Is Small Business for Me?

There are 28 million small businesses in the United States, according to the [U.S. Small Business Administration, or] SBA. [These businesses] created 63% of new private-sector jobs [last year] and [account for] 42% of private-sector payroll[s]. Headlines are grabbed by young entrepreneurs who are starting high-tech companies, but, in reality, people over 50 own 51% of small businesses, while those […] under 35 own [just] 16%. [Additionally], On Strategy reports that 66% of new businesses survive for at least two years, 50% make it at least four years, 40% make it to six years, and one-third make it to 10 years.

[W]hy do new businesses fail at such a high rate?

  • Running out of money too quickly. When starting a business, you need to plan as if you had no sales for six months and have that money sitting in the bank to cover all the startup issues. Before the recession, business owners could borrow against the equity in their homes, but we don’t have that same home equity in 2015. New business startups are rolling the dice and not having as much in the bank, hoping they won’t have to face this issue. Established small businesses also face cashflow issues, because […] their clients are paying slower, so payrolls get missed and lights go off.
  • Overconfidence in their product. […] If you don’t test [your] market first or you are not keeping up with the trends, there is a good chance customers won’t purchase your goods.
  • Poor pricing strategy where [the] competition may have a cheaper solution. If you must lower your price, there still needs to be enough margin to pay the bills.

Other reasons for business failures include an over-dependence on one customer. This country is littered with manufacturing startups that were thrilled to get Walmart as a customer. They put too many eggs in one basket, and when Walmart decided to go overseas to knock [out] their products [for less], [these startups] soon went out of business, [especially] if Walmart accounted for more than 50% of their sales. Small-business owners do not know how to say “No.” Some small-business owners promise the world, but going after all the business at one time drains your cash and profitability, and you may lose sight of quality, delivery time and followthrough. If you miss the mark with an inferior product or late delivery, your customers will put you out of business.

Many of my relatives […] are in a family business. According to the Curchin Group, 70% of family businesses never get past the first generation, 85% don’t make it past the second generation, and 97% never get past the third generation, leaving only 3% of family businesses making it to the fourth generation. There are all kinds of reasons for the death of family businesses, but, in reality, they are not much different than what happens in real life. According to The Globe and Mail, over half of family businesses do not have a succession plan. Entrepreneurs are hesitant to place their passion into the hands of others, and so they lack the plan to create a business roadmap. Internal family conflict—where not everyone has the loyalty to go in one direction—causes breakups. Generational conflict—where there is a disagreement in core values and business missions and where the next generation rejects established methods and the entrepreneurial vision—can bring down a business.

So the odds seem against you whether you want to open your own business or join your relatives in their business. It is much safer to join a big business, work hard and get your gold watch, [b]ut the Bureau of Labor Statistics recently reported that the average person born between 1957 [and] 1964 has held 12 different jobs, [a]nd Forbes reports that 91% of those born between 1977 [and] 1997 expect to stay in a job for less than three years, which means they will have 15 [to] 20 different jobs over their lifetime. [I]s taking a chance and opening your own business any different than working for a big business?

If you want to take the plunge into opening a business, America is there to help. One way is through a new program, Big Ideas for Small Business, [which] was launched last year by the National League of Cities in partnership with the City of Chicago’s Innovation Delivery Team. They have produced a toolkit that helps local leaders create ecosystems [to] support small-business growth with city resources and provides business owners with access to new sources of capital. Another resource is SCORE (Service Corps of Retired Executives), […] whose mission is to foster small-business communities through mentoring and education. […] The NFIB (National Federation of Independent Businesses) […] is [also] a great resource for information and interaction with other small businesses.

This alarming failure rate of small businesses is a concern to every community. For our cities to recently jump in and realize this is a local issue that must be solved reinforces that these entrepreneurs are not in this battle alone—they have their village looking out for them. This is a good start to reverse our small business death trend, [b]ut it also takes individuals in our communities spending in small businesses. […]

America has been great since our independence, because, on the back[s] of small businesses, we have built an exceptional agricultural, industrial and intellectual powerhouse economy. We can’t afford to let these small businesses die, because just about every impressive economic accomplishment in our country started in the mind of an entrepreneur.

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