According to the Department of Commerce, more than 80% of U.S. businesses fail in the first five years. And another 80% of those survivors fail or decide to shut down in years 6-10. That's 96 out of every 100 businesses failing to get past year ten. And that's often in good economic times.
Although there are many reasons businesses fail, one of the main ones is that the business was undercapitalized to begin with. The owner started with dreams and energy but didn't count the cost.
Jesus addressed this common dilemma.
He talked about the total commitment someone who was to be his disciple must have and compared it to business people who must count the cost for any business venture. He said to the crowd, "Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it? For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, 'This fellow began to build and was not able to finish.'" (Luke 14:28-30 NIV)
The business owners comprising the 80+% failure rate have probably experienced some of the ridicule first hand. Many people starting businesses obtained start-up capital by tapping into one of the three "F"s-family, friends, and fools. Resulting family and social gatherings have an icy edge to them as a result.
So, how does one avoid becoming a failure statistic? Here are a few suggestions, and I know others can add to this list.
- Have a written business plan before starting your business. (Or, if you are already in your business, take time away from the busyness of daily activities to reexamine it and refocus yourself.) As part of the plan, clearly define the market, the customer needs you are satisfying, your sales and marketing strategies, and all the projected revenues and costs (fixed and variable) monthly for the first year and annually for at least the second and third years.
- Set specific financial milestones to help you assure your success.
- Work on your business, not in it. Too many new business owners get overtaken by the duties in the business and lose the big picture of what they should be doing. After a while, the business owns them rather than the other way around. Owners must step away from the business regularly to strategize and count the costs. Put this on your calendar and do it!
- Don't be a technician. Be a business leader. Some business owners who create a unique product or service are so enamored with their creation that they stay focused on making it even better. They forget they're running a business and instead micromanage in order to protect their creation.
- Focus on customers' needs, not on how well you created a product or service. You're nothing without them.
- Lighten up. Take breaks from work to rekindle the passion.