.