95% of all small businesses fail in the first 5 years
If you’ve given any consideration to owning your own business, some nasty person has probably quoted this statistic at you, under the guise of being helpful. “Don’t get your hopes up” is what they actually mean.
But remember our discussion of failure: this isn’t middle school. You’re not being graded on how many attempts you make; you’re being graded on whether or not you eventually succeed.
Many years ago someone (anyone know who?) pointed out that there are two ways to interpret that statistic:
1) Most people say, “The odds of success are only 5%, so why bother to try?” These people remain in boring, miserable jobs for the rest of their working lives.
2) Entrepreneurs say, “I’ll need to plan on starting 20 businesses in order to get one that’s successful.” These people end up starting half a dozen businesses, but eventually hit the jackpot.
Starting your first business?
I have to admit, your first business is probably going to “fail.” But please remember: what this statistic really says is that 95% of all registered business names are de-registered in the first 5 years. So all of the following count as “failures”:
- Businesses that decided to change their names (My boyfriend owns one of these)
- Businesses in which, after 2-3 years, the owner decides that they really don’t like running a business and decide to do something else
- Businesses whose owners never intended to keep the business past the point when their partner retired, or the kids went to school, but wanted something to fill those couple of years
- Businesses in which, after 6 months – 5 years, the owner decides that they like running a business, but they happened to pick one that they don’t like to work in, so they decide to shut down this business and start a new one (I’ve been part owner in one of these)
- Businesses in which the owner received an amazing job offer from a company who discovered them through their business (knew a web designer who did that)
- Businesses in which the owner received an offer to become a partner in a bigger, better company as a result of their success in their own business
- Businesses in which the owner realized that they own a job instead of a business, and decided to shut down the current job and start again from square 1. (My boyfriend is in the process of creating one of these).
- Businesses whose owner started another business that turned out to be more successful, and were thus allowed to lapse
- Businesses whose owners realized that they don’t have the skills needed to run this one, and are currently working on obtaining those skills (I have several of these).
You’re not in it to make money
I am, of course, totally in favor of you making money. And depending on what business you select, odds are quite good that you can make a reasonably decent living off your small business. But the odds of your first business being a blockbuster hit that will make you millions and allow you to retire forever… are pretty similar to the odds of your first free throw getting you an NBA contract, or to playing a Vivaldi concerto the first time you pick up a violin.
In fact, if you need to make money right away, odds are good that you’ll have to be self-employed, instead of owning your own business. (See No Job? No Way for more information on the distinction.) Owning your own job has a lot of advantages, and you may really like this monetization model, but it is an important distinction.
So What’s the Point?
The first business you start (and probably the next 2 or 3 after that) has the potential to teach you:
- All the details of your job, instead of just the few that you work on at your current employer
- Enough accounting to be able to run a business (net profit, tax law, cost of goods sold, percent margin, etc)
- Time management
- What you’re good at
- What you’re not good at
- What you like to do
- What you hate to do
- Inventory Management
- Customer service (including how and when to fire customers)
- Product development
Do you already know all this? (If so, why are you coming to me for advice?) If not, you’ll need to, before you can run a successful business. And the best way to learn them is to jump in and try it out. There is no time-management class, no marketing degree, no self-exploration workshop, that will teach you as much, and as quickly, as starting a business.
So go try something. Anything. I don’t even care if it’s something you like to do. You’re not going to be doing this for the rest of your life. But by the time you start your next business, you’ll know a lot more about how to run one.