When business fails

Basma · 6th November 2008

For founders of start-ups, early stage failure is an ever present hazard. A high proportion of new businesses capsize soon after launching, more still suffer major problems. Yet at least half make it through the early years successfully. So what are the most common things to go wrong? And what can undergraduate entrepreneurs do to stack the odds in their favor?

According to 2008 figures from Experian, the global information services company, over 10,000 UK businesses failed in the first half of 2008, 17.5% up on the 2007 figure. For start-ups the risks are even greater. Although the failure rate is not as bad as the 90% within five years figure that is often quoted in the media - research by Scott Shane, professor of entrepreneurial studies at Case Western Reserve University, quotes a 29% survival rate after 10 years.

‘Businesses fail for a number of reasons,’ says Dinah Bennett, director of the Center for Entrepreneurial Learning at Durham Business School. ‘And a great deal hinges on the individual running the businesses.’

Bennett lists a host of common factors for business failure, including: no business plan; failures in motivation and determination; mistaking cash for profit; financial illiteracy; growing too quickly; lacking market research - and subsequently discovering it was a bad business idea; and inadequate skills.

Stumbling blocks

‘The most common reasons for failure are lack of cash, resulting from lack of sales,’ adds Susan Laing director of Napier University Business School’s Center for Entrepreneurship. ‘This is usually because the business model has not identified a combination of product and delivery that customers value, therefore sales don’t materialize in the volume required.’

Laing also notes the Association of Business Recovery Professionals' figures which break down the causes of business failure as: loss of market (29%); management failure (22%); bad debts (10%); and lack of working capital (20%).

Peter McLean knows how tough it can be to start a business. A student at Napier University, he started the Foodie Company in November 2007 with help from the University’s entrepreneurship services. Although the business is doing well it hasn’t been a smooth ride, a disagreement over some money he had paid to a supplier led to a court case, in which McLean represented himself and subsequently obtained an out of court settlement.

Moving on

That which does not bankrupt you (and sometimes that which does) makes you a more experienced and wiser entrepreneur it seems. Or at least it does where McLean is concerned.

‘Experiencing tough times shapes you as an entrepreneur,’ says McLean. ‘It has been the best learning curve at the beginning of my career that I could have had; I am a lot more professional now. I am a lot more specific in my emails about things like delivery, for example, very focused before I hand over money - everything is in writing. So what I lost in money, I gained in experience.’

As an entrepreneur, says Bennett, there are things you can focus on to try to tip the odds of survival in your favour. She identifies four key ingredients that must be present for a successful start up to survive the first three years: motivation; ability; ideas; and resources.

‘People do not plan to fail they fail to plan,’ says Laing. ‘For example, entrepreneurs need to understand the importance of selling to the business, bringing in the orders otherwise there is no business. And also knowing not to grow too quickly, and ensuring there are appropriate resources in place.’

Perhaps most importantly entrepreneurs need to follow Rudyard Kipling's advice and learn to treat triumph and disaster both the same. ‘We look at failure in a negative way in the UK, whereas in the US people take failures as a step towards success - almost as a rite of passage in business,’ says Bennett.

‘Entrepreneurial people learn from failure, they learn by doing, they learn from the mistakes that they make. For every failure they experience they learn what works, what doesn’t and what behaviors not to repeat. A trait of successful entrepreneurs is that they are not afraid of failure. The pervasive misperception is that failure is somehow bad for you. But failure forces creativity; failure can fuel determination and often separates the stronger more determined and motivated people from the weaker.’

Steve Coomber - October 2008

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Extracted from [Only registered and activated users can see links. ]

6th November 2008	#1 (permalink)
Basma Administrator Join Date: Dec 2007 Posts: 89	When business fails For founders of start-ups, early stage failure is an ever present hazard. A high proportion of new businesses capsize soon after launching, more still suffer major problems. Yet at least half make it through the early years successfully. So what are the most common things to go wrong? And what can undergraduate entrepreneurs do to stack the odds in their favor? According to 2008 figures from Experian, the global information services company, over 10,000 UK businesses failed in the first half of 2008, 17.5% up on the 2007 figure. For start-ups the risks are even greater. Although the failure rate is not as bad as the 90% within five years figure that is often quoted in the media - research by Scott Shane, professor of entrepreneurial studies at Case Western Reserve University, quotes a 29% survival rate after 10 years. ‘Businesses fail for a number of reasons,’ says Dinah Bennett, director of the Center for Entrepreneurial Learning at Durham Business School. ‘And a great deal hinges on the individual running the businesses.’ Bennett lists a host of common factors for business failure, including: no business plan; failures in motivation and determination; mistaking cash for profit; financial illiteracy; growing too quickly; lacking market research - and subsequently discovering it was a bad business idea; and inadequate skills. Stumbling blocks ‘The most common reasons for failure are lack of cash, resulting from lack of sales,’ adds Susan Laing director of Napier University Business School’s Center for Entrepreneurship. ‘This is usually because the business model has not identified a combination of product and delivery that customers value, therefore sales don’t materialize in the volume required.’ Laing also notes the Association of Business Recovery Professionals' figures which break down the causes of business failure as: loss of market (29%); management failure (22%); bad debts (10%); and lack of working capital (20%). Peter McLean knows how tough it can be to start a business. A student at Napier University, he started the Foodie Company in November 2007 with help from the University’s entrepreneurship services. Although the business is doing well it hasn’t been a smooth ride, a disagreement over some money he had paid to a supplier led to a court case, in which McLean represented himself and subsequently obtained an out of court settlement. Moving on That which does not bankrupt you (and sometimes that which does) makes you a more experienced and wiser entrepreneur it seems. Or at least it does where McLean is concerned. ‘Experiencing tough times shapes you as an entrepreneur,’ says McLean. ‘It has been the best learning curve at the beginning of my career that I could have had; I am a lot more professional now. I am a lot more specific in my emails about things like delivery, for example, very focused before I hand over money - everything is in writing. So what I lost in money, I gained in experience.’ As an entrepreneur, says Bennett, there are things you can focus on to try to tip the odds of survival in your favour. She identifies four key ingredients that must be present for a successful start up to survive the first three years: motivation; ability; ideas; and resources. ‘People do not plan to fail they fail to plan,’ says Laing. ‘For example, entrepreneurs need to understand the importance of selling to the business, bringing in the orders otherwise there is no business. And also knowing not to grow too quickly, and ensuring there are appropriate resources in place.’ Perhaps most importantly entrepreneurs need to follow Rudyard Kipling's advice and learn to treat triumph and disaster both the same. ‘We look at failure in a negative way in the UK, whereas in the US people take failures as a step towards success - almost as a rite of passage in business,’ says Bennett. ‘Entrepreneurial people learn from failure, they learn by doing, they learn from the mistakes that they make. For every failure they experience they learn what works, what doesn’t and what behaviors not to repeat. A trait of successful entrepreneurs is that they are not afraid of failure. The pervasive misperception is that failure is somehow bad for you. But failure forces creativity; failure can fuel determination and often separates the stronger more determined and motivated people from the weaker.’ Steve Coomber - October 2008 ------------------------- Extracted from [Only registered and activated users can see links. ]