Congratulations to the five businesses featured in this issue. They are an important part of our economy. According to the Small Business Administration's (SBA) Office of Economic Research, 99 percent of all employers are small businesses. Small businesses are responsible for 51 percent of private sector employment, and 52 percent of the country's gross domestic product (GDP). Total small business wealth increased from 3.4 trillion dollars in 1990 to 8.3 trillion in 2000.
These five entrepreneurs have reached a milestone in that their businesses have survived for five years. Small business is not an easy environment. Statistics on small business failure rates are as varied as the number of articles on the subject. Estimates on the number of small businesses that fail in the first two years range from 10 percent to as high as 50 percent. I have seen estimates on failure rates within the first five years of business as high as 80 percent. And Marge Randles, founder of The Practical Planner in Argyle, NY, says that "after 10 years, only 4 percent of the original million business start-ups are still in business" The best information that I have found is from a longitudinal study conducted by the SBA's Office of Advocacy.
They studied employer business starts from 1989 and 1992 and found that 66 percent of businesses remained open at least two years, 49.6 percent at least four years, and 39.5 percent at least six years. Thismeans that just over 60 percent closed before reaching the six-year mark.
Even the best business plan can be a struggle to implement during economic downturns. Access to credit markets gets especially difficult for small businesses in these times. Business borrowing in 2001 decreased by 1/3 to $194.3 billion and capital expenditures fell by 17 percent. Business bankruptcies were up by 12.8 percent in 2001 over 2000, with 39,719 filings. This number pales compared to the recession in 1991 when 70,605 business bankruptcies were filed.
Even with the economic downturn, these five entrepreneurs profiled in this issue of Oswego County Business have prevailed. Why do some businesses make it, even in difficult times, while others fail, many during economic upturns? There is no paucity of opinions and advice on this topic. Poor concept, poor planning, inexperienced management, and undercapitalization are the primary four items that seem to make everyone's list of reasons for failure.
Poor concept, poor planning, and undercapitalization can be mitigated by preparing a thorough business plan. The business plan helps the entrepreneur step back and take an unemotional look at her business concept. A proper plan will insure that the entrepreneur researches his idea and takes a marketing approach to business. The financial analysis prepared as part of the business plan helps the entrepreneur structure her finances for success. Inexperienced management can be addressed by getting experience in the industry prior to starting a business or by putting together an experienced management team to run the business.
But no matter how much planning one does, unforeseen events will occur. I believe that the most important quality of successful entrepreneurs is tenacity. Once they have done their planning and are convinced that they have a sound concept, they forge ahead with determination. They are persistent and rejection does not deter them. They are often as tenacious as a junkyard dog. I say this with the utmost respect. Joseph Schumpeter (1883-1950), an Austrian-American economist who taught at Harvard, believed that the entrepreneur played a vital role in stimulating investment and innovation in the economy. Schumpeter also believed that it took a special person to be an entrepreneur:
The small business person must not only do the initial planning but must constantly strive to implement the plan, evaluate the results, revise the plan as necessary, and implement the revisions. Even long-established small business people must be constantly on top of things. They don't have the resources available to large corporations and often have to be the CEO, CFO, human resource manager, and chief of information technology, to name a few. Adam Smith understood this when he used the example of a small grocery store. The owner:
Many businesses fail because they do not implement systems to provide the needed information to manage the business. Research conducted by the Price Group revealed a number of operating failures, including:
75 percent of the businesses failed to use readily available financial information to determine shortfalls or to make necessary planning adjustments.
30 percent of the companies failed to produce monthly financial reports while 97 percent of the businesses had accounting and management software programs, 54 percent of these businesses failed to use technology for little other than printing out financials and letter writing.
Only 52 percent of the companies had any kind of formal organizational structure, and of that percentage, 80 percent failed to effectively implement the structure. The remaining 48 percent had no formal structure at all.
While 71 percent of the companies had done an effective job of identifying their core customer market, only 13 percent had any formally planned marketing strategies. 87 percent operated with no marketing plan whatsoever.
We are fortunate to have the diverse, energetic, creative, and tenacious small business community represented by these five entrepreneurs. They are the backbone of our economy.
We at the Small Business Development Center are here to help our small business community or anyone wishing to start a small business . Our services are free and confidential. You can set an appointment by calling 312-5696 or 312-5498.
Larry R. Perras is a certified business adviser with the Small Business Development Center at SUNY Oswego.
Article used with permission of Oswego County Business
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