Why Most Businesses Fail
Starting a business is no easy task. Outside of the actual factors associated with running your specific business, you have the actual lifeblood of the company, expenses and profits, to worry about.
Finding the balance is difficult, especially starting out. MarkTAW.com have put together a theoretical business model that makes it pretty clear how uphill the battle actually is.
It’s common lore that 9 out of 10 new businesses fail each year. I suspect the number is much higher than that, those stats are probably gathered from tax records, and most new businesses never reach the point where people claim them on their taxes. The odds are probably closer to a thousand to one. There’s good reason for this – starting a new business is much harder, more time consuming and expensive than most people think. We pin our hopes and dreams on our ability to beat the odds, and we mistakenly believe that starting our own business will be easier or more enjoyable than working for someone else. For 999 out of 1,000 people, this simply isn’t true.
There’s some help in there, I promise. It doesn’t hurt to realize how behind you are from the get-go, though.
Why Most Businesses Fail (A Theoretical Model) – [MarkTAW]
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Comments
Rick says on March 2nd, 2007 at 8:58 am
Very very good article. My spouse has just opened her own photography studio after enjoying a modicum of success doing it out of our home. She’s now panicking at the thought of making the monthly lease payment (which she didn’t have before); the phone bill for 2 lines and internet (which she didn’t have before); utilities (which she didn’t have before), etc. I’m the CEO of a regional medical management firm and an attorney and this article echoes all the warnings I gave her but she mistook my realism for negativity. A good chunk of our cushion is tied up in her studio now but, hey, I love her and she wouldn’t be happy until she tried this. So, I invested. But starting a business is not for the faint of heart (or wallet). This article should be must-reading for all start-up self-employed wannabes.
Greg Balanko-Dickson says on March 2nd, 2007 at 11:01 am
Craig: the story of 9 out of 10 businesses failing is an urban myth, it is not true.
Since 2004, I have tried to rectify this urban myth, hence my comment.
The link to my website will take you to proof that this myth is unfounded. The aricle also explains how the myth got started.
The business blogging community would appreciate if you would make corrections anywhere you have cited this unsupported statistic.
BillOGoods says on March 2nd, 2007 at 6:01 pm
My experience is anecdotal, but, as a business attorney with over 30 years of experience, I’d say, without having read the article referenced in Greg’s post, above, that he is correct. I have formed over three hundred businesses over my career. There are certainly various reasons why businesses fail, but most I’ve come in contact with do not. It’s hard to put a percentage on it, but at least 80% of the businesses I’ve formed remained in operation for at least three years. Over half remain in business after five years. At least a third are still in business after ten years.
Maybe businesses that come to an attorney for formation and advice are “cherry picking” the sample of all businesses that are started. Maybe those business owners are smarter than the average bear in this regard and, therefore, are prone to stay in businesses longer. That could be. But my sampling is far more resilient than the nine out of ten cited.