Published August 2004

Increasing odds
of start-up success

Dear BizBest: Starting my own business has been a dream of mine for years. But when I consider all the daunting details and slim odds of success, it seems out of reach. How can I improve my chances? — Daunted

Dear Daunted: Good news. Those grim statistics we’ve all heard — that nine of 10 new businesses fail — are bunk. A review of businesses gone bust by StartupJournal.com, a Dow Jones & Co. division, shows that the number of outright business failures in the United States is highly exaggerated.

For one thing, about a third of business closures that government statistics assume to be failures are not failures at all. These businesses were considered a success by their owners who simply sold off the pieces or closed them to retire or pursue other activities.

And here’s the shocker: Data from the U.S. Census Bureau’s Business Tracking Series show about 65 percent of new businesses are still operating after four years. A new study estimates that only 10 percent of the nation’s 5.5 million small businesses (not counting solo operators) close each year.

How’s that for a turnaround? Instead of a 1-in-10 chance of success, the odds of succeeding are more like 60 to 70 percent.

But the odds are not spread evenly. The more resources a new business has, the better its chances. That includes money, of course, but other key items such as market insight and the right people. Here are four factors that improve the odds of new business survival:

• People. If you can afford to hire employees, do it. Well-staffed businesses have better survival rates than solo operations.
• Start-up capital of at least $50,000. Not easy, perhaps, but businesses that start with less have higher failure rates.
• A college degree for the owner. Better yet, enroll in a college-based entrepreneurship program.
• Home beginnings. To keep costs low, start initial stages of your business from a home office.

The most common reasons for failure within the first few years include competition, mismanagement, high rent and insurance costs, high debt, inability to get financing, loss of clients and difficulty with collections.

“If you’re ready to take the risk of starting a new enterprise, research your business carefully before taking the plunge,” says Tony Lee of StartupJournal. These resources can help boost your odds of success:

n EntreWorld (www.entreworld. org) is one of the most extensive and useful small-biz sites on the Web. Thanks to nonprofit sponsorship, it’s all free and carries no advertising. Look in the “Starting Your Business” section for information on market research, finances, finding people and more.

n Small Business Development Centers (www.sba.gov/sbdc), or SBDCs, are an excellent, free counseling and information resource sponsored by the U.S. Small Business Administration. There are nearly 1,000 service locations at colleges, universities, vocational schools, chambers of commerce and economic development corporations nationwide. For locations, click on “Your Nearest SBDC” at www.sba.gov/sbdc.

n StartupJournal.com is a great all-around resource for start-up entrepreneurs. The same folks who publish The Wall Street Journal run this site, so the information is solid and trustworthy. The main page lists daily features and links to resources such as PR tools, financing, technology, a trademark search and creating business plans. The site is also loaded with tips on small-business technology and management. Visit www.startupjournal.com.

n StartupNation aims to be America’s “go to” resource for business start-ups. Though still a start-up itself, the site offers helpful advice and inspirational support through online seminars, newsletters, radio spots and other avenues. Visit www.startupnation.com.

n A new site called ItsSimple.biz offers a fresh and promising approach to providing start-up entrepreneurs with helpful business tools, counseling and resources. Visit www.itssimple.biz.

n Welcome Business USA is a welcome site for start-up entrepreneurs, with many tools and resources of all kinds, plus special offers from vendors like UPS, Dell, HP, QuickBooks and others. Visit www.welcomebiz.com.

BizBest publishes “The 100 Best Resources for Small Business” and other resource directories. Visit www.bizbest100.com. E-mail questions to dan@bizbest.com.

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