Most Businesses Fail. Why Investing in the Right Idea Makes All the Difference
A whopping 42% of businesses fail due to a lack of market demand for their product or service.
PHOTO CREDIT: Getty Images
Nearly all of the businesses in the United States are small businesses by some measure- businesses with fewer than 100 employees make up 99.7% of the businesses in America, for instance. These nearly 30 million businesses are everything from mom and pop shops to restaurants and even tech companies.
Unfortunately, most of them won't make it in the long run with the failure rate by year 10 in the United States is 70%.
There are some common reasons why businesses fail, and taking steps to safeguard against those reasons can be the difference between staying in business and becoming a statistic.
Half of all employees in the United States are small business employees, so when small businesses go under the whole country can feel the burn. In the second quarter of 2014 alone 205,000 businesses went under, leaving 717,000 people without jobs. In this same quarter, 220,000 new businesses were opened and 805,000 jobs were created with a net of 15,000 new businesses and 88,000 jobs. While there is certainly cause for concern when businesses go under, other businesses are always likely to pop up and fill the gaps.
Fail-Proof Your Business
But ultimately when you start a business your goal is going to be to keep it going for as long as possible. Start by examining the most common causes of business failure and forming a plan to prevent them from happening to your business.
• Location - Is your business going to be located in an area with high taxes, an unskilled workforce, or high poverty? Consider moving to a place with a favorable business climate for the type of company you plan to open.
• Marketing Plan - Does your company have a solid marketing plan in place prior to launching? You'd be surprised at how many startups I consult with that don't have a defined marketing plan in place prior to launching. Most business owners are not marketers, they are an expert in whatever product or service they are selling. Always consult with a professional marketer and never rely on interns to do it for you.
• Competition - Is there enough room in the sector for your business? Consider getting into a sector with plenty of opportunities and room for growth, like healthcare.
• Team - Are you hiring people because they are right for your business or because they are the only warm bodies you can find? Make sure your employees are part of your company's vision.
• Cash Flow - Do you have a plan in place to pay your employees if your customers are late to pay or don't buy this month? Keep operating funds available for emergencies.
• Market Demand - Do people actually need what you are trying to sell them and would they be willing to pay for it at the price you need to be profitable?
Healthcare and Personal Services Are the Most Steady
Even if you aren't a doctor, getting into the healthcare business space is both possible and a solid bet. Healthcare businesses include such things as medical device manufacturers, medical practice management companies, and off-site surgical facilities, just to name a few.
The restaurant business often gets a bad wrap as being one of the riskiest types of ventures. However, statistically speaking restaurants actually fail less often than many other types of businesses. Food trucks are providing expansive growth that the industry hasn't seen in a very long time. Restaurants can often be had to get funding for since they are viewed as having a high failure rate. So starting off lean in a good location with a food truck can be a great way of entering the market. There's a lot less risk than say opening the fanciest 200 seat steakhouse in town on your first time.
Some Businesses Are Riskier Than Others
Construction has always been thought of as one of the most fail-proof businesses because people are always going to build new buildings. Unfortunately, the statistics don't back up this optimism as three-quarters of construction businesses don't make it past the first year. There is a similar mortality rate in the transportation and warehousing sectors. Unless these are areas where you have copious amounts of experience, you'd be wise to avoid starting these types of businesses.
Planning Is Important, But So Is Flexibility
You can plan everything out perfectly and execute it all just as perfectly, but if you don't heed the subtle shifts in the market you still aren't going to make it. If you develop a device to help cancer patients going through treatment today and scientists cure cancer tomorrow, you'd better be prepared to shift on a dime or go out of business and start over from scratch. Flexibility is just as much a part of being a small business owner as payroll.
Are You Ready to Give It Go?
Small business life is tough, but it can also be very rewarding. Even if you don't think you have what it takes, you might find out that you will surprise yourself. Learn more about what causes businesses to fail from this infographic from Insurance Quotes.
Do you have what it takes to make it in a small business?