According to the IRS, there are 18.1 million businesses in this country, but only 100,000 that employ 100 or more people. So of the 18.1 million businesses in this country, 18 million of them are small businesses. In addition, more than a million businesses are started here each year, but 800,000 of them will be gone within five years . . . the so-called “red zone.” Of the remaining 200,000 new businesses that do survive the “red zone,” 80% will never see their tenth anniversary. That means that of the one million plus businesses started here each year, less than 4% will last beyond 10 years. Why? Those failed entrepreneurs will tell you that their companies tanked because of a poor economy, a bad partnership, the high cost of energy, or unfair competition from third world countries. Not true. To learn what really doomed, and continues to doom, all those startups, please continue reading below.
Work on your business, not in it.
It’s a trite and hackneyed phrase that’s been used routinely in business books and business periodicals for many years. Michael Gerber generally gets credit for popularizing the concept in his book, The E-Myth. Basically, the phrase is supposed to conjure up an image of a business owner who is so caught up in the daily grind of the business, that he or she has no time to step back and figure out how to make the business grow and prosper.
For a business to be successful, it is critically important for the owner to have a clear vision for where the business can go and what it can become. Yet most would-be entrepreneurs start their business without any such vision. Their vision is to continue doing what they’ve been doing, but do it on their own terms and take home a bigger paycheck. Essentially, rather than creating a business, they’re creating a job for themselves. So they continue to do their job, day in and day out, week after week, month after month, year after year, and figure if they just hang in there and do their job well (as they always have), it’ll all work out somehow and they will be successful.
Perhaps you know the story of Ray Kroc who built McDonald’s into the restaurant behemoth it is today. He stumbled across the McDonald brothers who ran a couple of hamburger stands in California and who had developed an efficient process for churning out inexpensive hamburgers, French fries, and milk shakes. The brothers’ vision was just to continue doing what they were doing, flipping hamburgers and keeping satisfied customers coming back for more. But Kroc had a different vision . . . a vision of franchising the McDonald brothers’ concept into hundreds and thousands of restaurants all across the country. So he bought the franchise rights from the McDonald brothers and opened his first restaurant in Des Plaines, Illinois.
Ray Kroc had no interest in selling hamburgers . . . he probably never flipped one in his entire life. He wanted to sell franchises. So his customers were existing and prospective franchisees, not the burger-consuming public. He was selling a turnkey system for running a successful fast food business, and his customers were would-be entrepreneurs who wanted to run their own show, but who needed the sort of “how to” guidance that Kroc offered.
The McDonald brothers’ vision was activity-based . . . just keep making and selling hamburgers, and keep doing that as long as possible. Ray Kroc’s vision was to build a business, based on a franchise model that could be replicated again and again, anywhere in the country. While the McDonald brothers were working in their business, Ray Kroc was working on his, making his vision a reality.
One definition of a “real” business is a business that runs smoothly and profitably whether the owner is on the premises or not. And that’s why so many startups fail. When the founder fails to make the business more than just a job for himself, and when the business depends on him to be there every day, doing his thing (whatever that is), it’s a boat that can be capsized by any little ripple that comes along.
So, if you have a vision for your business that includes it being less and less dependent on you personally as time goes on, and if you have a well-conceived plan to carry out that vision, you have a good chance to be in the 4% of businesses that grow to maturity. If you’re hands-on every day, just doin’ it, doin’ it, doin’ it and hoping something good will come of it, you’re probably not going to join the 4% club.