Business Failure Rate: What is the real business failure rate and why do businesses fail?

Have you ever wondered what the business failure rate is? Between 75% and 90% of all new businesses fail within the first 10 years. If we also factor in the majority of dotcom start-ups, 9 out of 10 startups won’t make it to their third year. The actual numbers vary by source, but it seems that the vast majority of startups end up failing.

In my opinion, in most cases startups don’t fail, they just run out of money. Let me explain.

When starting a business, the first thing most people do is write a business plan that explains how they are going to market their business, how they are going to find their customers and what they are going to offer. You propose sales projections and make a lot of assumptions.

If your start-up capital is $20,000, maybe you’ll spend $10,000 to launch the business and promote it. But here’s the problem. When you start a new business, it doesn’t matter how much you think you know about it; You have no idea. Most companies have to change their business models at least five times in their first year.

Maybe you thought your target market was housewives, but they’re not buying your products; high school girls are! What are you gonna do about it? Are you going to start thinking about what you are doing wrong and how to get housewives to start buying your stuff? Or are you going to understand that the market defines your business, not the other way around, and change your business model to start selling to high school girls?

Flexibility and observation are two of the most important qualities an entrepreneur must have.

What happened to your target market will happen to almost every aspect of your business. The promotion methods he thought would work don’t really work, he needs more employees, and his expenses are higher than he expected.

Socrates lived a long time ago, but something he said still applies: “all I know is that I know nothing.” Planning is very important. Making assumptions and forecasts is vital. But don’t think for a second that you’re going to hit it 100%, especially if this is your first deal.

I said earlier that the main reason businesses fail is because they run out of money. And they run out of money because they expect everything to go as planned and when it doesn’t, they have very few resources left to keep the company alive.

I think 90% of companies would be successful if they could get past the stage where they are trying to figure out their business model. It’s just a matter of surviving until you can learn what works for your business and what doesn’t.

Be humble, you don’t have all the answers. The market is going to teach you what works and you have to keep your eyes open and learn. Instead of spending all your marketing dollars at once on huge newspaper ads targeting housewives, use that money to test 10 different promotion methods and two or three different target markets. Learn from the experiment. You now have a much better idea of ​​what you need to do more of and what you need to stop doing.

They say entrepreneurs have to love risk. That is not true. You have to minimize the risk as much as possible. Isn’t testing, learning and putting your money where it has been proven to work much smarter than guessing what is going to work for you and betting all your funds on it?

Remember, one of two things will happen to your business: you can run out of money before you’re successful, or you can be successful before you run out of money. Take care of each dollar as if it were your own life. Test well before you put all your eggs in your basket. Eventually you will discover the perfect business model. Just make sure your money lasts long enough.