Why do most small businesses fail? #1

In the US alone, each year one million businesses are started. An enormous number; 40% however, won’t even make it until the end of the first year, and within 5 years, 80% of this million have failed. Even those who make it through the first 5 years are not safe, in the next 5 years, an additional 80% will be forced to stop. More than 960.000 businesses fail within 10 years. A staggering number; can we find a reason for this? I think we can!

The commenly accepted reason for people to start a business, is their entrepreneurial spirit, their ingenious thoughts, magnificent ideas or their fundamental believe that they can do it better than the rest. I doubt it. One of the main reasons for people to start their own business, I believe, is the fact that they hate to do the work they do for other people. They work hard, 50/60/70 hours a week, for an average salary, they perform better than the people around them but they do not feel they get the credits for their work. “So what the hell, I’m the best in my business, I’m gonna start my own company and show these guys how it is done. I want to have the freedom to determine my own work schedule, my own sytems and I will show them that I will do better. And even better, I will be the one collecting the rewards this time!”

I believe that this is the wrong reason to start your own company. Deep down, the main reason why a lot of these people start their own company is because they want to be free, they want to be doing the things they like. There is off course nothing wrong with that, however, this usually results in a company where the founder is the main employee. Without him nothing works. Without him, nobody knows how to make the product, how to pack it, how to ship it. Without him, nobody is designing a new part, is treating customers the way they are used to. This will not create a company which gives the founder freedom or an exit strategy to buy a beach house and drink cocktails all day, this simply creates a new, even more demanding job. You basically created the same job you had, but now everyone around you, including your family and employees are completely depending on your ability to do your job. Doesn’t sound like freedom to me.

So how should you do it? I believe you should build a company that is sustainable without the founder, where the founder is not the main employee and is just as replaceable as everyone else. More about this in my next post!

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About erikkoerselman
I'm currently finishing my Bachelor degee in Aerospace Engineering at the University of Technology Delft. I'm also persuing my Master at the same faculty, in the direction of Design and Production of Composite Structures. Aside or together with my studies I'm following several business courses, which should enable me to become a succesful entrepreneur after my graduation. I'll write this blog to document my experiences during my 'entrepreneur' internship at the Kauffman Foundation in the USA.

2 Responses to Why do most small businesses fail? #1

  1. David says:

    I agree, to ‘build a company that is sustainable without the founder’ is really important. Founders however see their company as their little baby, so there is always a irrational element in the way they manage their business.

    • Yeah I think you’re right. However, that ‘little baby’ feeling shouldn’t give them any reasons to start a company that is doomed to fail from the start… I don’t think a lot of people have kids, only to make sure they turn out very bad :)

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