Understanding business survival.
Survival of new businesses has received a lot of attention. In fact, there are hundreds if not thousands of books and pieces of literature on new business survival. And many people misinterpret what those books are trying to tell them. According to Dun & Bradstreet reports, “businesses with fewer than 20 employees have only a 37% chance of surviving four years and only a 9% chance of surviving ten years.” Restaurants only have a 20% chance of surviving two years.
Of these failed businesses, only 10% of them close involuntarily due to bankruptcy. And, the remaining 90% close because the firm was unsuccessful. Meaning they did not provide the level of income desired or was too much work for their efforts. The adage, “People, don’t plan to fail, they fail to plan” certainly holds true when it comes to small business success. The failure rate for new businesses seems to be around 70% to 85% in the first year. Thus, if 1,000 companies were started, by the end of the first year only 150 to 300 of those companies would still be around. In the second year around 66% of the business that survived the first year may still be around. leaving somewhere between 99 to under 200 left of those that originally started. Strangely by the third year, typically less than 5% of the original 1,000 companies started, is still operational. Businesses that survive five years generally include around 50% of those that survived the first three critical years.
The rates for business survival have remained constant for decades. And other than in times of severe recession or a depression like the crash of 29, it is likely they will stay the same. Unless new business owners find a way to be certain they have incorporated as many “best practices” into their planning strategy as possible. Otherwise, they will continue to experience the same survival rates that have existed since business survival rates have been recorded.
A Material Part of The Problem
The major business schools world wide advise students the way to start a business is to find or develop a suitable offering then to spend huge sums of money promoting and selling that offering. This unfortunately may not be the best course of action for starting a new business. These teachings are further flawed by leading students to believe they should borrow money, seek investors or a grant to secure financing for a start-up. Borrowing money or involving investors provides the new business owner a single assurance. He’ll owe money to those sources at a time when he will be earning the least money, and should be redirecting the lion’s share of his money back into his business. Though grants don’t have to be repaid, it typically takes so long to get one the want to be entrepreneur may have lost the desire to start a business by the time he receives a grant.
A better Way to Get Started and Operate a Business
Some literature is available on how to get a business started. Because of the uncertainties related to surviving in the business, there is less information available on survival once the business opens. Unfortunately, a business owner can experience failure in just getting started. And generally accepted statistics on business survival rates are less than encouraging. Potential business owners can dramatically increase the possibility of getting started, by avoiding the assurance of monthly payouts for loans, or investors interest and royalty payments. Once open, they must address the fact that their potential customers are the true reason for opening a business, and their focus must adjust to making a customers shopping experience as pleasant as possible. Ideally, they’ll search for ways to make the customer’s experience more pleasant than their competitors have been able to do. Adding these concepts to your attempt to start and open a business can help you beat the odds.
By now you should have an understanding of multiple views of new business survival rates. If you have a business idea, let’s take a look at why you should start a business of your own