So, you want to open a new business? You’ll be in for the excitement of a new project, the thrill of the launch, and the ambition to make a profit. Yet, there is one sobering fact that entrepreneurs might not know: Be prepared for the worst. Indeed, one fifth of businesses will fail in the first two years of opening, 45 per cent within five years, and 65 per cent in the first ten years, according to the US Bureau of Labor Statistics. The big guys don’t have it any easier. Half of all Fortune 500 companies from twenty years ago have since disappeared, according to a recent article in Forbes.
The author says the reasons come down to a few areas, including not putting customers first, not relentlessly innovating, failing to attract and keep talent, not developing future skills, failing to build strong relationships, and a lack of business plan. We interviewed some business leaders to find out what, in their experience, are factors contributing to most company closures.
Gary Campbell––President of Impact2Lead and CEO of Johnson Health Center.
“Businesses will usually fail early on due to a host of reasons, but probably the most common are the lack of financial resources, and not fully understanding the day-to-day costs of running the business to start with.”
He added that it is imperative to “understand the business side of running a business,” noted Campbell, who consults on leadership and workplace strategies.
Timothy Loh––Executive Leader of Timothy Loh in Hong Kong, concurred.
For small- and medium-sized enterprises, he said is a key to avoiding failure is to have sufficient working capital in place. “Often, when a business shows initial success, it’s easy as an entrepreneur to think that the success will continue, and with that thinking, comes the risk of pulling capital out of the business, for personal needs and desires.
“However, there are always ups and downs. The business cycle can and does turn. Unforeseen events, such as litigation, or a higher than expected tax bill, can squeeze working capital,” noted Loh, internationally recognized for his expertise in mergers and acquisitions, insolvency and financial markets regulation.
Rob Schaumer––Executive Business Coach.
“A business without enough working capital is at high risk of failure, as it may be unable to meet its expenses.”
Schaumer, an expert in business coaching, has seen firsthand how small business owners start off by wearing all of the hats––and continuing to do so will spell the end of the company.
“Because they are wearing all the hats, as they meet checkpoints along the way, they are supposed to be taking off some of those hats and put someone else in that place,” he said. But the fear of the added expense holds back the entrepreneur. “Eventually, you can’t grow past yourself, you just burn out.”
Another thing he has noticed is that entrepreneurs aren’t willing to start small. “They want to be an overnight success. If you are not willing to struggle in the beginning, you end up shooting yourself in the foot, because you don’t reach this mythical dream of overnight success right away.” And finally, an entrepreneur should be “all in” on the project, rather than a dilettante.
“Instead of making sacrifices, you take time off when you want, go easy on yourself because you are your own boss. While you are doing that, you are not only your own boss, but your worst employee.”
Lauren Imparato––CMO Of Delphos Capital.
Along the same theme, Imparato believes that “there is an underestimation of how much work it takes to have a start-up be successful.” The things that are the most work, and the things people get caught up in, are “things you don’t even think are going to be part of the business,” Imparato said, who leads a staff of 120 in the investing group.
“To get over the surprise hurdles that end up being the crux of many businesses takes a lot of money, hard work, and insight that is not necessarily predicted at the beginning of the business.”
She encountered this with her first successful start-up, I.AM.YOU, the first boutique fitness studio and wellness brand in New York City. “I encountered so many surprise issues in the first five years. I just had to put my head down and work through them. That’s very hard to do sometimes.”
She said that she did not anticipate a lot of hurdles, like rain, that “would mean people don’t come to the studio, the bread and butter revenue stream of the business. But rain and weather are not something I would have considered in my business plan–who would, for an indoor wellness business!”
The key, she said, is to anticipate problems. “You have to be looking two steps ahead and six waves out, and be ready to surf that rogue wave when it hits.”
Dave Gordon | Contributing Writer
