Most New Businesses Fail. And Quickly
Posted on June 28, 2014
by Don Shaughnessy
Many people start a business because they think a business is reasonably easy to run. Once it is going, then you can play golf and take exotic vacations.
These people will never run a business. At least, not for long. Most new businesses never reach the success plateau. According to Bloomberg, 80% of new businesses fail within the first 18 months. The odds of making money at the racetrack are better than that.
Starting a business is difficult. Before you start know at least this:
- No matter how much you know, there is something important that you do not know. No need to worry about looking for it, it will find you.
- Every projection you make is just that, a projection. Most projections are fairy tales designed to suit lenders and are invariably optimistic because of that. Do not believe them.
- Keep in mind that if you personally guarantee a loan or a lease, you are putting your personal assets at risk.
- Assume you can take no money out of the business for at least the first 12 months. You will be right far more often than you are wrong. Most businesses are not self sustaining until well after 12 months.
- Even if there seems to be a market for your product, notice that customers buy for their reasons not yours. Not every customer wants to be a pioneer. Potential customers may have existing relationships with their suppliers and they may be reluctant to change. They are aware of the business rule that says a pioneer is someone with an arrow in his belly. They are wait and see adapters.
- Your minimum selling price will be your maximum selling price as soon as you say it. Competing on price is a fool’s game. Especially so for a rookie who has no clear idea of cost structure and how volume affects unit prices.
- There are a limited number of hours in the day. Your previous jobs probably connected to teams of people that are nearly invisible while doing things. Ever done payroll? In simple businesses, there are easily a hundred regulations that matter. How many do you know? You will spend a lot of time on defense.
- At least in the beginning, assume that you must spend upwards of 30% of your time finding customers. Advertising might help but not much. People are pretty good at ignoring most of what they see and hear. National advertising is beyond expensive. In the United States, $1,000,000 of advertising will buy less than 10 seconds per year of everyone’s attention. Learn to focus on the low hanging fruit.
- Do a time budget as well as a money budget.
- Assume that competitors will not cooperate with your plan.
- Prepare a comprehensive business plan and have someone with experience critique it.
Last, a lesson from the martial arts. Before you become involved in a situation recognize two things.
- You don’t know everything, and
- You are not immortal.
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Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: firstname.lastname@example.org