Why Small Businesses Fail

Of every 10 small businesses, 7 will survive their first year, 3 will still be going after 3 years, and only 2 will remain after 5 years (U.S. Commerce Dept.)

Utah is the top state in the nation for entrepreneurial activity, but also ranks near the bottom for business survival rates. (Inc. magazine, October 2003)

Financial Causes:

• 80% of all new business fails due to under capitalization/excessive debt
• Insufficient cash low; highly-leveraged debt structure, insufficient operating capital

Management Causes:

• Minimal managerial expertise
• Lack of creating and/or adhering to a master plan
• Inability to recruit, hire and retain qualified personnel (family members can be troublesome)

Marketing Causes:

• Failure to consider and/or update the market analysis/strategy
• Lack of product line consistency

Other Causes

• Seduced by Dreams: Startups suffer this fate more often because there are more dreamers than doers.
• Tunnel Vision: Most startups seem to regard their product as an end in itself, a solution looking for a market, instead of one that focuses sharply on a problem which they are uniquely qualified to solve.
• Development: One area proven to result in long-term stability and expansion is business training. There is a direct correlation between the level of investment in company training and increased levels of productivity and profitability. (Electric Perspectives, Nov/Dec 2004.)

Corporate Failure Statistics

The Standish Group has studied over 40,000 projects in 10 years to reach the findings.

1995

• 16% of projects completed on-time and on-budget
• Almost 1 in 3 projects (31%) get canceled before completion
• Over 1/2 (52%) cost almost double (189%) their original estimates
• Only about 1 in 6 complete on time an on budget

2004

• Success rate increases to 1/3 (34%)
• Outright failures shrink to 1 in 6 (15%)
• Projects meeting the “challenged” description—meaning that they are over time, over budget and/or lacking critical features and requirements— total 51 %
• Reason for improvement: Standish Chairman Jim Johnson says, “The primary reason is the projects have gotten a lot smaller. Doing projects with iterative processing as opposed to the waterfall method, which called for all project requirements to be defined up front, is a major step forward”

Statistics provided by David Spann, Agile-Adaptive Development, and Alistair Cockburn, President, Humans and Technology.

| 8/25/2006 11:53:43 AM | 0 Comments