Challenging Times Ahead for Business
A Thought on Business Success…
During the last week of the year, I always stop to look back to the year that was and take a look forward to the year that will be.
As many of you know, I am a serial entrepreneur—having built 22 successful businesses in many industries: Software, manufacturing, finance, internet publishing, etc.
I am also a highly trained (educated) economist that is paid to take out the crystal ball, read the tea leaves and form an opinion.
My observations are usually dead on the money, so take what I see with some degree of assurance that the trends won’t suddenly reverse themselves and jump the rails of credulity.
The Small Business Delimina…
If you are running a small business with employees what I see is especially helpful. If you are a one-man/woman show, your objective is to maximize personal income, so most of what I see has a direct impact on your financial wellbeing.
Today, I am going to use just 2 recent charts based on current data from the most trusted source of all: The US Bureau of Labor Statistics.
There are so many opinions on the success and failure of small business that it is hard to know what is true and what is not.
For example, you might read an article where they talk about the success/failure rates being just 10% after 10 years in business… or that 50% of businesses fail in the first 2-3 years… or that 75% of all Venture Backed businesses ultimately fail… or that only 33% of businesses employing 5 people or more ever make it to their 4th birthday.
Depending on the source, the numbers are all over the place, but the fact is — right now — more businesses die each year than are being created. We see about 400,000 new business a year being formed that have 5 or more employees and about 500,000 bite the dust each year.
Taking the solo player, a person who is just in business for themselves, the birth/death ratio is about equal over time.
No matter how you look at the stats, very few of the good ideas out there turn into a business that is capable of sustaining itself.
The bottom line is that business conditions are HIGHLY competitive and that only the HIGHLY skilled will ever make it even near-term. We are in an increasingly HYPER-COMPETITIVE environment where if you have a decent margin and are profitable then your business is ripe for the taking by Amazon, eBay, JCP, Target… the list is endless.
You must quickly grow to a point where you gain customer critical mass and work a strategic plan on a daily basis.
Yes, there is one major thing that separates the winners from the losers and that is continuously working your plan.
Not a lame business plan — they are useless in this economy — but a well-defined strategy that you can execute on a daily basis.
Which is why we make our Small Business Stress Test available to everyone to see which area of their business needs focus and attention, and where to expend time and resources.
Once you can see what to fix, you can fix it. If you never see the issues, you are dead and don’t even know it!
Accelerating Dynamics…
Even if you are not versed in the dark arts (statistics) you will instantly get the drift.
Business today is not just highly competitive, it is in a dynamic state of flux. What worked a year ago, is probably doomed today.
This is simply the effect of creative destruction. If you are not the “disruptor” in your town, tribe, industry and market niche you better become one.
The relentless failure rate is not going to ease up in the next 36 months. If you believe that “this time it’s different” you will have a very difficult time.
However, if you have a strategic plan and work that plan to the best of your ability, you have a chance.
Most small businesses hope to quickly grow into a large business, but the chart below shows the reality.
Very few businesses started 5-10-15-20 years ago are still alive today. In fact, this chart shows that there has been little change in the demise of businesses over time.
Plan to WIN… Play the game to WIN… you have a chance.
Go through the motions… you are a casualty. Needlessly we think since the help you need is out there. Start with our Stress Test and go from there.
Now for the Birth/Death Ratio…
The best way to look at the health of the economy is to look at the birth pages in your paper, along with the obituaries! Both tell an engaging story.
See the chart below. As you can see, the gain/loss rates were both growing (a good thing) until 1998-1999. The numbers started trending down and continue to remain well below the high points 2 decades ago. This is serious because new business formation is the heart and soul of the US economy. Fewer new businesses, with more failing, means it gets tougher to just run in place.
We expect the trend line from 2010 for the next 10 years to remain flat with a slight gain in births and a slight reduction in deaths.
We are far more technically productive now than 20 years ago, and if you run your business with VERY tight controls, you can make it. Again, if you remain clueless or oblivious to the rigors of biz ops these days, you have NO CHANCE of being among the success stories.
Conclusion…
Two-thirds of the businesses started in the last two years will not be here in 2020. This is a trend that has not changed in decades. It will not suddenly change in the next decade.
You can WIN, but you must PLAN to win… then PLAY to win.
No sports team would ever win a single game if they didn’t do BOTH.
The game of business is a professional sport played with real money… real people… real hopes and dreams.
Ignore the reality, you will not make it.
Embrace the challenge, you will.
I know what I have been telling you has been a bit cranial. It’s how I think.
My company has made PLANNING TO WIN push-button simple. Why not take me up on my offer?
If I am wrong, you can let me know in 5 years.
If I am right, you can send me a big check in 5 years!
E. R. Haas, CEO, Publisher
Category: Business Growth, Featured
