Ted Natt: Startups Oftened Doomed From the Start
Why do most startup businesses fail? A lot has been written on this question, but it remains one that intrigues me because I am an entrepreneurial casualty.
The odds were against me from day one after I launched Sandhills Business Times (SBT) in June 2003, according to the U.S. Small Business Administration (SBA).
Data from the SBA shows that the majority of startups go out of business within five years, and two-thirds are no longer operating 10 years after being formed.
SBT barely fell into the latter category, since the doors closed in December 2008.
I could come up with a laundry list of excuses, but the main reason SBT no longer exists is that I spent too much time working "in" my business and not enough time working "on" it.
You could throw out my extensive and varied professional experience, not to mention the fact that I grew up in the newspaper business. Toss aside my journalism degree and MBA, too. Oh, and don't forget my business plan.
While they collectively massaged my ego and steeled my determination, none totally prepared me for the day I opened the doors for business.
As any business owner knows, you are the point person for the company. Everyone wants to talk to you on the telephone, or see you when they come to your place of business, because you are the decision-maker.
Oh, sure, they may be nice to your gatekeeper(s). But only if they think that such benevolence will ultimately get their foot in your door.
I can't tell you how many times I began the workday with a game plan and ended it wondering what I had accomplished, mainly because I could never tell anyone "No!"
Academic research suggests that startup failure rates are high because a large number of inexperienced entrepreneurs start businesses that shouldn't be founded in industries that are unfavorable to new companies.
Census data shows that the rate at which entrepreneurs start businesses in different industries correlates 0.77 with the rate at which businesses fail in those industries.
"That is, entrepreneurs favor the very industries in which businesses are most likely to go under," Scott Shane, A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University, says in a recent Internet post.
Shane notes that many entrepreneurs start companies that stand little chance of out-competing other businesses. Data from the Panel Study of Entrepreneurial Dynamics reveals that nearly 40 percent of the founders of new companies don't think that their businesses have a competitive advantage.
"Because entrepreneurs are an optimistic lot, if a business' founders don't think the company has a competitive advantage, what are the odds that it does?" Shane asks.
He also points out that not enough entrepreneurs have experience in the industries in which they are starting their businesses. Nor do they put in place careful financial controls, emphasize marketing plans or write a business plan.
"True, some startups fail because of factors beyond their founders' control," Shane says. "But responsibility for much of the high failure rate of new businesses lies with the entrepreneurs themselves."
Point taken. All I have to do is look in the mirror.
Contact Ted M. Natt Jr. at firstname.lastname@example.org.
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