“Over half of the new businesses will discontinue operations because of lack of profits or financial funding.”

Most startups will fail in the first three years of their existence

Yes indeed, starting a business does feel good, but it comes at a cost, and very few of the vaticinators and so-called business gurus of this world talk about the sacrifices it will take you to do it, the realistic outcomes of a new entrepreneur, and the reality of what the majority of all new entrepreneur or business founder end up doing when heading down that path.

Most of the time, starting a new business will prove to be a scary proposition, the scariest thing of all being knowing that most new businesses are not successful. Most startups fail in the first three years of their existence. Roughly 20% of new businesses will survive past their first year of operation, and half of all new businesses no longer exist after five years. Only one-third of all new businesses will make it past their tenth anniversary.

While starting a new business can prove to be a horrible decision for some and maybe most, it doesn’t mean you shouldn’t do it. My intention is not to scare you but rather, to simply paint a more accurate picture of what life is often like for a new entrepreneur so you can weigh your options when considering either a new venture, joining an existing venture, or working at and for a more established company at various points in your career.

Being an entrepreneur is simply not that easy and glorious. Too many people are talking about things that they don’t have any clue about, and doing so, they are misleading the next generation of builders into thinking it’s the only way to do something meaningful and rewarding with their lives. This is total bunkum! If you choose to be an entrepreneur, and are fortunate enough to achieve some level of success, plan for a long, lonely ride eating ramen, dealing with people that will do anything for you one day and try to take advantage of you the next. This is the reality!

Why is it that most new businesses fail?

Over half of businesses discontinue operations because of lack of profits or financial funding.

A big issue is under-capitalization at the outset of starting a business. Business owners frequently underestimate how much money will be needed to fund operations. At the same time, they can overestimate how quickly their products and services will catch on in the marketplace.

Entrepreneurs are usually by nature highly confident. The problem is that confidence sometimes leads to overconfidence. It would be great if more businesses were successful and lasted for decades. However, history is telling us that this is not the reality.

REALITY CHECK

1.- Leaders eat alone. You will not be rich.

Very few startups provide founders with enough wealth to give them true financial freedom.

Most of the new entrepreneurs will be lucky if they break even and I am not even considering the possibility of failing. Having done all your homework, the way it should have been done, if you are lucky enough to survive, the Gods of Business being on your side, for the first few years of your new business venture, you will most likely make more money working for an established corporation than you will starting your own company.

All new entrepreneurs should be aware of that reality and seriously consider keeping their day job while starting their business. Time consuming you would say! Sure, but your monthly bills will be paid.

2.- Customers will turn on you.

Let’s assume you are one of the successful startups, and you find some level product or service market fit, you should feel satisfied: you built a product that solves a problem for a reasonably sized population. Remember and seize that moment, because in the years that will follow, you are most likely to encounter situations where your biggest product or service advocates will start to turn on you.

Facing this scenario, you will have to invest significant time and energy trying to maintain the goodwill you have acquired in the past by solving your customer’s and client’s problems. Doing so, business, technical, and market forces will necessitate a number of changes to your offering.

The reality is so that over time, for most new businesses, the constant balancing act between customer satisfaction and literally everything else you have to do to grow your business and maintain your profitability will starts to feel unsustainable.

3.- Even good people can really suck.

Everyone around your startup, including investors, co-founders, and employees will oscillate between fear and greed multiple times during the life of your newly founded company. Even the most successful startup founders have moments where they aren’t sure if they will be able to keep the business going.

Initially, problems will not really get in your way. The odds being already stacked against you, and being light on resources, you take a scrappy approach to getting things done. But, once your business shows any sign of growth, you have to hire employees, freelancers or both. You take investment and all of the sudden the small problems start to take up more and more of your time.

You now have to deal with a growing set of people that are counting on you to return a premium on investment or keep your employee’s jobs safe. All of a sudden, you only need one big problem to start losing sleep.

IN ONE WORD:

If you choose to be an entrepreneur, and are fortunate enough to achieve some level of success, plan for a long, lonely ride eating ramen, dealing with people that will do anything for you one day and try to take advantage of you the next.

Your life just got infinitely more complex.

JMD