The statistics vary on exactly what percentage of businesses fail within the first 5 years.
Some estimates put it as high as 90%. However I’ve never seen this statistic being quoted at anything less than 50%.
That means that if we’re being super-optimistic you have a 50/50 chance of still having your doors open after 5 years.
However here’s where it really gets worse. The statistics only take into account businesses that completely cease trading.
They don’t take into account the businesses that plateau at a low level and slowly kill or make the lives of their owners miserable.
Most Small Businesses Suck
Have you ever wondered why most small businesses plateau at a mediocre level?
At one end of the spectrum there’s Pete the plumber who works 16 hour days, weekends and never takes holidays while barely making enough to keep his head above water.
On the other end of the spectrum there’s Joe who runs a plumbing company with 20 plumbers working for him. It seems like his primary business activity is counting the huge sums of money that keep rolling in.
It’s very common for small businesses to never grow past the point at which they generate just enough profit for the owner(s) to make a modest living.
It seems that no matter how hard the owner(s) try, their efforts to get to the next level just lead to frustration. At this point one of two things happen. Either they get disillusioned or they just accept their fate – that their business is nothing more than a low paid, self-created job.
In fact the reality is that many business owners would probably be better off just finding a job in their industry. They would likely work fewer hours, have less stress and enjoy more benefits and more holiday time than in the prison they created for themselves.
On the flip side there are a few business owners that just seem to have it all. They work reasonable hours, have a fantastic cashflow from their enterprise and enjoy continuous growth.
The Blame Game
Many business owners who are struggling blame their industry. While it’s true some industries are in decline – examples such as book stores or video rental stores immediately come to mind. If you are in one of these dead or dying industries it maybe time to cut your losses and move on, rather than torture yourself to death financially. This may be particularly difficult if you have been in the industry for a long time.
However for the most part when people blame their industry they are just playing the blame game. Some of the most common industry complaints I hear are:
- It’s too competitive
- The margins are too low
- Online discounters are taking customers away
- Advertising no longer works
However it’s rarely the industry that is truly to blame, after all there are others in that same industry that are doing very well. So the obvious question is what are they doing differently?
The Business Owner Versus The Technician
Many small business owners fall into the trap described in Michael Gerber’s classic book, The E-Myth. That is they are a technician e.g. plumber, hairdresser, dentist etc. and they are good at what they do.
Naturally they start to think to themselves, why should I work for this idiot boss of mine. I’m good at what I do – I’ll start my own business.
This is THE major mistake made by most small business owners. They go from working for an idiot boss to becoming an idiot boss!
Here is the key point – just because you’re good at the technical thing you do, doesn’t mean that you are good at the business of what you do.
So going back to our initial example, a good plumber is not necessarily the best person to run a plumbing business.
This is a vitally important distinction to note and is the key reason that most small businesses fail. The owner of the business may have excellent technical skills but it is the lack of business skills that will cause their business to fail.
This is not meant to discourage people from starting their own businesses. However you must resolve to become good at the business of what you do – not just the technical part of it.
A business can be an amazing vehicle for achieving financial freedom and personal fulfilment – but only for those who understand and master this vital distinction.