Failure in Business: A Thought Experiment

[Nick M.]

It's been said that half of all business fail in their first year.

Well, actually, doing a quick Google search, I've found that number ranging from 20-80%.

I don't really feel finding the exact number, so let's assume that starting a new business is incredibly risky (80% failure rate).

That means that if you were to start a new business each year, and most of them fail in the first year, within a decade you have a 90% chance of succeeding.

That's a 90% chance that you'll create a business that can outlast that crucial first year.

If it's there's a 50% chance of failure within the first year, that's a 99.9% chance of success.

If there's a 20% chance of failure, then you have 99.99998976% chance of success.

Would you call that risky?

 

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[Rabby]

What always amuses me about these statistics is that they are cited backward. 20% of businesses with employees (meaning they are tracked by the Bureau of Labor Statistics) 'fail' in the first year. 80% survive. By the 5th year, only 50% remain.

However, BOLS only tracks survival, not failure or reasons for the business no longer existing. So if you start a business, make it to year 5, and get bought out, it will show that your business "did not survive." That's true; in a merger or sale, the buying business is called the "surviving entity." Never mind that the former owner might now be rich.

So no, it's not particularly risky in my opinion. But it's worth qualifying that. What is risk?

In business, we deal with uncertainty. We do not know what the outcome will be. When you add time (lost opportunity cost) and investment (money, debt, etc), it can become risk. But it's really up to the entrepreneur how much risk to take. You can "go all in" and bet your life savings that it will all work out in the first year. That's your choice. Or you can find ways to reduce and mitigate risk, and just deal with the uncertainty of outcome.

On the other hand, you can work for an employer for 10 years, becoming very specialized in what the employer needs you to do. This can also become risky. You have uncertainty, because you are working for a business, and you know the statistics about business... they have a survival rate and a 'failure' rate. If the owner of the business you're working for (or the public market owners, whatever) sell the business, will the new owners keep you? Who knows. Will they need your skills; will anyone need your skills?

When you're employed, you are merely shielded from information. The appearance of less risk is the result of ignorance. If the ship sinks, your job goes with it.

Of course, you don't have money invested in the business you work for. But you do have time and opportunity invested with it. You ignore thousands of opportunities daily (really, you do) in order to work for the employer. Any one of those opportunities, if executed on properly, with the right knowledge and values, could better you exponentially. How is it not risky to ignore that?

Add to that the fact that the owner of the employing business could have a stroke, or decide to fire you, or just be incompetent. I've never understood why people think it's safer to work with less knowledge and less control of your situation. Seems quite risky to me. What do you think?

 

[Chinese alligato]

What always amuses me about these statistics is that they are cited backward. 20% of businesses with employees (meaning they are tracked by the Bureau of Labor Statistics) 'fail' in the first year. 80% survive. By the 5th year, only 50% remain.

However, BOLS only tracks survival, not failure or reasons for the business no longer existing. So if you start a business, make it to year 5, and get bought out, it will show that your business "did not survive." That's true; in a merger or sale, the buying business is called the "surviving entity." Never mind that the former owner might now be rich.

So no, it's not particularly risky in my opinion. But it's worth qualifying that. What is risk?

In business, we deal with uncertainty. We do not know what the outcome will be. When you add time (lost opportunity cost) and investment (money, debt, etc), it can become risk. But it's really up to the entrepreneur how much risk to take. You can "go all in" and bet your life savings that it will all work out in the first year. That's your choice. Or you can find ways to reduce and mitigate risk, and just deal with the uncertainty of outcome.

On the other hand, you can work for an employer for 10 years, becoming very specialized in what the employer needs you to do. This can also become risky. You have uncertainty, because you are working for a business, and you know the statistics about business... they have a survival rate and a 'failure' rate. If the owner of the business you're working for (or the public market owners, whatever) sell the business, will the new owners keep you? Who knows. Will they need your skills; will anyone need your skills?

When you're employed, you are merely shielded from information. The appearance of less risk is the result of ignorance. If the ship sinks, your job goes with it.

Of course, you don't have money invested in the business you work for. But you do have time and opportunity invested with it. You ignore thousands of opportunities daily (really, you do) in order to work for the employer. Any one of those opportunities, if executed on properly, with the right knowledge and values, could better you exponentially. How is it not risky to ignore that?

Add to that the fact that the owner of the employing business could have a stroke, or decide to fire you, or just be incompetent. I've never understood why people think it's safer to work with less knowledge and less control of your situation. Seems quite risky to me. What do you think?

You know what? This is the answer that the Fast Track Forum should have. Clear/Clear/Firm/Logical/Not Influenced by Popular Thoughts. Paying tribute to the fast lane spirit!

 

[Champion]

You want to start a business and only "survive"?

You need to be ambitious and play to hit a home run! --> Thrive.

 

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