How To Avoid The Top Reasons For Startup Failure?
“Every year, over a million people in this country start a business of some sort. Statistics tell us that by the end of the first year at least 40 percent of them will be out of business. Within five years, more than 80 percent of them - 800,000 - will have failed. […] more than 80 percent of the small businesses that survive the first five years fail in the second five.”
Thus writes Michael E. Gerber, entrepreneurship expert, in his book The E-Myth Revisted. On the one hand, reputable and successful resources are available to lead business-minded individuals through researching, funding, and starting up a new business. On the other hand, the statistics continue to be dismal regarding the success of business startup and entrepreneurship.
I contend that small business ownership is the life-blood needed in robust and responsible capitalism. However, I refrain from offering platitudes that starting a business is easy or should be done. To those who talk with me about owning their own business, I say “Look around, find an existing business to buy, and find funding for that. Do not start a new business.”
BC Insights took a close look at the data on over 1,100 startups. Their February 2, 2018, Research Brief lists the top 20 contributing reasons for startup failure as revealed in the post-mortems (source). From looking at just the top four, it seems to me that by taking over an existing company, business owners are more likely to avoid succumbing to these same issues.
• No market for the product or service (42%) By purchasing an existing solid business, you are assured that there is indeed a market for your product or service. You might do a bit of research to refine your target buyer, but you do not need to guess or undergo surveys and polls as to the viability of your idea.
• Ran out of cash (29%) Time and money are always in limited supply. Going into an established business will at least diminish the chances of an unavoidable and crippling expenditure, whereas in startups, the best-prepared plans can be devastated by a costly oversight.
• Not the right team (23%) When purchasing an existing business, you will have a team in place already. To be sure you may have to do some refining among your managers and staff, but for the most part - if that business is indeed successful - your team already functions well. You do not have to lose time and momentum in your startup due to personnel issues.
• Outcompeted (19%) The competition does matter, to some degree, depending on the market. With the purchase of an established company, you will be aware of your competition from the start, rather than discovering something unaccounted for when adjustment is too costly or too difficult.
You get the picture. Simply by looking for and purchasing a company with a track record of revenue and a customer base, you can eliminate or shrink many risk factors involved in business ownership. Running your own business requires enough sacrifice and hard work when things are going well. Why not shorten the odds on success at every available juncture?
