Why 90% of Small Business Owners FAIL!
By John Counsel
CEO and Marketing Doctor
The Profit Clinic
There’s a live bomb planted in most small businesses. The good news is, we know where it is and what it looks like. Even better, we know how to tell if there’s one hidden in your business – and how to defuse it before it goes off. Better yet, we know who planted it there.
To learn if a bomb is ticking in your small business – and who planted it there – ask yourself this simple question:
“Do I know everything I need to know in order to survive and prosper in my own small business?”
If your answer is either “I know all the answers”, or “I don’t have any problems” (or something similar – or both!) it’s virtually 100% certain that your business is at risk of being destroyed when the bomb you planted – before you even opened your doors for the first time – finally goes off. (And it will… count on it!)
What is this time bomb?
It’s the fierce independence and personal pride that motivates most people to go into small business in the first place.
Ironic, isn’t it? The very thing that drives them into business ultimately drives them out of business!
Because they’re so busy working IN their businesses (as terrific self-employees) that they don’t realise – or, worse still, ignore – the need to work ON their businesses (as managers and entrepreneurs).
What does that mean?
Imagine a truck driver who decides to go into business for himself. He’s one of the best. His knowledge and skills are unsurpassed. He knows the routes, the danger spots, and he knows how to load and unload a truck faster than anyone else in the business.
How long do you think he’ll stay in business, no matter how skilled he is, if he puts no fuel in the tank, no oil in the motor, no water in the radiator and no air in the tyres? Or if he doesn’t bother to register his rig? Or insure it? Or maintain it?
Your business is like his truck. It’s a vehicle that needs careful attention and regular servicing if it’s going to stay on the road. You ignore it at your peril. (And you get what you deserve.)
No matter how good a trades person you are, or how good a sales person, retailer or professional, if you don’t give your businessthe time and attention it needs, it will grind to a screeching halt, sooner or later.
The problem’s very simple. The root cause of ALL small business failure boils down to a single word…
The owners just don’t know what they need to know in order to survive. Worse still, the vast majority don’t know that they don’t know how to run a successful business!
When the problem’s so simple, so is the solution…
But if that’s the case, why do 90% of small businesses still fail?
Because that fierce independence and personal pride won’t allow the owners to admit that they could possibly not know something about their businesses that they need to know in order to survive. The fact is, businesses don’t fail. People do.
In other words, irrational emotion gets in the way of their ability to make sound, rational judgements about their businesses. They don’t want anyone else to know they’re not fully in control.
Cause and effect
Interestingly, the problem is generally worse among men than among women in small business. Yet we tend to think of women as being more emotional than men.
My own observation is that women tend to be emotional about things that really matter, especially in business. Like relationships (which is what business is reallyabout).
On the other hand, men tend to be more emotional about things that don’t really matter… like titles, status symbols (cars, clothes, accessories, trophies), power, authority and money. And sport. (Not surprisingly, business is the ultimate game for many men.)
It’s no coincidence that the survival rate of women in small business is significantly higher than the survival rate of men – close to 400% higher, in fact.
The fact is, women tend to focus on the causes in life, while men tend to focus on the effects.
Who’s to blame?
It’s very much part of our culture that men are supposed to know everything about business, cars, sport and other “masculine” pursuits. If they don’t know – or, more to the point, if they’re foolish enough to admit that they don’t know – it’s seen as a serious deficiency on their part. Their manhood is somehow deemed to be in question.
This kind of self-defeating, “macho” emotional conditioning has had a devastating impact on almost every facet of our society, especially our family relationships, and it’s time we put things right.
Look at the FACTS…
The Japanese business phenomenon has been built on some fundamental principles:
- “There are no mistakes, only lessons to be learned.”
- “Fix the problem, not the blame.”
- “United we stand, divided we fall.”
These are the opposite of the typical approach to small business in western society.
- Most of us refuse to admit that we need to learn anything, so we go on making the same mistakes, over and over. The lessons remain unlearned.
- Most of us are preoccupied with blaming someone (anyone!) else for our own mistakes, so the problems aren’t even acknowledged, let alone fixed.
- Most of us want to be wholly self-sufficient (an absolute myth). We don’t want to admit that we might need other people in order to survive.
Two important studies of Australian small business have identified not only our dismal survival rate, but why it remains so disastrously low. (Most developed countries now use this research because it applies accurately to those countries as well.)
1. The Williams Report
Professor Alan Williams, former Head of the School of Management at the University of Newcastle in New South Wales, conducted an in-depth study of 10,000 small business over ten years. (It was actually 30,000 business over 14 years, but 20,000 of them went out of business before the research project was completed.)
He discovered a direct link between the survival rates of Australian small businesses and the number of training programs completed by owner-managers.
This chart illustrates that connection.
There are three basic conclusions from Professor Williams’ ground-breaking research:
- Only 10-12% of small businesses survive the first ten years in business. (By the way, this is one of the few definitive conclusions on this issue. Most others are drawn from purely statistical sources that don’t accurately reflect reality.)
- Three, four or more training programs completed by an owner-manager result in a survival rate of around 90%.
- The training itself has NO relevance to the result. The real cause of this result is the owners’ attitudes to training – or, more to the point, their attitude to their own ignorance!
(Source: A. J. Williams, The Characteristics and Performance of Small Business in Australia (1973 to 1985) (Newcastle: University of Newcastle, 1987).
In other words, if the survivors don’t know what they need to know, they go and get the know-how they need to survive.
They’re not too “independent” (in other words, emotionally dependent on the opinions of others!) to admit that they have a problem and that they don’t know the answer!
2. The Bailey Report
This report by Dr John Bailey, commissioned by the New South Wales Government, found that:
- 70% of small business people have a defensively negative attitude toward training. That is, they don’t like the idea that someone might think they’re lacking in know-how.
- 10% of small business people have an aggressively negative (hostile!) attitude to training. You can’t even talk to them about it.
- Only 20% have a positive attitude toward training.
- Only half of these actually do anything about it! (That’s just 10% of the total who go out and get the training they need.)
Can you see a connection between the conclusions of these two reports?
- Survival rates are linked directly to the number of training programs completed.
- Only 10% of owner-managers get the training they need to succeed.
- Only 10% of small businesses survive the first ten years.
Attitude is everything!
The conclusion is inescapable. If you want to ensure your survival and prosperity (quantity and quality) in small business, you need to overcome any emotional dependence on pride and “independence” (a real Barker’s Egg) and admit you don’t know everything you need to know about working ON your business.
This has nothing whatever to do with how good you are at your profession or trade! That’s working IN your business. It’s time to recognise the difference.
Now… how’s your attitude to training?
“Don’t Go Into Small Business
Until You Read This Book!”
by John Counsel
Small Business Books 1996
© 1996, 1997 by John Counsel
©1996-2011 by John Counsel. All rights reserved.
©1997 The Profit Clinic.