Why do 9 of 10 new
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
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
manage, and sufficient money. Most entrepreneurs work hard even to the
extent of substituting working harder for working smarter. Knowing
the pitfalls are that contribute to failures is the first step toward
Standard business knowledge and experience that
members must possess are in the areas of:
- Office Management
- Customer Service
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Businesses without enough expertise to meet
specific business needs will
probably fail. Each business requires its own blend of expertise,
based on number of employees, operating
expenses, inventory, product manufacturing, customer service and profit
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
But business startups that collaborate with an incubator have a very
first-year survival rate - nationally, about 87% of them are still in
What's more, an average of 84% of the companies that have graduated
an incubator stay in their communities. At SBA we work with our clients
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
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
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
phone card products and how to select the best value product for each
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
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
of ten franchises survive and prosper. Most business people start out
a good concept, a lot of energy and a little money. During the critical
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
For small business
statistics including number, demographics, unemployment,
turnover, income and finance of small businesses over the past decade.
small business outlook survey results as of April
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,
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
skills, take risks and rapidly implement plans resulting from quick
decisions to stay profitable.
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