Why do 9 of 10 new businesses fail
within their first year?
I cannot be sure why businesses fail, because owners of failed businesses cannot
be reached. Failed businesses no longer exist. So, anyone who claims
to know why businesses fail could not have found out by visiting
and examining unsuccessful businesses. Questioning owners about
why their businesses failed is more for therapeutic value than for
collecting meaningful data.
However, from information about why businesses succeed, I
rationalize that failed businesses did not operate the same way as
those that succeed.
Owners of successful small businesses can be reached and are proud
of their success. They say that keys to their business success, in
decreasing order of importance, are
- Business knowledge
- Market awareness
- Hands on management
- Sufficient capital
- Hard work
As a result, I speculate that businesses fail because owners lack
standard business knowledge, product market analysis, personal ability to
manage, and sufficient money. Most entrepreneurs work hard even to the
extent of substituting working harder for working smarter. Knowing where
the pitfalls are that contribute to failures is the first step toward avoiding
Standard business knowledge and experience that team management
members must possess are in the areas of:
- Office Management
- Customer Service
Contact me for more information on how to
really succeed in online Internet businesses.
Businesses without enough expertise to meet specific business needs will
probably fail. Each business requires its own blend of expertise,
based on product sales,
number of employees, operating expenses, inventory, product manufacturing, customer service
and profit expectation.
A Small Business Incubator says:
Nine out of ten new businesses fail in their first year, usually because of lack
of training in standard business practices or because of undercapitalization.
But business startups that collaborate with an incubator have a very high
first-year survival rate - nationally, about 87% of them are still in business.
What's more, an average of 84% of the companies that have graduated from
an incubator stay in their communities. At SBA we work with our clients to
help them avoid the pitfalls that make failure inevitable.
Also see Business
Small businesses are started and managed by entrepreneurs, who by definition
are "highly motivated" and typically lack training in some standard business
practices. Almost all entrepreneurs use their personal resources for a major source of
their business capital. Entrepreneurs with little more
than a great idea and limited funds are asking to fail.
Gardner Business Solutions has been in business since 1996, which puts us
beyond the one year failure-milestone and qualifies GBS as successful. Also, GBS is successful in several Internet businesses
prepaid cell & standard phone cards, business opportunities, health & nutrition products,
computer tapes & disks, Weight Loss Program with a Coach,
printer cartridges & ribbons, filters for water, oil,
gas, air & chemicals and nutritional energy.
However, I want to discuss the one GBS business which, according to VISA and
MasterCard, is a very risky Internet business. GBS sells prepaid
phone cards over the Internet and delivers phone card PINs by email. Please note
that this perceived risk has translated into no more than one chargeback to GBS since 2000.
Since 1996, our biggest challenge and greatest reward has been dealing with
customers. During that time, we have firmly resolved that the customer is not
always right. As a matter of fact, regarding technical products the customer is
rarely right. Quite a revelation when most sales
advice says that the customer is a business' life blood and is always right.
Politically correct and business-savvy inaccurate, but not developed from Internet sales. Further, high
maintenance customers are unprofitable for Internet businesses, should
not be tolerated and can be easily eliminated.
It is true that the cost of acquiring a new customer is five times the cost
of keeping an existing one in the brick and mortar world, but not for Internet
businesses which do not pay for advertising. Regardless, I don't want high
maintenance, irrational, unhappy customers. They drain my energy and take the fun out of operating a
I accept that the typical unhappy consumer tells eight others of his or
her unpleasant experience. But, where are they? An unhappy
customer is a real problem for a small business in a small community
and less of a problem for a small business in a large, densely
populated community. How much of a detriment is an unhappy
customer on the Internet?
GBS customers are not centralized. So, unless one of our customers refers a
friend, my customers are probably not going to know each other. That is not an
excuse for treating customers badly but it is a reason for taking out the trash.
GBS receives about 25% of our new customers from word of mouth. So, my
discriminating against high maintenance, irrational, unhappy customers does not
seem to have hurt our sales. I accept that businesses have more dissatisfied
customers than it thinks. So, I get rid of high
maintenance, irrational customers by providing them with a free $5 phone card and removing their email
from GBS' list of authorized customers making them a new customer requiring approval to purchase products.
They are by definition unhappy.
I offer my customers many ways to communicate with me so they can tell
me of any problem, ordering difficulty or product use. I am aware that surveys
say that 9 out of 10 dissatisfied customers don't complain
and that 7 out of 10 just don't come back!
Therefore, I actively teach my customers how to use our
phone card products and how to select the best value product for each customer's
Each GBS customer has his or her own ordering page that decreases ordering time
and effort as well as improves security of each customer's credit information.
Each established customer receives his or her purchase immediately by email. I
realize that if I don't take care of customers, my competition will.
I have learned to resolve customer problems and difficulties on the spot, so
that I lose only those customers who I chose to let go. I have demonstrated that
small businesses can challenge larger, established businesses by
becoming more responsive to consumer needs.
I subscribe to the belief that each company, regardless of its
size or the price of its products, needs an effective strategy for
managing consumer complaints and inquiries. Effective complaint management enhances
GBS's reputation, builds consumer trust and attracts new customers. People are
not entitled to waste my time pursuing dishonest agendas that exclude purchasing
quality products at reasonable prices or attempting fraudulent purchases using someone else's credit.
Fortunately, vital data; such as IP addresses, customer names, addresses, phone numbers,
email addresses and size & selection of the order; distinguish legitimate from fraudulent
purchasers. Disqualifiers have been international IP addresses, calling provided phone
numbers, checking physical addresses at assessor/recorder online files revealing
owners' phone numbers, orders greater than $50 and searching for provided email addresses.
Existing customer orders are filled automatically. New customers are screened
before accepting orders.
A few years ago, Stanford University research reported that nine out of ten
new businesses fail during their first two years of operation, while nine out
of ten franchises survive and prosper. Most business people start out with
a good concept, a lot of energy and a little money. During the critical first
twelve months new business owners have ample opportunities to make
mistakes due to inexperience.
Buying an existing business is one way to avoid all new business risks.
Business success is proven. There are no start-up problems. The
business already has customers, employees, suppliers, etc.
Small Businesses taken as a whole are really big business:
business statistics including number, demographics, unemployment, turnover,
income and finance of small businesses over the past decade.
For small business outlook survey results as of April 2011.
According to the US Small Business Administration small businesses contribute 39% of the gross national product, create two thirds of our
country's new jobs and are responsible for more than half the nation's technological inventions. Impact of a small
business may be small, but as a group small businesses are one of
the largest influences on the world economy.
Small businesses are encouraged in a free society, are regulated
by governments less than large businesses and attend to customers
more personally. Small business owners know their customer are
responsible for their profitability.
While large businesses spread responsibility around, small businesses
concentrate responsibility in a few key people who must develop multiple
skills, take risks and rapidly implement plans resulting from quick
decisions to stay profitable.
Contact me for more information on
how to really succeed in online Internet businesses. Consider Auto-responders and