I’ve read a lot of alarmist articles recently about the incredibly high rates of ecommerce business failures, mostly written by consultants. Chasing down the numbers behind these claims has proven a bit elusive though, so I turned to government statistics for more reliable insights. It turns out that business failure rates aren’t quite as dismal as often reported. As quoted by Investopedia:
“Data from the BLS (Bureau of Labor Statistics) shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more. These statistics haven’t changed much over time, and have been fairly consistent since the 1990s.”
An even more optimistic number is the count of new businesses that have been started during the COVID pandemic – a whopping 5.4 million in 2021! Clearly the entrepreneurial spirit is alive and well despite gloomy reporting.
What Motivates Entrepreneurs?
So basically, lots of people are starting new businesses, but almost half of them won’t last longer than 5 years. Why do people keep on starting new businesses then? Are they straight-up crazy? What’s the motivation? From my conversations with small business owners, a few insights:
I have a great idea or product – Maybe you look around your town and think “what this neighborhood really needs is a really good place to get tacos and beer.” Or maybe you have a unique skill or service to offer. A friend of mine started a consultancy that advises businesses how to reduce their carbon footprint and overall costs by reducing waste. That’s a unique and valuable service, and it’s really taken off.
I want the independence of being in charge and making my own decisions – Let’s face it, a lot of workplaces aren’t very empowering. Independent, smart people want to have more control over their work life. Going into business for themselves is a path to autonomy and empowerment.
I want to keep the profits – We’ve all seen the graphs; worker pay has stagnated for decades while CEOs and business owners rake in the cash. For people who are tired of the paycheck-to-paycheck life, the potential rewards of business ownership can outweigh the risks.
I need more flexibility – Maybe people need to work around childcare, eldercare, or other family commitments. Maybe they just want to be able to go camping every summer without having to beg and negotiate for time off. Whatever the reason, being a business owner means having more control over your own schedule. I had a friend who started a consultancy and said “now I only work when there’s work to do.”
I’m tired of the uncertainty of layoffs and business closures and management changes – Some folks have experienced this multiple times – getting that great job and then the company gets bought or goes under or lays off 10% of the workforce. Or maybe there was a change of leadership and everything got re-organized including the role that you loved doing. Job security just isn’t a thing in today’s job market, which makes the risks of starting a business seem less of a barrier.
Key Considerations for Startups
Having been down the start-up road myself, I learned a few things about starting and running a small business from a more personal perspective than one gets as an employee or a consultant. You’ll need more than a good idea and some money in the bank. You’ll need to apply both the emotional and analytical parts of your brain to the challenge. Here are some key points to consider:
Do some research – No need to spin in analysis paralysis, but start with some research and planning. If you wanted to open a taco truck, for example, there would be equipment costs, permitting, finding a location, figuring out the menu, determining peak hours, locating suppliers, etc.
Be honest about your strengths and weaknesses – Running any business involves certain common tasks and skills – marketing, merchandising, customer service, management, bookkeeping, filing taxes, etc. I loved designing the online store and developing marcom, but I’d sooner walk on broken glass than do accounting. It wasn’t long before I was calling a bookkeeper friend for help. Know what aspects of running a business you’re good at and what you’re probably going to need help with. Nobody has all the skills.
Location is everything – For a business with a physical storefront, location is incredibly important. My town recently had a new gelato store open a block from the university campus. I think they’ll make money by the bucketful.
Don’t go it alone – Most people work best with the support of a team. We all have days and times when we are short of ideas, when we’re low on energy, when we lack inspiration, when we’ve run into that brick wall. You might just choose to outsource certain functions, like payroll, to take some of the load off yourself. You might go into partnership and have a team to share the risks and rewards with. Or you might find or create an advisory group of friends or fellow entrepreneurs who can help you brainstorm ideas or pull through a rough patch.
Plan for failure AND success – Consider the worst and best case scenarios. Can your bank account and your family survive if you lose money for a year? Also, what if you expect to sell 100 t-shirts a day, but you go viral and get 1000 orders on Tuesday? Can you handle it? At what point will you need to hire employees?
Have an exit strategy – How long will you keep the business running if it’s losing money or just breaking even? If you succeed, do you want to keep running this business for the next decade? Or are you looking to sell it and retire or start something new? Consider all the possible outcomes. You don’t have to have it all figured out on day one, but don’t be one of those entrepreneurs who cannot separate their own ego from the business, which can lead to bad decisions.
Whether you’re starting or growing a new business or looking to expand an existing business into new markets, having the right technology strategy to support your dreams is vital. Reach out to us today with your questions or concerns. We’re glad to help.