Don’t Most Small Businesses Fail?

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.

  1. What’s the time frame he’s using? Timeframe is an important distinction. There is a big difference between two years and fifty years.
  2. What do you mean by “fail?” Did the company close because it was not financially stable? Does that include mergers and acquisitions?
  3. 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.

To read the rest of this article from Entrepreneur University, click here.

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