The SBA reports that 47% of the country's workforce are employed by small businesses, which may sound like a lot but it isn’t. Compared to many other nations, the United States is barely average in starting and maintaining small businesses.
In the US, only half of new businesses survive five years or more and only one-third survive more than ten years. It isn’t just small businesses either, on a larger scale only sixty Fortune 500 companies from 1955 are still around today.
So with these encouraging statistics in mind, here is the story of Mr. Fail, who joined the majority of small business owners who learned to screw it all up in five years or less.
Desperation is motivation
Mr. Fail has a college degree but he lost his job and has not been able to find a new one. So, like half of small business owners before him who also have a degree, he decides to open a business on his own.
When starting a new business, people often cite the desire for change, wanting to follow their passion, or just wanting to be their own boss. But Mr. Fail is a realist, he says what most are afraid to admit: he started his business out of desperation.
This is the model people in many developing nations take, there is no economic opportunity elsewhere so they begin selling things off the street. In a hut. The only difference is that in the US, these economically depressed people, like Mr. Fail, now sell in a digital tiki-hut on the corner of Facebook Avenue and Instagram Lane. Perusing social media nowadays is like walking the streets of Uganda in a suit made of dollar bills.
Don't open a restaurant, they are too successful
Mr. Fail first thought of opening a restaurant but had always heard from semi-reliable sources on social media that restaurants fail 90% of the time.
But in 2017, Forbes cited a study that showed "only 17% of restaurants close in the first year, not 90%. This is in fact a lower failure rate than other service providing businesses, where 19% fail in the first year. For comparison, they find that 21% of offices of real estate agents and brokers fail in the first year, and the number is 19% for both landscapers and automotive repair. The failure rate for full-service restaurants is the same as the failure rate for insurance agencies and brokerages."
Too bad Mr. Fail listened to his friends because instead of starting a restaurant, he decided to sell something frivolous.
Choose a trendy product
Fidget Spinners? Great idea! Pokemon-Go fan club? What could go wrong. Cronuts? Delicious. Mr. Fail had seen the success of these products and wanted in on the action.
Some people make huge amounts of money with short lived products because they have an exit strategy, they predict when consumer tastes have moved on and have a plan in place to liquidate. It’s not always products either, services and technology can quickly become outdated, making your investment worthless in a short time.
But Mr. Fail wasn’t worried about being a year late and decided to enter the market when these people (the ones who actually had an original idea) were exiting. By buying in at the peak of the market cycle he had nowhere to go but down and with no ideas of his own, the product was sure to quickly stale.
Do everything yourself
Mr. Fail decided he would do it all himself. He thought the quality of work would speak for itself so he didn't bother spending time to hire, train, and retain quality people. He also didn’t bother finding a partner or investor.
This was of course a mistake. According to smallbiztrends.com, "having two founders, rather than one, significantly increases your odds of success as you will:
- Raise 30 percent more money,
- Have almost 3X the user growth, and
- be 19 percent less likely to scale prematurely.
Liquidity is for chumps
Like the majority of small businesses, Mr. Fail started with only a few thousand dollars to invest. He heard that only 40% of small business report making a profit so he didn’t worry as consecutive months of losses piled up. But he failed to account for those dry periods that every business faces.
82% of small businesses collapse due to cash flow problems and Mr. Fail was another inevitable victim. With no long-term plan to cover those slow months and liquid capital to fall back on, he found himself underwater and out of business.
Failing to understand his revenue stream and account for outside factors was a short-sighted approach, portended by the desperate genesis of his enterprise, which had no reasonable chance of success. There is of course no perfect formula for failure or success and we can’t be too hard on Mr. Fail after all, he never had a chance.