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Rhonda Abrams The Passionate Entrepreneur

Rhonda Abrams, The Passionate Entrepreneur

Your Chances of Success

by Rhonda Abrams

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Posted on Monday, October 16, 2006, 12:00AM

I recently heard a professor from a distinguished university say on the radio that 90 percent of new businesses fail.

To me, that's like hearing fingernails scraping on a blackboard. I've looked at statistics of business births and deaths closely, and I know of no credible study showing anything close to a 90 percent failure rate.

Statistics about business failures are likely to refer to business closures. And, in some cases, not even closures, just business changes.

For instance, I had my own -- successful -- consulting practice for many years. I reported my business income as a Schedule "C" on my personal income tax return. When I incorporated, the business got its own tax identification number. So my first business probably shows up in statistics as a failure, even though it was actually getting larger. As Mark Twain famously said, "Reports of my death are greatly exaggerated."

Overwhelmingly, businesses don't die or fail; the owners close them for reasons unrelated to whether the business is making money. Take restaurants, for instance. You'll often hear that 90 percent of restaurants fail in the first year.

In one study, Professor H.G. Parsa of Ohio State University tracked new restaurants from 1996 to 1999. In the first year, 26 percent closed. Another 19 percent closed the second year, and 14 percent closed the third. Collectively, 59 percent of new restaurants closed those three years. By the way, the "failure" rate wasn't very different between franchised restaurants -- 57 percent -- and independent restaurants -- 61 percent.

It's not particularly heartening to know that 6 out of 10 restaurants closed in three years. However, Professor Parsa found that most of the owners closed the restaurants for other than economic reasons. They cited divorce, poor health, and most importantly, an unwillingness to make the immense time commitment necessary to succeed.

In other words, they had what David Birch, the former head of a research firm that compiles small business data, calls the "I Had No Idea" syndrome.

What is your business' chance of success? I think Birch's statistics are probably as accurate as any:

First year85 percent
Second year70 percent
Third year62 percent
Fourth year55 percent
Fifth year50 percent
Sixth year47 percent
Seventh year44 percent
Eighth year41 percent
Ninth year38 percent
Tenth year35 percent

So there's a one out of three chance you'll still be in business 10 years from now.

The lesson? To greatly increase your chance of success, find out as much as you can before you open your doors. Talk to people who run their own businesses, especially businesses similar to yours, and get a realistic understanding of the time, financial, and emotional resources necessary. Keep your eyes open -- not to the possibility of failure, but to the very real demands of running your own business.

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