Many new small businesses do go under within their first couple of years.
“What he [President Obama] misunderstands is that nine out of 10 businesses fail, so nine out of 10 times, he’s going to give it to the wrong people. ” — Sen. Rand Paul (R-Ky.), interview on CNN’s “State of the Union,” Jan. 26, 2014
There’s a problem with his statement, however. It’s a gross generalization and completely inaccurate.
- What’s the time frame he’s using? Timeframe is an important distinction. There is a big difference between two years and fifty years.
- What do you mean by “fail?” Did the company close because it was not financially stable? Does that include mergers and acquisitions?
- Are failure rates different for different industries? How does it make sense to lump all categories and industries together?
There are usually reasons that can explain a company’s failure. Two things that destroy more businesses than any other are leadership and systems. Often, people start businesses because they are trying to get away from a current employer or industry. In other cases, people have been told that they are good at something and want to make a go of it.
1. Don’t start a business you know nothing about.
If you’re going to invest time and money into a business, make sure you know what you’re doing. Invest in what you understand.
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