The fundamental objective of starting a business (creating a business startup) is two-fold. First, to transform a money-making idea into a powerful money-making (financial value - generating) machine. And subsequently, to sell ownership rights for a portion (or the whole) of this value to either investors (via an IPO) or to a strategic buyer (via an M&A transaction).

Which requires at least two quantum leaps (more if a venture investor is brought in). The first from the idea to a functioning company; the second – to either an IPO or a strategic sale. And both require some sort of business engineering. If a venture investor is brought in, the company makes one more quantum leap – the venture investment.

Therefore, theoretically, to make these quantum leaps, the entrepreneur (‘startup-er’) must use (1) the optimal business engineering methodology and tools; and (2) the services of an experienced business engineer – strategic management consultant. If a venture investor comes on board, he or she will actively participate in this business engineering project (there are few – if any – passive venture investors).

Unfortunately, few (if any) entrepreneurs and, surprisingly, venture investors as well, take the business engineering approach. Or even view a business venture as a business engineering project (which it actually is).

The result? Very unsatisfactory, to say the least. According to Statistic Brain, 25% of startups fail during the first year and only about half (from 37% in IT to 58% in finance) are still alive after four years of operation. After six years survival rate drops to under 40%.

Small Business Trends presents similar data . And takes it further in time. According to this data, only every third startup sees its tenth birthday and only 25% make the sixteenth. According to Allmand Law (a Dallas-based law firm specializing in business bankruptcies), 90% of tech startups ultimately fail. Nine out of ten. Only 10% survive.

Y Combinator – the ‘startup school’ (startup seed accelerator) accepts 3-5% of companies that apply. Out of those accepted, a staggering 93% ultimately fail. Only 7% survive. This is a rather typical statistics for a business accelerator.

And, of course, this is just about pure survival. Which, alas, does not mean that the survivals make a lot of money (or even any money at all) for the entrepreneur in question. Or generate acceptable ROI for a venture investor.

David Gladstone – author of the best-selling Venture Capital Investing – states that out of ten venture investments five lose money outright (which fits the abovementioned statistics). Two break even; two generate a small to moderate ROI and only one makes a killing, making the whole portfolio generate an acceptable ROI for a venture investor.

One out of ten. Which makes venture investment more like an ‘adventure investment’. Or a casino. Obviously, it results in a horrendous waste of resources – time, money, effort, etc. Which is completely unacceptable.

How to remedy this unfortunate situation? By undertaking the following eight steps:

1.      View every business venture (and venture investment) project as a business engineering project. Which it always is.

2.      Find a competent and experienced business engineer and bring him/her on board. For a business engineer to have a proper motivation, he/she absolutely must be given attractive stock options. Ideally, every business incubator, accelerator, and a management consulting company that caters to startups must be able to offer one. And, obviously, every venture investment fund and every business angel.

3.      Form a team of entrepreneur(s), a business engineer and venture investor(s). Which will actually execute the business engineering project. Together.

4.      Select the optimal business engineering methodology and tools. Which means BDL, obviously

5.      Establish the optimal strategic financial objectives – with exactly the right degree of ‘stretch’. Financial value, free cash flow, ROIC and economic profit. Set up the time frame in which you intend to create this amount of financial value.

6.      Using this methodology and tools (CCOM, etc.) develop a reasonably detailed (‘TO BE’) vision of the company (money-making machine) that will achieve these objectives

7.      If appropriate, conduct a comprehensive business analysis of the existing (‘AS IS’) company

8.      Develop and implement financial and operational business engineering plans