I have all kinds of numbers floating around in my head that I’ve heard in different places at different times. Does anyone have any authorative sources?
eg 90% of new businesses fail in the first year, 50% of those that survive the first year fail within five.
Thanks
You can do your own stats on your own neighborhood.
We’ve got several locations that have been used by more than 1 business in the past ten years. Most have closed up and gone.
Examples: Restaurant with traditional Indian theme opened, then sold. New owners morphed the business into something selling local snack food, then closed. Then the unit was split into two: and each took to selling apparel. Since then I have no idea how many small stores opened/closed in those two units (since I couldn’t tell them apart).
Next door was a similar story: First, a restaurant, then a $39 dollar store, then a restaurant (briefly), then a dry goods store (the longest yet). Up and down our street, there are units like this. I’ve been walking these streets for 9 years so, I know which stores are perpetually turning over.
Our own business has been open nearly 10 years already, though it is sometimes a struggle, we’ve managed to see off a number of competitors who opened with flash, fell at the first few hurdles, then never picked themselves up again, as well as one well-known competitor who just ‘disappeared’ one time.
No stats, just anecdotes.
Kenneth
Oh, and the principal reasons businesses fail:
they underestimate their capital needs and overestimate demand for their products/services. So when crunch time comes, there’s nothing in the bank to pay the suppliers… It’s quite a problem here.
Kenneth
Business Week writes:
"For business terminations, the Wells Fargo/NFIB study uses data of the U.S. Census Bureau, which only records closures of companies with employees. Those statistics show that about half of businesses that employ people are still operating five years after they open. “I feel good about the accuracy of the startup numbers,” Dennis says, “but there are undoubtedly a lot of underreported stops.”
The NFIB estimates that over the lifetime of a business, 39% are profitable, 30% break even, and 30% lose money, with 1% falling in the “unable to determine” category. Even when a business closes its doors, there can be many reasons for what’s statistically a “failure,” including a sale or merger, which may actually be a sign of robust financial health or good prospects. “When a business ends, it may be because the investors have lost their investments or because they have sold out profitably,” Dennis notes."
businessweek.com/smallbiz/ne … 990930.htm
Those numbers are similar to numbers I’ve heard before. But in Taiwan, I’m sure that failure rates are higher than this. Why you asking?
Kenneth
It’s a topic that comes up from time to time in class. I have lots of adult students, most want to have their own business at some point.
Also, I’m interested in identifying the ways in which we repeatedly make bad decisions. There’s a bias towards optimism (or pessimism) in the face of the statistics, and this is just one statistic to think about.
You know the sort of thing, ninety percent of new businesses fail in less than one year but people keep on doing it. Everyone seems to feel that they’re going to be one of the lucky ten percent. It’s like gambling. Most people lose money, because they ‘feel lucky’ and make bad decisions instead of counting cards. (Or whatever.) The house has figured out the probabilities and makes the appropriate decisions based on hard facts rather than emotion.
I’m not trying to figure out how to make money from start-ups destined for failure. Just trying to get a better feeling for what the best life strategies are.
Apropos our conversation a few weeks ago, many people open restaurants which subsequently fail. I was at The diner again yesterday, and it was packed again. What is it they have figured out that others haven’t?
I wouldn’t equate gambling with starting a business. Why? Apart from the odds issue, there are far more factors that you can control when you start a business. If you gamble, esp. in a casino, the odds are absolutely stacked against you: the house controls the cards, the house controls the dealers, the house controls who plays, the house monitors ‘cheating’ strategies (and bans anything that is mildly profitable, even ‘card counting’…)…
Basically, if you gamble, you’re a sucker. But in business, you actually have a good chance of ‘being successful’ and keeping your original stake at the very least.
As the article I pointed you to suggests: there are many reasons a business ‘fails’ including the fact that the owners just get tired or sell out to others or close up one day or die… None of these in particular suggests that the business was an unprofitable one.
It’s likely that as Brits, we tend to shy away from doing business, worry about the undue risks, plan until there’s no breath left to actually run the business, borrow lots of money to go into business (IMHO, a huge mistake and a massive risk, but common in the UK), are unusually PESSIMISTIC about doing business, and (even now) still ‘look down’ on entrepreneurs as a breed.
When we started our school, we didn’t worry so much about the risks (and there are many), we just wanted to try it ourselves after seeing so many people screw up royally (is that an adverb?)… we didn’t overly plan except that we knew we could pay the rent on our school for six months without ANY income at all even after setting up the school, we paid ourselves no salary either, we didn’t borrow any money to invest (a huge relief), and we were neither pessimistic nor optimistic about our chances, … Did we have a concrete business plan? No, we didn’t. Did we need one? Not really, we already knew the business in many respects.
IMO, most business owners fail to manage the basic risks first, don’t make these kind of decisions, and wince at the first hurdles. How? They fail to secure a source of personal income (that covers life expenses, not including their business) first; they overly underestimate the expense of starting up and running for months with little income preferring to spend as much as possible in the first few weeks, and reserving nothing or having nothing to draw on afterwards; aren’t willing to pay themselves a pittance to get things started because they (likely) see a salary for themselves as ‘deserved’; don’t really market themselves well enough except through discounts (a prime strategy) that does NOT work well here… attracts the wrong customers, diverts attention, undermines your profit structure (esp. if you haven’t done your work properly); and so on…
While many seem to believe luck plays a role in starting a business, I like to think of it as luck comes to those who are ready; if you’re not ready, then it’s wasted largely.
Kenneth
Oh, and why are you fixated on 90% in the first year… and 50% in the second… I think your numbers are hugely exaggerated (for effect?). You mentioned that figure twice!
It might be 90% within ten years, though that includes mergers, acquisitions, sales, closures, bankruptcies, takeovers, buyouts,… and all manner of other conclusions!
One other point, there is no ‘house’ when it comes to starting a business unless you borrow money from someone to start your business. That’s when you should worry seriously about business plans, etc.
Usually, restaurants are cheaper to open, require less capital to start up, most believe they ‘can’ cook, and reasons like that… but restaurants are bloody hard work, esp. if you focus on doing a lot of meals or full-day service. My sis-in-law had a restaurant for six months or so, I remember working in it, but they really didn’t know how to run it optimally. Instead they opened at 11:30 and ran it until 11:30pm every day. So they nearly killed themselves doing it, too.
While I had no access to the financials, it didn’t make much sense to work so long, esp. as lunch hours were always the most busy. I would have preferred to have very busy lunches where people were served quickly, afternoon teas, and close up at 5pm each day. Instead they did dinners, bar hours, etc… and I’m not sure why they thought it was necessary. There is the belief in business here: more is better; you’ll see it everywhere, too.
Buxibans open multiple classes including math/art, Chinese, Science … instead of focusing on one thing. Restaurants try to serve all kinds of food (I know restaurants that sell rice, noodles and spaghetti!) to all customers at all times. Stores sell everything… there is a lack of focus in many businesses here.
Kenneth
Yaya, the gambling analogy was just for illustration. As you say, it’s a question of avoiding the common mistakes, which is why most successful entrepreneurs have a few failures under their belt before they get it together.
But from the perspective of my students, or people getting married, there is a simple question that needs to be asked: If this doesn’t work for the majority of people then why should it work for you? (ie what are the mistakes to avoid)
As for the fixated numbers, I have no idea what they are in reality. And how do you define a business? Freelancers? Someone with one of those little display boxes in certain stores in nightmarket areas? Someone trying their hand at MLM? Many people ‘dabble’ without ever really becoming a business. Others consider life to be their business, cultivate their personal brands, seek out new market opportunities, etc. while remaining an employee.
All the same, more figures would be good. The number of clothing stores which come and go in high traffic areas is astounding.
Question: if (just supposing) Taiwan has a higher than average rate of new business failure, in the local market, even when there is no global downturn to blame, does this mean that those companies operate to a low standard - are not competitive - or that the environment is highly competitive?
Two things here: I would like to see personal anecdotes and personalized localized research here instead of links to news sources and economic statistics.
The example from KenInTaiwan about the shops on his street is a good one but only paints part of the picture for me (and how that could be presented as discourse and practice for an ESL classroom).
I started my business two years ago after spending about three years developing my contacts, clients relationships, and hitting the pavement and watching my competition very carefully.
Zoom ahead to now: Most of my competition is gone. No new businesses have taken residence in about half those offices. I partnered with someone to get an English cafe thing going and as the pressure mounted, she drove her most dedicated assets away with her change in behavior. Now she keeps it open at a schedule convenient for her so its closed during the most profitable times and as the only teacher during the day, she is busy teaching just enough to keep her from doing her other duties as a manager but not enough to justify hiring another teacher to help. My own business has seen a 70% drop in clients. From an outside perspective, it looks like its just a hobby. Internally, I just saw my business and five years of backbreaking work kamikaze into the pavement.
God this is depressing me. :bluemad: Signing off until I cheer up.
There is something people need to remember about starting a business in a relatively poor or rich company. Many if not most people in Taiwan open businesses out of neccessity i.e. can’t get a job, too old to get hired, no social welfare, salary too low, need to pay back debts, boss never increases salary but living costs go up etc. This changes the dynamics completely.
And that is different from the UK/US, exactly how? With only one exception the entire sentence is true for both the UK and the US… see if you can spot it!.. Entrepreneurs in many countries say the same thing: nobody will hire them… so they start out by themselves, and eventually buyout the companies that refused to hire them.
That’s how Waterstones started his bookstores, then bought out the WHSmith Chain (or co-owned, I forgot which). Being rejected by society seems also to be a powerful driving force in some people’s lives.
Kenneth
Then why don’t you go do some research on it… Let us know your answer… “If this doesn’t work for the majority of people then why should it work for you?”… Of course, the corolla (Toyota Joke!) of that is: “If it does work for most people, why shouldn’t it work you?” And perhaps that’s why most people seek a 9-5 without any risk, they see everyone else doing it, too.
I do think you’re obsessing about something that is NOT relevant. Most people fantasize about running whatever SMB they can. That’s all it is, for most people. Even in Taiwan.
In reality, it’s the ones who take their money (or someone else’s) and actually try to do something with it in the creation of their SMB, they will learn the experience of being IN business. Most serious entrepreneurs are also SERIAL entrepreneurs, in other words, they will try and try again till they get it right, even if that means they run 5 or 10 businesses in their lives…
And I’m sorry to say, no matter what MBA you take, what business course you attend, what class you take, no matter what you read or study, it won’t make a jot of difference unless you actually try to set up and/or run a real business. Fundamentally, Entrepreneurship is a practical skill; so whenever I see academics on TV lecturing on business fundamentals, I really have to wonder what they bring to the table when they themselves don’t bear any risk at all. It’s that willingness to bear the risk that illuminates who will be entrepreneurs and who won’t. That’s what separates entrepreneurs from salaried workers, … the knowledge that next month, if there’s no profit, you won’t take a home salary.
Kenneth
Maybe if it was occupying all my time thinking about it, I would be. It was just a casual question because it was something that came up again recently. I’m sure I’ll be able to live without knowing the answer.
I’ll never be a good employee. I’m dependent on myself to make my own future, so it’s a moot point to ask whether I personally am likely to succeed or not. It would be like asking whether my current relationship will be rewarding and enjoyable ten years from now. We really have no way of knowing, about this or anything else.
But I did read an interesting statistic recently that investors tend to make more money than entrepreneurs. Does that statistic include everyone who opens an English school in the belief that it will be easy, and is later proven wrong? Or does it only include the people who try to monetise their better mousetrap? How about the serial entrepreneur with cash in the bank? On average, do these people make more money by investing in entrepreneurs who need the money or do they make more by putting their savings into their own next big thing?
There’s a difference between average return (evened out across all players) and typical return. Are you more likely to hit a Harry Potter or Amazon if you spread your investment over twenty companies, or should you focus on trying to be the one in twenty?
That’s a seriously intriguing question: should you focus on trying to be the one in twenty?
Given the recent track record of investors, I would doubt that they do better than entrepreneurs. Why? Investors have to buy and sell stocks to make money, entrepreneurs don’t have to.
Kenneth
I think a more useful analysis is one that looks at how failed entrepreneurs work out in subsequent ventures.
Unless you are absolutely hopeless, basic math says that the more businesses you start the more likely it is that one will succeed.
Lots of people start a business then give up after the first try. Others follow up ideas almost obsessively and generally those are the ones who make it. Lucid entrepreneurs know that success in business is mostly down to luck, so the more opportunities you create the better the odds.
Loretta: Take this with a grain of salt, as I don’t run a business, but these are observations from someone who has a front row seat.
My father has been running a business for over twenty years now and I’ve listened to, and talked with, him about many aspects of it and the day to day operations. The industry (direct marketing) as, as a whole, has been crushed by the internet. Still, although his business is not as profitable as it once was, he’s still seen off a number of competitors and is still mooching along. If nothing else, it pays his salary and benefits.
I would say though, looking at my father, that the single biggest mistake he has made in his business (and one that several of his friends have remained stuck in) is that he’s spent far too long being an employee of himself. In other words, for too many years, he worked in the business, not on the business. That was all well and good in the respect that it meant he could maintain an abnormally high level of quality, but it has taken its effect in various ways, and he has little love left for the business (though I wonder how many people would after more than twenty years). He doesn’t do that so much anymore, which is better for him.
Somewhat related to this (though this isn’t the case with my father’s business) is that I think too many people get themselves into the position where they are the sole/main employee. I think there’s a huge danger of this in running a buxiban or other English related jobs. Again, many people in business end up spending all of their time working in the business, rather than on the business, and they don’t have the time or energy to take it to the next level. I think this is a really large risk in running a business because a person can end up shouldering all of the responsibilities of the business without increased reward for that. To be honest, I don’t think I would want to own/run any business where there wasn’t a path (which may or may not be entirely clear and which may or may not pan out) to moving out of doing the nuts and bolts and leveraging other people’s labour so I could move into just masterminding (not even overseeing – I think that’s what you have managers for) the whole enterprise. It’s one thing to freelance because there’s little in the way of capital investment and running costs and you can always work for someone else on the side to pay your bills, but I think it’s a bad move to set up shop unless you can make significantly more than you would working for someone else.
Again, this is just my suspicion, but I think that the high level of commitment and energy required to run a business is in limited supply. If you both work in and work on your business, it seems like burnout within a few years is inevitable. Thus, you either need to make a killing in a short time (or sell the business and make a killing) or move into the mastermind position (or at least a supervisory role).
And that is different from the UK/US, exactly how? With only one exception the entire sentence is true for both the UK and the US… see if you can spot it!.. Entrepreneurs in many countries say the same thing: nobody will hire them… so they start out by themselves, and eventually buyout the companies that refused to hire them.
That’s how Waterstones started his bookstores, then bought out the WHSmith Chain (or co-owned, I forgot which). Being rejected by society seems also to be a powerful driving force in some people’s lives.
Kenneth[/quote]
Poverty line, no social welfare. People in US can clear bankruptcy and get a job. In Taiwan you cannot declare bankruptcy, the bank will hunt you and your adult children down to get the money back. If you take a salaried job they can track your income so it pushes many people to open small businesses that avoid this issue.
The other part is that since there is no social welfare in Taiwan to speak of you must get an income by yourself to survive, if you can’t get a job you must open a restaurant or try some other business (trading veggies at the market) to survive. This goes for most of the world’s population. In truth most of the world’s businesses are opened by neccessity, not by choice and not for the ideal of making massive income. This makes it fruitless to lump all statistics together from different countries.
In the UK people have the option of social welfare (in US less so but still have).
[quote=“llary”]I think a more useful analysis is one that looks at how failed entrepreneurs work out in subsequent ventures.
Unless you are absolutely hopeless, basic math says that the more businesses you start the more likely it is that one will succeed.
Lots of people start a business then give up after the first try. Others follow up ideas almost obsessively and generally those are the ones who make it. Lucid entrepreneurs know that success in business is mostly down to luck, so the more opportunities you create the better the odds.[/quote]
Hee hee. I couldn’t help thinking of people who get married, fail, try again, fail again, etc.
Wasn’t there some statistic somewhere about how second marriages are usually more likely to work out?
Conflicting conventional wisdom I’ve heard:
Where does the proof of the latter come from?
Despite what people say about the lack of choice in starting a business, which is also true and worth bearing in mind when you describe a society as ‘entrepreneurial’, the context in which I have the conversation most often is different. I teach adults, usually employed, and almost all of them have the desire to own their own business at some point. I’ve seen many people leave jobs to blow their savings on ill-thought out ventures.
At best, most ‘businesses’ seem to be jobs by another name. The transition from worker to boss to owner seems to be one that few people ever succcessfully make. My view is that if you can’t take serious amounts of time away from the business to enjoy the money then it’s not a business, it’s a job.
Anyway, back to the question. Is everyone saying that there are no published statistics?
At thirty, my father was dirt poor, with a wife, a two year old child and a newborn baby. At sixty, he has several millions. I guess he probably made his first somewhere in his mid forties.
Yes, that’s exactly what I was talking about. It seems like for some people, their businesses do afford them a more flexible working schedule (for instance, so they can take their kids to school and pick them up), but in the main, it ends up completely dominating their lives to a degree that working for someone else never would, and often for little or no additional income.
Loretta, the wealthy people I know all got rich in their late 40s to mid 50s. You still have a few years before it’s too late.
In the States, 80% of new restaurants fail in the first year, and 50% of the survivors fail in the second. Across all forms of business, the failure rate is lower. Many people get into businesses that are closely related to what they already do. They know how to make money at it, and decide they’d rather run things than make money for someone else. It doesn’t always work out, of course, but I imagine these people generally do fairly well, and it provides a counterbalance to the “Hey, I’m a great cook. I should open a restaurant!” people.