Recently a local businessman asked me if area SCORE mentors had seen a reduction in the number of people interested in starting a business. My answer was an emphatic no. Although government data indicate a downward trend in start-ups since 1990, we have not seen local interest decline.
Our work involves helping entrepreneurs prepare themselves to start a business. Scott Shane, author and blogger for smallbiztrends.com, posted a graph in an April 28, 2012, blog showing what happened to a cohort of businesses started in 1992. He used data produced by the Bureau of the Census for the Office of Advocacy of the U.S. Small Business Administration. By 1997, 50 percent of them were no longer in business. By 2002, only 29 percent remained in business. The pattern is the same for other cohorts that have been studied. We seek to have our clients be amongst the survivors.
Data from a study conducted by the University of Tennessee posted on www.statisticbrain.com supply some clues as to how that might be done. University researchers studied a cohort of businesses for 10 years. Twenty-five percent were gone by the end of the first year, 55 percent by the end of year five, and 71 percent by the end of year 10. Same pattern as above.
They used follow-up questionnaires to try to understand what happened. The results are very informative. They concluded that 46 percent of failures were the result of incompetence, specifically lack of planning, emotional pricing, lack of knowledge about pricing, nonpayment of taxes, lack of knowledge of financing, lack of experience in record keeping and living too high on the business.
Thirty-two percent failed because of unbalanced experience or lack of managerial experience, specifically poor credit granting practices, inadequate borrowing practices and expanding too rapidly. Another
11 percent failed because of lack of experiences in the line of goods or services they were selling, specifically carrying inadequate inventory, lack of knowledge about suppliers and wasted expenditures on wrong advertising. The remaining 1 percent failed due to neglect, fraud or disaster.
I look at this list and see it not as a list of pitfalls business owners accidently fell into, but rather as a description of the failure by these business owners to prepare for pitfalls before they started their businesses. Look at the list carefully. It adds up to one thing — lack of knowledge about how businesses run and should be run. There is more interesting stuff in the study that I will describe in the next column.
SCORE offers an opportunity for you to ask basic questions about how to start and run a business in a free two-hour Question and Answer Forum starting at 5:30 p.m. Feb.18, in the Community Room at Laishley Marina, 120 Laishley Court, Punta Gorda. If you cannot attend that day, a second Q&A session will be held Feb. 27, same time and place.
You can arrange to receive free advice on a business issue from a SCORE mentor by leaving a message at 941-743-6179 or emailing email@example.com. Check our web sites www.score.org or www.charlorttedesotoscore.org.