Written by: Michael Corey, License Fortress
A common adage is that 9 out of 10 businesses will fail in the first six years. You don’t have to look far to see a variation of this posted on the internet. A quick Google search of “9 out of 10 businesses fail” comes up with titles like 90% of Startups Fail: Here’s What You Need to Know About the 10%, 5 Reasons 8 Out of 10 Businesses Fail, 9 Out of 10 Start-ups Fail, Here’s Why, 7 Reasons Why 90% of Start-ups Fail and How to be the 10%, 11 Reasons Why Most Entrepreneurs Fail, and Why 96% Percent of Businesses Fail Within 10 Years.
Anyone who has ever started a business knows just how hard it is. Yet the reality of business failure is not quite so bleak. Data from the U.S. Census Bureau shows that 34% of new businesses fail in the first two years. 50% don’t survive four years out, and 60% don’t survive six years out. While this number is not great, it’s a much higher rate of survival than the common myth that 90% will fail.
The majority of the businesses that fail are classified as small businesses because they have under 500 employees. Out of 28 million firms in the U.S., less than half of a percent will ever get past $10 million in revenue. Only 4% will ever get past $1 million. The reality is that 96% of these firms will stay under a million dollars in revenue. The majority of all businesses around the world are small ones, and the fact is that these are an essential engine of economic growth. Anything that can be done to improve the survival rate of small businesses or improve company performance would have a huge positive impact on the world economy.
Reflecting on these facts, as a serial entrepreneur, why was I repeatedly so successful when the odds were stacked against me? At best, I had a 40% chance of surviving the first six years in each new business.
As an MSP, it could be argued that you are in the right business at the right time, and that certainly helps. But how do you prepare your business for the unknown? How do you help your business overcome obstacles you don’t understand? How do you exploit new business opportunities that you may not fully recognize? As an MSP, are you entirely prepared to take advantage of the opportunity in front of you to offer security service to your customers?
In over 25 years of being an entrepreneur, I faced many challenges, some of which I could foresee and prepare for and many others I could not. As I reflect on my success, I can see critical points where what made the difference was the counsel I received from the business’s advisors or Board of Directors.
At one point during a period of recession, I was at the helm of a fast-growing business. In talking with other business owners, I found out that a number of them had lost their credit lines for no reason. The companies in question were profitable and doing well, but the banks were still opting not to renew their credit lines. In a discussion with my advisors, we agreed that the banks were trying to mitigate potential risk.
If my own company’s credit line did not get renewed, it could potentially put us out of business. Growth takes cash, and the line was necessary to fuel our growth and make the needed investments in sales and marketing. One of my advisors instructed me to draw down the line entirely and move it to another bank. If the line was completely drawn down at the time of renewal, the bank would have no option but to renew the line, since they were fully exposed. Closing the line would disincentivize me to pay it off, further exposing the bank.
So that was what I did. I drew down the line and moved it to another bank. When the renewal came up for the business, as my advisor predicted, the bank renewed us. That advice came at a critical time and made the difference between company failure and survival. Banks closing down credit lines of good businesses was not something I could have foreseen.
At other times, advice I received enabled me to capitalize on new business opportunities fully. The extended network of my board provided access to resources my company would not have otherwise had.
Based on my experience of over 25 years, a group of advisors or a board armed with the right knowledge and experience is a business’s best weapon against the unknown.
Today, there is little to no guidance on what knowledge and experience your advisors or board should possess. In collaborating with the MSP Alliance and as part of my doctoral work at Temple University, I hope to uncover insights that will enable companies to be more competitive and improve their overall survival rates. Based on what is learned from the study, I will develop a framework that can be used by business owners to assemble a group of advisors or a Board of Directors armed with the right knowledge and experience at the right time to make the most significant positive difference in company performance.
If you are a business owner, an advisor, or a member of a private company’s Board of Directors, please take the time to participate in the survey. It will only take 5-10 minutes. All responses will be kept anonymous.
