Why Startups Fail
While the numbers may vary depending on the source, the Small Business Administration (SBA) has determined that over 20% of startup businesses fail in the first year, over 40% fail within 3 years, and less than 50% survive the 5 year mark. On a positive note, of the 48% of startup businesses that make it to the 5 year, over 33% will make it to the 10 year mark. That means your chances of success, if you define success as “staying in business”, go up exponentially if you can stay in business for 5 years. SBA Startup Business Survival Rates
So why do most businesses fail? While there are a LOT of reasons for businesses to fail, most failures come back to the same reason … planning! Or the lack of planning!!! If you’ve been in business long enough you’ve heard the expression “businesses don’t plan to fail, they fail to plan”. However the failure is “characterized”, it could likely have been avoided with proper planning. A business plan is probably the most useful tool of any startup business, yet it is probably utilized by less than 5% of startups.
In 20+ years of practicing business law, having represented 1,000’s of startup companies, I can honestly say that I have known only a handful of startups that actually had a business plan. And when I say “business plan”, I don’t mean the plan inside your head. Until its put down on paper with a logical structure, it’s just an idea. A good business plan makes you critically think about all aspects of your startup venture and should ultimately be your guide, not to just avoid failure but to achieve success.
In the coming weeks I will discuss business plans, what they need to include and how to create them! To get email updates, go to our website http://dowdlaw.com and subscribe to our blog via email.