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95% of You Will FAIL!
95% of You Will FAIL!

95% of You Will FAIL!

That is the assertion I hear all to frequently in discussions involving new business startups.  It is as though the listener, a new entrepreneur, is powerless to do anything about it.  Cast a 20-sided die and, if your number comes out on top, you’ll succeed.

[pullquote align="right"]And, it turns out, those odds are wrong.[/pullquote]Don’t know about you, but those odds suck.

I disagree with the assertion that 95% of startups fail when I hear it.

Here’s why.  Two years ago roughly, I started doing a series of presentations on being an entrepreneur. As part of regular day long event to new business owners, I noticed a lot of people talking tactically about the various aspects of business.

(This is a topic I’ve addressed in the past…it bears a fresh review.)

Throughout the day, speakers spent a lot of time talking about business plans. About why you need an attorney, an insurance agent, a CPA, and so on.  Very true. Very tactical. And many of the points made using the basis of Fear, Uncertainty, and Doubt (FUD).

[pullquote align="right"]You can get the slide deck here: http://slidesha.re/gotyL8[/pullquote]I noticed no one spoke to the emotions these new business people (new, not necessarily ‘young’) were likely feeling, the fears they had, friends telling them they’d almost certainly fail. So I volunteered to do a presentation on, "Do You Have It in You to be an Entrepreneur?"

The ‘95% assertion’ was one that I’d heard all my life.  I decided, before propagating it further in my own presentation, to see if I could qualify the statement.

What I found was very interesting.

jtpedersen_95 percent will NOT failAccording to the US Small Business Administration: "Seven out of 10 new employer firms survive at least 2 years, half at least 5 years, a third at least 10 years, and a quarter stay in business 15 years or more."

So, not only is the opening assertion not true, a QUARTER will stay in business 15 years or more. Wow!

In the following slide, I use a chart to contrast conventional ‘wisdom’ with SBA’s reality.

image

Now here’s why I did this: Talking to a group of new, or contemplating new, business owners I wanted to give them a sense of hope. Something more positive than telling them essentially: you will fail.

Note: The SBA appears to make no distinction as to why a company ceased to exist (e.g. failed, was reformed as a corporation (e.g. a LLC became a C-corp), merged, or was acquired).

SBA source: (http://web.sba.gov/faqs/faqindex.cfm?areaID=24 #7)

7 Comments

  1. I think it would be helpful to make a distinction between home-based network marketing start-ups, where I would guess the failure rate is phenomenal, and other businesses. In the quote from the SBA, do you know exactly what they mean by “employer firms”? It would also be helpful to know how many of the businesses that “failed” were actually profitable, just not profitable enough. It is a lot easier to keep a business afloat if you can manage your expectations for collecting a regular paycheck.

    1. JT

      Hello Rick,

      I agree, it would be helpful if SBA provided some background information. While I did research to look beneath the statistic, it was not an exhaustive effort. The SBA seems to specifically wish to avoid providing any of the underlying detail.

      As for ’employer firms,’ that distinction suggests they’re focusing only on firms that actually had one or more employees.

      Thanks for the comment:)

  2. Another observation is to understand the relative nature of “fail” and “succeed”. A business that produces and contributes to the GDP and closes after 2 years, is still a success in many ways in terms of being an economic contributor. Even a business that is not profitable but had employees, paid someone or many in terms of payroll, that contributed to the economic strength of that community. And, as was pointed out some businesses are restructured, and shut down only to be restarted in another form. And if one business owner learns from another business owner’s failure, isn’t that a success?

    In the end, we are learning that failure is inevitable, and furthermore is part of the ebb and flow of growth. The challenge is to nurture firm creation in our DNA. The 95%, statistic seems to put potential entrepreneurs off, and we are retarding our learning from failure, as a result.

    The more firm creation, the more failure, and more follow-on firm creation and so on. That’s the statistic we need to motivate us to do more. After all, another statistic somewhere shows that 70% of all new growth each year comes from new firms, not from the firms that are 5+ years old (I think that stat comes from the Kaufman Foundation in KC, and I may not have it perfect – but it’s a profound number.) So this tells us that to have a firm live beyond 5 years, is not really producing in terms of GDP and economic growth for the US, or even the planet.

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