It’s estimated that in the United States, only about 30 percent of all startups are still in business after five years. In some states, the number is only about 10 percent. These are startling numbers; and, yet, they are somewhat understandable. Most small business owners are too busy to plan for the future, or at least they think they are too busy. The fact is, the better you understand the challenges ahead of you and the better you prepare yourself for those challenges, the more likely it is that you’ll be one of the survivors.
In my opinion, the two most common reasons that a business doesn’t succeed come down to (1) poor management because the owner lacks the necessary skills; or (2) money, either because the owner underestimates how much money it will take to start the business or they are under-capitalized. The following sections will address the first cause and will help you determine whether you have the necessary skills or, if not, how you may be able to acquire them.
Evaluating Your Chances for Success
Once you’ve decided that you have the right stuff to be an entrepreneur, you’re ready to determine whether your business idea has the right stuff. Before you pump your life savings into a small business, you want to know if it has a chance to succeed.
Here’s a look at the prime considerations for determining if your business idea has a chance to succeed:
- Market assessment— Is there a market for your product or service? If so, how much income can you expect to derive from it?
- Profitability assessment— How much will starting a new business cost you? Can you afford a lengthy “red ink” period following startup, as well as periodic lulls in cash flow? Can you afford to fail?
- Financing assessment— Will you be able to obtain the necessary financing for your business? If so, from where?
- Legal assessment— What potential legal liabilities are you exposing yourself to by starting a new business? Are the costs of protecting yourself worth the trouble?
- Researching your industry— How can you learn more about your chosen industry and about the resources that are available to help you?
Once you complete these assessments, you will be able to begin to understand the viability of the idea that you have. A closer look at the Free Enterprise Model may help you understand this cycle a little better.