90 Percent of All Business Fail in the First Two Years

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90 Percent of All Business Fail in the First Two Years

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ClarenceMiddleton

posts: 12

Jul 05, 2008 11:29 AM ET Quote Report Abuse

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I don`t know if this has been discussed prior. But where do these stats come from? I have heard these stats quoted 1000`s of times over the years. Have these numbers remained constant? How are these numbers calculated? What other variables come into play?

I live in the DC metro area, where I see 1000`s of business and I don`t see 1/2 of the new businesses going out of business in the first year, or even 1/2 of them going out go business in 5 years. “Matter of fact most of the business going out of business are the older ones making room for new business”.

I personally feel these stats or just repeated without any real "conclusive research" “Urban Myths”. I fear they do more to discourage entrepreneurship then to help.

How many times have you been reading an article on Entrepreneurship/Starting a business, and became very hyped and motivated, and then they throw in "90 percent of all businesses fail in the first 2 year" LOL.

In my experience, a business opportunity my not pan out, but a true entrepreneur wins 99.9 percent of time. They might find a better opportunity, or upgrade to another business using the first business as a stepping stone.

I personally doubt these stats are accurate. Starting a business is not easy, but 90 percent failure rate. Come on.

CraigL

posts: 9051

Jul 05, 2008 2:50 PM ET Quote Report Abuse

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Excellent posting, and yes, we`ve had previous discussions on how pessimism and "can`t do it" attitudes so badly affect entrepreneurs.

My favorite and latest anecdote about statistics comes from a recent talk show I was listening to. I can`t remember the guest, but he said that he took a statistics course in school. The very first day, the professor walked in and said:

A man is standing with one foot in a fire of hot coals, the other foot in tub of ice water. On average, he`s comfortable.

:-) That sums it all up nicely. The problem isn`t statistics; it`s that so few of us have been taught critical analysis, particularly where it comes to statistics. Not ony that, but the lack of discussion in schools seems to be getting worse.

Statistically, we can walk into a kindergarten and say with almost complete assurance that 1 of the children in the room is a genius. In the real world, we have no way of knowing *which* one of those children is the genius, without doing something---acting in some specific way.

We can look around at a population and say that 1 out of 3 people is insane. If you look to your left and right, and the people there seem normal, then you`re the one who`s nuts, right? :-)

The bottom line is that the failure rate of businesses is a useful *warning* but that`s about all. It helps us to understand that starting a business isn`t easy. It`s not a matter of getting rich without doing any work. It tells us that "selling products that you don`t even see" likely means you`re hearing a scam.

Before this type of statistic was available, society had various platitudes, maxims, aphorisms, or other such sayings: "Forewarned is forearmed," "Play with fire and you`ll get burned," and so forth.

But back then, people had a better overall education, and were taught how to think for themselves more often. They understood that these types of shorthand sayings were meant as reminders, notes, and quick reference guides to life. Then came "modern" statistics.

Today, people believe that a statistical statement can (and should?) be a replacement for actual knowledge. They`re taught to not question the meaning of much of anything, and certainly not statistics.

For myself, I know that exercise absolutely will kill you. Every single person in history who`s ever tried exercise either is already dead, or will die. Therefore, exercise should immediately be banned from civilization.

ClarenceMiddleton

posts: 12

Jul 05, 2008 7:00 PM ET Quote Report Abuse

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Thanks for your response Craig. I agree with you 100 percent. People do put to much faith in statistic “and quotes and then blindly repeat them”.

I just get disappointment whenever I read a pro small business or entrepreneurship article, and they seem to feel like it’s their duty to repeat these statistics. By the way I have searched online and found out that the Small Business Administration release these stats a while ago, and I personally doubt the ways “and reasons” they used to calculate them were correct.

One question. When does a business fail? If a small home based business tries to get a store in a major area, but the store doesn’t generate enough sells, and they business goes back to being a home based business did it fail?

If An Entrepreneur tried 4 different businesses before succeeding in one, are all three of the failures counted as a business failures.

Isn’t Entrepreneurship a journey and Business failures, mistakes and short comings learning lesson for the next time?

In the words of FlayaFla “Don’t Believe the Hype. Try your business, try hard, if you fail, learn from it and try again, only this time wiser”

CraigL

posts: 9051

Jul 05, 2008 7:30 PM ET Quote Report Abuse

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A business fails when it can no longer sustain itself financially. We can explore the metaphysical and philosophic aspects of how failures could be construed as steps along the way to success, in the case of the fourth one working. But, although it`s an important part of the psychology of entrepreneurs, it still is part of the mental attitude side of things.

Throughout history, anyone who`s different has been generally frowned upon. A person with an invention or idea, trying to put it into reality as a business is like that, being different. It`s the xenophobia thing. :-) Plus, there`s an element of envy in the surrounding people who can`t do it.

To counter all that we have places like Startup Nation, which strongly aligns with the positive side of starting a business, and often works as a sort of "myth buster" regarding statistical failures. Again, it`s meant as a warning, not a prediction. That is, unless people want to use statistics as a predictive tool.

houseofjerkyjanie

posts: 1150

Jul 05, 2008 11:17 PM ET Quote Report Abuse

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I agree, entrepreneurship is a journey. No new business wants to find itself in the position that it can`t sustain itself financially, but sometimes it takes some time, to make money. :)

"In the words of FlayaFla “Don’t Believe the Hype. Try your business, try hard, if you fail, learn from it and try again, only this time wiser”

.............love............your quote!

RickLugash

posts: 1

Jul 06, 2008 11:46 AM ET Quote Report Abuse

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Craig,

Great piece.

What you might not be considering is the number of solo-preneurs. These are the solo practitioners, many--up to half--are unregistered businesses. So the 1000`s of businessies that you might be looking at when you look across the sea of businesses around you are the registered ones.

Also, consider that most of the new businesses that come into any shopping complex are franchised units of larger brands. Given the large success rate of franchised operators versus independeng guys, it makes sense that what you might be seeing are franchises.

A number truly staggering for me are the number of micro businesses and solo preneurs that never make it to $1 million in revenue. That is what I call the 2% club. Ironically, the dream of financial freedom is what lures them into small business ownership, yet most never make it.

And, it`s not their fault. They come with the knowledge of a craft and the passion to put their craft to the marketplace. When they realize that they`re overwhelmened and went from having one job to five jobs to run their business, and that they lack the right strategies and tactics to attract clients and to build a business, they lose hope. They lose hope and they leave. That`s the single biggest reason that the solo-preneur goes out of business

-------------------------

Managing Partner
OneCoach of Southern California
rlugash@onecoach.com

CraigL

posts: 9051

Jul 06, 2008 3:27 PM ET Quote Report Abuse

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Rick,
You bring up another important point about these kinds of statistical studies, and that`s the criteria used to show up in the study at all.

A friend of mine works in HR, and we`ve often talked about the unemployement statistics or the new jobs statistics. Those too, are thrown around all the time and are supposed to indicate some sort of psychological attitude towards the national economy.

When you look into the back story of how these statistics are gathered, it shows that all sorts of things aren`t being considered whatsoever. As you`re saying, the same goes with small businesses.

I remember working with Arthur Andersen, hearing them describe a "small business" as only having annual revenues of around $100-million! I`d just come out of the music business, and wondered to myself what they`d call a band. :-)

Then there`s the context for the word "fail." I`m not talking about the meaning, just the context. If a person starts a business, develops customers, and earns around $60K per year, they`re nowhere at all near $1-million per year in revenues. Does that mean they`ve failed? What was their intent for the business? Perhaps it`s to give them enough money to live nicely and do what they want.

100% of everyone who`s ever died has eaten carrots at some point in their life. Ergo, carrots should be banned, along with exercise. (I think I`ll start a not for profit business to examine the health consequences of carrots and exercise!)

ClarenceMiddleton

posts: 12

Jul 06, 2008 4:19 PM ET Quote Report Abuse

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A lot of great points are being made by everyone.

But he goes another Stat that people constantly dish around

Aka: Most people who start business never get rich LOL.

How were these numbers figured out? And 1 million is revenues over what time frame? Making 40k a year over 25 year is 1 million dollars; even the average worker will see 1 millions dollars in Revenues over a lifetime. Not including net worth “Home, 401k, Assets Etc”. More then 2% of the population make 40k a year. Even in a serviced based business doing your 9-5 Job “and cutting out the middle man” can easily net almost 60-100k a year “16 years or 10 years till 1 million dollars”

Before we believe any stats we need to first do a little research.

Today, people believe that a statistical statement can (and should?) be a replacement for actual knowledge. They`re taught to not question the meaning of much of anything, and certainly not statistics.

[/QUOTE=CraigL]

I really think Craig has hit the nail on the head.

I want to compile a list of all the anti Small Business / Entrepreneurship quotes, stats, and myths, and debunk them all”Like a Entrepreneurship Myth Buster".

ClarenceMiddleton

posts: 12

Jul 06, 2008 4:25 PM ET Quote Report Abuse

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Has anyone heard of the Story about the Flea and the Bottle

“One day, there is a poor village and there are many fleas jumping around in the village. And then, a little boy called Billy brings a bottle and trying to catch the flea like most kids in the village will do for fun. Keep catching and catching, finally Billy caught one flea. Quickly, Billy covers the bottle with the bottle cap so that the flea won’t jump away. With satisfaction, Billy quickly run home and then stares at the flea after he has reached home…”

“…Having fun, Billy saw the stupid flea keep jumping as high as possible inside the bottle and hits the bottle cap. After a while, to his surprise the smart flea stops hitting the bottle cap anymore as it jump just enough not to hit the bottle cap. Feeling boring again, Billy leaves the flea and look for something else to play…”

“… A few days later, Billy revisit the flea, seeing it still jumping the same way without hitting the bottle cap. Not feeling fun, Billy decided to free the flea and open up the bottle cap. However, the jumping flea still staying inside bottle jumping the same height even though the bottle cap is release…” – End of story

Some of these Small business Stats are like the cap on the bottle.

CraigL

posts: 9051

Jul 06, 2008 4:47 PM ET Quote Report Abuse

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I`d never heard that story! LOL! On the other hand, I read a statistical report about the Russian immigrants, coming to the US. :-) Apparently, a very large number eventually decide to go home again.

Seems that they arrive here, and start shopping at our stores. They`re totally overwhelmed by the many choices they see. They`re not used to having to go through the store on their own, picking each item themselves and putting into their shopping baskets.

In Russia, with so many shortages, they walk into a store and take what`s available. They also have personal shoppers to fetch and carry for them. In the socialist economy, to provide work for everyone, these people who go pick stuff up are just a way to provide make-work so it looks like they`re working.

Then there`s another statistical report :-) It seems that a very large percentage of long-term prisoners come right back to prison after they`ve been released. They`re so used to a totally structured life that they can`t handle all the free options they find when they leave the jail. So they commit some other crime for the sake of getting arrested and going back to what they`re familiar with.

If we expect great things from people, they usually strive for great things. If we expect mediocrity, they tend to strive for mediocrity. Life is about expectations, and those come about more often than not through daydreaming, imagination, and optimism.

Sadly, modern education (which may be about to change) has taught generations of children that mediocrity is the ulitmate goal. Competition is a bad thing, excellence should be avoided, and standing out from the crowd is on a par with being criminal.

Teenagers all tend to want to be unique, individual, and different. Yet they also are most stressed about feeling different, being unusual, and standing out in any way from their peer group. In the past, school and social education pushed teens to overcome those feelings and become independent selves.

Nowadays, with the emphasis on feelings being the highest value, teamwork being the greatest methodology, and peer pressure being higher than ever, how does a teenager ever learn how to get past that pressure? As soon as they hear that "most people starting a business fail," they enter a rule into their mental database: "If I start a business, I must fail. Otherwise, I`ll look like a fool."

It`s tragic.

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