Why 9 out of 10 Small Businesses Fail

We’ve all heard that 9 out of 10 new businesses fail. That is alarming, but when you look at the actual statistics it is much worse than that. Out of every 1000 new businesses, 40% fail within the first year,and 80% would fail within 5 years. Don’t celebrate yet because even if you have made it to 5 years, 80% of those businesses fail before they make it to 10 years. That leaves us with 4% of new businesses still around after 10 years.

Why is this? Is there some magical unseen force out their causing small businesses to fail?. Maybe a conspiracy involving our former bosses, plotting against us, sabotaging our newly found business? Like most things in life, there is a very simple explanation for this and if you are a “Life Hacker” like me, you are always looking for ways to beat the odds and not strengthen the statistics.

So, why do only 40 out of 1000 small businesses ever see their 10 year anniversary? The explanation for this is rather simple. Three distinct personalities make up a successful business; an entrepreneur, a manager and a technician.

The entrepreneurs job is to be the go getter. The one that creates out of thin air; the person constantly coming up with new and wonderful ideas for the future of the business, creating new products and new services. Always looking for new ideas and ways to lead the market. Without these people in your company the future will be nothing more than mediocre, if there is any future at all.

A manager is a person that builds business systems around the things that the entrepreneur creates. He makes sure that things are done in an effective way, that there are systems, rules and guidelines in place. He maximizes profits and make sure that the business runs like a well oiled machine.

The technician is the person, building the fiscal things that the entrepreneur has thought up, and that the manager is managing. He is the here and now guy, he brings home the bacon. If there was no technician, nothing would get done. The only person making the fiscal goods that brings in money is the technician. Without them there would be no business. will edit more in the morning am tired!

Unfortunately and inevitably these 3 personalities clash.The way that an entrepreneur goes about achieving their goals causes a lot of havoc around the office, this is unsettling to those in his employment, therefore he is usually met with a lot of resistance. The entrepreneurs worldview then becomes that of people being the thing that gets in the way of the dream.

The manager craves order, constantly feels the need to keep the entrepreneur in line and focused otherwise he feels that the entrepreneur will drive them out of business with all his ideas and schemes. He tries to order the technicians work into a system that would consistently give predictable results.The technician is happiest when he is in control of the work flow and left alone to do his work. The entrepreneur always gets in the way, throwing new ideas into the mix (that would probably not work anyway) and keeps the technician away from focusing on the job at hand. The manager also gets in the way of the technician onto whom he wants to impose.

The technician can’t stand being treated that way. To the manager the technician becomes a problem to be managed. To the technician the manager becomes a meddler to be avoided, and to both of them the entrepreneur is the one that started the trouble in the first place.

Most people think that small businesses are started by entrepreneurs. That simply is not the case. Most businesses are started by technicians, people that do technical work at a businesses.

It usually starts out like this. One day out of the blue, for no apparent reason the idea of starting your own business pops into your head. The reason could be that something that day at work just did not sit right with you. It might be a look the boss gave you, the fact that you have not received an increase in ages, or it could simply be that you don’t feel appreciated at work. Whatever the case my be, it does not really matter, the idea resonated with you to start your own business.

“How difficult can it be?”
“No one here know how to do the work better than me!”
“My boss has not touch real work in years.”
“I’m bringing in the bulk of the money.”
“Goodness, without me there would be no business.”
” I do all the work here I’m not seeing the money.”
“How difficult can it be to run a business.”
“Any idiot can run a business, I’m working for one!”

And in the not so distant future another small business is born.

Unfortunately the fatal miss assumption that most technicians make is that they think by understanding the technical work of the business, they understand the business doing the technical work. The technicians fails to see what makes a business a business. They think that a business is just a place to go to work. The technician thinks that understanding the technical work immediately qualifies him to run that business that does the technical work.

A small business is started not because of an entrepreneurial vision, but because of a technician trying to seize control of his work for himself. The technician starts the business to get away from having a boss rule over him. To the technician starting a new business is a dream come true, to the business it is a nightmare because the wrong person is running the show.

And so it goes, the technician starts a business and goes to work. In the beginning it goes well. You keep your clients happy and they are, because this is what you do well. No one can do this better than you. Unfortunately, it only goes well until you get busier. Your customer all want your attention, all the time, after all, that is why they come to your business, for you. Not long and you start dropping the ball. The reason for dropping the ball is that their is no system or management in the business. But the technician doesn’t know that, he puts his head down and does what he does best, work. Yet another workaholic is born.

The problem with the scenario above is that the technician has not stared a business, he is self employed. He has created a job. Things get even worse when he starts employing people to help, because he is not equipped to manage people.

The business can only grow in relation to the hours that the technician can work and because nobody is working on the business, putting systems in place or creating new services or products, pretty soon the business becomes another statistic.

So the reason for the alarming statistics are quite simple. What we refer to as small businesses failing are not really businesses in the true scene of the word. They are companies started by disgruntled employees, seeking self employment. Technicians trying to get away from having a boss rule over them, but lacking the proper knowledge and skills to build a sustainable business.

If you have a dream of owning your own business one day, that is a great ambition to have, and everybody should strive to build a business, I think it is very difficult to realize all the dreams you have in life without having a successful business funding your dream life / lifestyle. But start studying business economics well before you start your business.

In the words of Robert Kiyosaki:”It not money that makes money, it is knowledge that makes money.” Without knowledge you can have all the money in the world, and never own a successful business. – Never stop learning.

Great books to read on this subject: The E-Myth revisited by Michael E. Gerber and all the Rich Dad Books by Robert Kiyosaki.

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  1. Reply Duane April 12, 2010 at 11:51 AM

    E-Myth and the rich dad books are must read for any budding entrepreneurs. This is a great summary of the topics covered in those books.
    My advice for starting a business. Start small and make lots of mistakes early on.
    .-= Duane´s last blog ..Google Doesn’t Understand Professional Logo Design =-.

  2. Reply New Gadgets April 12, 2010 at 11:57 AM

    Good article. I think most fail because they are not fully comitted.

    • Reply Biskookylady April 12, 2010 at 4:45 PM

      As a Small Specialty Food Business owner/operator and one who has needed to learn the in’s and out’s of the business world on the fly, I strongly feel that committment is only part of the puzzle. Endless comittment and passion for the product will get you going and sustain you through the constant obsticles set in the path. However, if processes aren’t in place and proper business management isn’t a priority, passion and committment will eventually give way to the statistics described.

  3. Reply Biskookylady April 12, 2010 at 4:52 PM

    This is a terrific post. I am living this dilemma everyday. The passion, the commitment, the technical know how, and the product’s appeal are all firmly in place. Solidifying processes, reining in flights of fancy, and maintaining the details without error takes time that is hard to find and requires the dreaded “D” Word….Delegation.

  4. Reply craig April 12, 2010 at 9:58 PM

    Hmm.. not following the math on “That leaves us with 0.04% of new businesses still around after 5 years.”

    Looks like you intend to do some clean up on the article. I would focus on that first since it starts off your article and doesn’t appear to make sense.

    • Reply Jurie van Dyk April 12, 2010 at 11:01 PM

      Thanks for picking that up.

  5. Reply Doug S. April 13, 2010 at 12:49 AM

    Don’t be tricked by the statistics. You’re forgetting a few key bits of information.

    Firstly, your statistics include all small businesses. By federal standards that means anything below 500 employees. This includes two groups that have a tendency to disappear: Restaurants and individual “companies”.

    The vast majority of restaurants fail within a few years as a matter of course. Likewise, single-person businesses either fail as a business or simply get closed up because that individual was hired.

    Not to mention those business that have more than 1 individual who are bought up by a bigger business.

    Or change their names and become a new business.

    The statistic is more like 3/4 don’t survive past 5 years and then after that it gets pretty stable.

  6. Reply flash rhino April 13, 2010 at 2:11 AM

    Interesting articles i think most business’s fail because the CEO or the founder loses interest so stops investing as much time or money in to the growing compony.
    .-= flash rhino´s last blog ..10 Must Follow Design Related Twitter Accounts! =-.

  7. Reply Jaime Lim April 13, 2010 at 6:59 AM


    Although the math is a bit fuzzy, I agree with you that small businesses do have a high mortality rate. And perhaps you are right attributing this mortality rate to internal conflicts within the small business itself…within five to ten years, it is easy to see how misunderstandings and ill-will among team members, if left unchecked, can erode and eventually kill a small business. Perhaps it will be healthy and beneficial for any small business to conduct small group activities and teambuilding workshops on a regular basis to thresh out conflicts and problems before they become too big to control.

    Jaime Lim
    .-= Jaime Lim´s last blog ..SMALL BUSINESS IDEAS: GREEN BUSINESSES =-.

  8. Reply Ben April 13, 2010 at 12:03 PM

    great article thanks – : )
    .-= Ben´s last blog ..80 Appalling Commercial Photoshop Disasters You Have to See =-.

  9. Reply Ravi Verma April 13, 2010 at 1:46 PM

    I think most businesses fail because they haven’t planned well. I think you need set objectives, and be passionate about your business.
    .-= Ravi Verma´s last blog ..V Debate Regional Lisboa EACD 2010 =-.

  10. Reply byurick April 13, 2010 at 4:45 PM

    So what’s the answer? Hire someone to actually run the business part while I take care of the customers and technical duties?

    • Reply Jurie van Dyk April 13, 2010 at 6:03 PM

      Dear Byurick

      Thank you for participating.

      Almost right, train technical staff and managers to handle the customers the way that you want it done. That means your clients will be happy, without you as Boss, CEO having to keep them happy. You can then go to work ON your business, and not IN your business.

      It depends on the type of business of course. As an architect I set up systems in my office where the outcome of the system (in this case the technical drawings) is always the same. Set of rules and guidelines to be followed. That allows me to only do the design, creative work, and leave the rest up to my staff, knowing that it will get done the way that I would have done it myself.

      The E-Myth revisited might be a good start for you.

      Best Regards

  11. Reply André April 14, 2010 at 5:13 PM

    I’m really impressed by this post !!

    I’m working with two guys on a future e-business and in fact I totally agree with that.

    Your analysis is terrific about the 3 profiles. In my case I’m the manager and 2 other guys really looks entrepreneur and technician. They succeed to improve our business by their abilities. Without one piece of these 3 profile we feels different and we feel that the business don’t go in the right path !!

    Thanks again for this very good analysis !!

  12. Reply Matt April 26, 2010 at 10:12 AM

    Interesting. I’ll definitely check out that E-Myth book.
    .-= byurick´s last undefined ..Response cached until Wed 14 @ 15:44 GMT (Refreshes in 22.31 Hours) =-.

  13. Reply fox news July 24, 2010 at 12:03 AM

    I think small businesses who are struggling should definitely read this interesting post. Thank you for sharing it.

    • Reply Jimsmith February 9, 2012 at 3:56 PM

      i agree fox

  14. Reply Kdkidkdidki February 9, 2012 at 3:52 PM

    i like you

  15. Reply Gim February 9, 2012 at 3:55 PM


  16. Reply Kdkidkdidki February 9, 2012 at 3:59 PM

    this article gave me the push i needed to start my business. it might have failed, and i lost all my money but i still had a good time doing it

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