Another wise observation from PC

[Marq]

I really doubt this 96% business failure rate over 10 years.
On the net (my only source at the moment for research) Forbes quotes Bloomberg with numbers like 8/10 failure over 18 months but then nothing seems researched or true and they are all just throwing numbers out there.

Eventually came across this researched scenario in the us that looks more credible.
http://www.statisticbrain.com/startup-failure-by-industry/

It so easy to throw stats & BS around - Heres a stat - 100% of media websites will have used a throw away BS stat within the next year to bolster their weak story. Also 100% of the small business guys selling online and web based services relating to that stat will have used it and put their businesses on the line that its genuine and a real factor that should be heeded. 50% of the businesses that use that BS stat will have gone out of business by year one as a result of not understanding their market.

Interesting that among the reasons for failure on the researched site, lack of data and key information and knowledge of selected industry is not listed as a factor for failure. Lack of market awareness probably covers it but only just.

Interesting to see Religious Organisations as number one success rate after 5 years. Always said this is where the money is.

[Marq]

OK - so I am starting this religion today.

12 berths available for disciples.
All donations welcomed. Cash only.
Strategic Planning meeting for mission statement and visionary see-er to be held soon.

[wynn]

http://www.adcorp.co.za/NEws/Pages/Newbusinessstart-upsslumptoall-timelow.aspx

A quick google came up with this

interesting to note that the number has been stagnant at 2 million small businesses for the last ten years with an increase of 400,000 units between 2004 to 2006 but has reverted to just below 2 million since, and that since 2006 440,000 small business have closed that to me is as good as a 96% failure rate as anything???

"Against the background of the small business sector’s role as South Africa’s most important originator of jobs, Sharp draws attention to two “worrying patterns”, one of which is that the number of small businesses in South Africa has stagnated over the past decade.

“Between 2001 and 2011, there was a roughly constant number (2 million) of small businesses. The number increased slightly (to 2,4 million) during the economic boom of 2004-2006, but has, since 2006, shrunk by 18,2%.

“Since the boom, about 100 000 small businesses have closed their doors each year, bringing the total number of small business closures over the past five years to 440,000. Given that the typical small business employs 12 people (aside from the owner-manager), a revival of this sector could potentially create 5,3 million jobs.”

[desA]

Given that the typical small business employs 12 people (aside from the owner-manager), a revival of this sector could potentially create 5,3 million jobs.

Dear sir, pray, what are you going to revive, & with what?

[Marq]

Have these numbers taken into account:-

• The option from the taxman in 2010/11 to take properties out of CC's and Ptys to reduce the admin. A large number of small business structures only held properties to avoid transfer duties and other taxes. I do not know how many cc's were closed as a result but would imagine a fair amount.
• CIPC (Cipro) introduce annual duty in 2010/11 which removed a huge amount of dormant and unused corporations after declaring them de-registered. Again a fair amount of cc's would have been de-registered. I folded two of my dormant cc's.

Your source - Loane Sharpe, is a labour consultant that loves to be on TV and in the media throwing percentages around with no value except to be a drama queen and create a scare so that he can keep himself in business.

We need to see an expert from the business world, in economics or accounting, analyse the numbers not a labour consultant.
We need to see a real breakdown from CIPC showing the movements so that we can take out the anomalies adjust for certain values and come to a proper conclusion.

We do not see in any of these numbers how many new businesses were registered by year. That number may be huge, which would indeed indicate a big decrease as well. Or it may be small which would mean a small decrease.
We do not know how many businesses were de-registered as a result of, being dormant, insolvency, no longer necessary etc.
How do we quantify sole proprietors and business' that did not get into the registered world?
Only when all the data is collected, analysed and researched can we determine a real failure number.

Minister Rob Davies stated last year that the answer was 5/7 will fail in the first year. But that was a general world number introduced in the usa which again is not properly substantiated. Even he does not trust the cipc numbers.

No doubt the number is high, but how high? I dont believe the 96%, perhaps up to 80% but I do believe we will never know the answer.

[Greig Whitton]

Joe Bloggs opens a hamburger stand in a Shopping Mall where there is no other food sold and no space for another food shop, three months later Wimpy gets the mall owners to add an extension where they can trade, an 'unexpected outcome' so so long Joe!

So Joe never anticipated the possibility of future competition? His entire business model hinged on being the only game in town?

This is why I have deep reservations about labeling failure an "unexpected outcome". There is a world of difference between an "unexpected outcome" and an "outcome that I didn't expect". The former absolves business owners of all responsibility as they point their finger at government, banks, suppliers, customers, God, or whoever else is convenient to blame.

Obviously we can't anticipate every possible outcome, let alone predict whether and when they might materialise. However, the scope of expectation for many business owners (especially start ups) is embarrassingly narrow.

[Blurock]

So Joe never anticipated the possibility of future competition? His entire business model hinged on being the only game in town?

Not all prospective entrepreneurs are really ready to start their own business. Most are under funded and many do not do their homework before starting out. (I once had a guy hand me a plan for the premises when I asked him for a business plan. He had no clue.)

Say you start with a hamburger or hot dog stand outside this big office block. You don't have to worry about globalisation, right? Wrong! Macdonald's opens an outlet down the road and now you start competing with a global corporate company!

I do not agree with the high failure rate quoted for SME's. We only have to look at what has happened since 1994. A number of people who were retrenched, actually purchased franchises with their payouts or pensions. (they still think that they are self-employed). Others realised that they could sell their skills as specialists or consultants. Labour laws made it attractive to get rid of expensive artisans and rather employ them as contractors. All of these registered CC's for this purpose.

Some of these people have since retired and others have sold their businesses. The statistics does not account for businesses that were de-registered or closed because of retirements or mergers.The tax laws have also changed so that artisans who are employed full time as consultants, have to be treated as full time employees. By closing the loophole, SARS has caused many of these "contractors" to be taken back onto the payroll. With normal deductions and less tax breaks, a CC is therefore not so attractive anymore.

The real failure rate is very difficult to determine, but I suppose that analysing insolvencies and judgments may be a way of shedding some light.

[adrianh]

The reason why small business fails is simply because 99% of "entrepreneurs" don't have the foggiest idea about what it takes to conduct business. Being a good technician with a good idea doesn't imply the ability to conduct business. I am not going to use the term "business plan" because it does not encompass the realities of doing business. What is needed is a spreadsheet that describes the business, not in terms of pie in the sky predictions but in terms of reality. The spreadsheet needs to be able to show what happens when demand increases or decreases and the ripple effect that it has on the rest of the business. The spreadsheet must be set up as a tool for scenario planning, not only best case planning but also worst case planning. This is a basic requirement to get a business started. All the other stuff i.e. sales, marketing and and and hinges on a clear understanding of the numbers that constitute the business.

There various reasons why entrepreneurs don't get finance and I will highlight a couple:
1. They are absolutely clueless about the numbers.
2. When they present a business plan it is devoid of numbers.
3. Numbers are pie in the sky and has no basis in reality.
4. They are unable to sensibly explain how the numbers were derived.
5. They have no experience or knowledge of the field they are entering.
6. Their assumptions of the field that they are entering are her wrong or baseless.
7. They have no business experience.
8. They have no idea about the legalities of the industry.
...etc..

The biggest problem is that it is a massive learning curve in all matters of business and many people with bright ideas realize that they are simply not up to it (maybe due to lack of finance, time, support, ability to learn fast, ability to deal with stress etc.) Building a business is a long hard slog and there is nothing wrong with making mistakes along the way. How would anybody learn to ice skate unless they fall on their asses many times. Falling on your butt in business is perfectly ok if you are willing to dust yourself off, learn from it and move on. If moving on means going back to permanent employment that is ok too, very few people a lucky enough to be in a position to keep on trying until they succeed or die!

[wynn]

Further wise words from Carruthers;

Fast Income, Nyet...
During the past few weeks a few people have asked me how they can start a work-from-bistro business that will bring in R100,000 per month. The money, of course, to be flowing by end-September.

This same theme was echoed in a book I read recently. Apparently most startup business plans project a first month income (the month after startup, of course) uncannily close to what the proprietor needs to pay next months bills.

I am sure that there is fast money to be made. I have just never seen it. Any fast money I have made has been the result of 20 years of developing skills and knowledge, but most importantly, relationships. Most of my current clients have been clients in previous projects going back as far as 1992.

If we want to build a quality future, it needs time to grow. As my brother wisely says whenever I enthuse about my latest crockpot idea, "Boet, if it was that easy everyone would be doing it."

So, back to the R100,000 per-month-starting-this-month question. I try to gently explain to these fine hopeful folk that, even if I could do it this month, I would rather earn the R100,000 myself than the $49.97 they are offering to pay me if, and only if, I can deliver by September 30th.

So here is my thought for this week. There is no fast money. It might look like fast money, but look behind the scenes and there is always somebody who has been working for long, long time to build that overnight success.

Big money takes a long time to arrive. Far easier to start slow, learn on the fly, adapt and reconfigure, and grow that small stream into a tributary which then becomes a river.

Slow and steady beats fast and furious any day, in my humble opinion. The folk I have seen chase the fast rabbit-type route need to do it each year. Those folk ambling down the slow tortoise-type route may start slow, but they only have to start once.

Warm regards