Fascinating Facts About New Business Survival Rates

I attended the two-day International Entrepreneurship Forum this week, which was held here in Bahrain.  It was sponsored by Tamkeen, who are really putting a lot of effort into supporting the Bahrain business/entrepreneurial community.  I can’t really say it was amazing, as it was run by academics, pretty much for academics.  But still, to give credit where credit is due, Tamkeen does try and the Tamkeen team that worked there did a good job.

For me the talk that stood out the most was by a reserved British lecturer, Prof. David Storey, who – as I understand it – did a study of start ups with or for the Organisation for Economic Co-operation and Development (OECD).

What I found surprising was that I agreed with everything he said 100%, and I usually disagree with academics 100%, especially when they start to pontificate about entrepreneurship. A topic they don’t really know about, living in their ivory towers.  But this really resonated with me, as I’ve lived through most of it.  Here are some of the points he raised:

  • A firm is three times more likely to contract than expand
  • 60% of new firms cease to trade in 5 years
  • Sales and profits fluctuate massively in the same firm in the short, medium and long run
  • Fast growth firms over a long period of time are very rare (but important)
  • Only 6% of the Cambridge high tech firm he studied grew year-on-year.  Most did not have straight growth lines.

A few more interesting factoids:

Good businesses often don’t survive

Business survival reflects access to resources, alternate employment options and interpretations of “signals.”  What I think is meant by “signals” is spotting market trends or general changes in time to react to them.

Medium term growth if very rarely linear

That is certainly what I experienced.  I believe it 100%.

Venture Capital (VC) funds make [almost all] their money from 15% of the firms even after all their “due diligence”

Two more points I want to add from his presentation:

– You can do the “right” things and fail.

– You can do the wrong things and succeed.

Professor Storey compared starting a business to gambling.  He said that you might think you have the perfect system to “beat” the roulette wheel, but at the end of the day it’s still a game of chance.

I think the roulette wheel analogy is a bit extreme, but I agree that entrepreneurship (pretty much like investing in general) is a game of odds.  If you do everything “right” – the right marketing, the right systems, the great customer service etc. – you can still not make it, but at least you’ve stacked the odds more in your favour.  Make sense?

Some thoughts on luck

So from the above, it’s fairly obvious that luck has something to do with your success – BUT I think that entrepreneurs make and attract their own luck.  There’s a saying by Benjamin Franklin (sometimes wrongly attributed to the bible) “God helps those who help themselves”, so if you are proactive, work hard and don’t have a victim mentality then you are likely to attract good luck.  I think that 80% of a business or entrepreneur’s success is his efforts, and 20% is down to luck.  That 20% might screw you over, or it might give you that added, unexpected boost.

If you’re a wannabe or budding entrepreneur, don’t let the above facts scare you.  Hey, you only live once, right?  Even if you fail, at least you get to say that you tried it, which most people are too afraid to do.

Talk to you soon.

2 Responses to Fascinating Facts About New Business Survival Rates

  1. Mohammed Shahid 12 January 2011 at 11:21 pm #

    I agree with you Suhail it’s hard work which makes a
    business success and I would like to add a few factors which too
    have an impact on the success or failure of any new business. 1.
    The Brand of the products. For anyone opening a new business
    focusing on selling goods should emphasize on the Brand of those
    products as well. Today Brands sell rather than products. Brands
    have a huge impact on the society, some buy these Branded goods
    because of the comfort and satisfaction they have been known to
    provide, some are satisfied with the price tag and some Brands
    reflect the social status. So one should keep Brands in mind too
    when opening a new business. 2. Social and Business Relations. This
    works more for introducing a new Brand or a new service in the
    market. If you have good social relations with the society you are
    a part of you, can spread out the word easily. Good business
    relations with other business people, makes you get their support.
    If a businessman has a negative mark in the society or has bad
    business relations with other businessmen, his new business has a
    few chances to survive. 3. Reach. Either people should be able to
    reach you easily or you (your product or service) should be able to
    reach people within satisfactory time frame. Wants and needs have a
    ‘rise time’ and a ‘vanish time’. If you are not able to provide the
    product or service within the rise time of the need you are more
    likely to lose the interest of your clients and same goes for
    services. So choose a business place wisely and fulfill commitments
    related to time.

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