How many businesses fail in the first year
Why do 9 of 10 new businesses fail
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 succeed, I 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 to manage, and sufficient money. Most entrepreneurs work hard even to the extent of substituting working harder for working smarter. Knowing where the pitfalls are that contribute to failures is the first step toward avoiding them.
Standard business knowledge and experience that team management members must possess are in the areas of:
- Office Management
- Customer Service
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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 Internet businesses.
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 operating a business.
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 use our phone card products and how to select the best value product for each customer's needs. 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 else's credit.
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 nine out of ten franchises survive and prosper. Most business people start out with a good concept, a lot of energy and a little money. During the critical first 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 business:
For small business statistics including number, demographics, unemployment, turnover, income and finance of small businesses over the past decade.
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, are regulated 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 multiple skills, take risks and rapidly implement plans resulting from quick decisions to stay profitable.
Contact me for more information on how to really succeed in online Internet businesses.Source: www.gardnerbusiness.com