Every day, businesses are created, and companies die. The death rate is now higher than the birth rate, which is a shame. The economy’s changes have contributed to this increase. It is also a reason for continued recession, as small businesses are important to the economy. This vicious cycle can be broken, but it is not impossible.
Michael Gerber published The E-Myth Revisited in 1995. He stated that 80% fail within the first five years of business and that 80% only survive past their 10th anniversary. Only 4% of new companies will be celebrating their 10th anniversary.
Every year, the Office of National Statistics publishes statistics about the “births” and “deaths” of UK companies. These are the key statistics in this report:
- Between 2009 and 2010, the number of businesses closing their doors rose by 20,000 (7.4%) to 297,000
- With a slight decrease of 1,000 (0.4%), the number of new businesses has remained relatively flat.
- Businesses that have stopped trading for the second year consecutively outnumbered those that had started, resulting in a 1.8% decrease in active companies.
These data provide information about the survival rates for businesses.
This shows that approximately 40% of businesses founded in 2005 were still in business in 2010. This is higher than the 20% suggested by the E-Myth.
Although there are no data on survival over 10 years, you can model the data to predict that 17% of businesses founded in 2005 will see their 10th birthday.
The numbers show a decrease in survival rates from 2008 to 2008, as one might expect considering the economic environment. According to the predictions, the average life expectancy of a new business has fallen from 5 years in 2005 for companies established in 2005 to 4 years in 2010.
This is significantly better than the 3-year survival rate suggested in the E-Myth. Things are much better overall than they were back in 1995. It could also mean that UK businesses are more resilient than ever in the US. Or both.
However, the ultimate goal of business is to create long-term, profitable enterprises for employees and individuals. Many business owners expect their business to last less than four to five years.
How can you fix it?
Although the economy is increasing the number of businesses closing, the most common cause of business failure is that many business owners need help to create a fully-systematized business.
Research has shown that although most business owners know they must systematize their business, nearly 99% of them have been unable to do so. It’s not their fault. They have never been shown how to do it.
The owner is responsible for most of the business’s success. With them, the company can function. This can lead to the owner becoming frustrated and eventually closing their doors. They may need to realize their goals when they start the business. Even worse, it can only adapt to a declining economy with business systems in place.
Although writing systems is easy, most businesses fail to do it. There are many reasons. It appears like something other than a profitable job, so it is not a priority. It could be more interesting and exciting work. It’s something that the owner could be more skilled at… too many distractions from customers and employees, suppliers, etc.
It can result in more sustainable, durable, scalable, and profitable businesses. It is worth taking the time to get started.