Most people out there know that small business has extraordinary failure rates; the oft quoted number is 95 percent fail within five years. My estimate is that most fail in the first year, however since the IRS allows deductions for 5 years, the business is milked for all its worth before it is officially shuttered.
A more astonishing number is the failure rate for online business. 95 percent fail within the first 120 days. That might seem like a horrible number to the uninitiated, however to the veterans of the business world it is actually kind of amazing that 10 percent make it that long.
I may seem a little blunt and insensitive, however you really have to take into account the type of people that take a shot at opening an online business. Due to the perceived, and I do mean perceived low cost of entry into the online market. People who would never think or much less attempt to try a brick and mortar store; will give the internet a shot.
Most of these people are lured into the fantasy of overnight riches, and the much hyped fantasy of working at their desk in the nude while drinking coffee and watching the game. When in reality Online Business is not only Business, however in many ways is more complicated than the typical business that existed before the dotcom boom.
By that I mean, even though the average person isn’t a businessman or trained or studied in business. The average person is exposed to a typical store type or service type business from birth, and has some idea of what it takes to run a business.
Most people intuitively know that to stay in business you have to have more coming in than going out. The upfront investment in a typical business is generally high enough that anyone with a touch of common sense would spend some time thinking about how success will be achieved before starting.
Also, the upfront costs force most people to get some type of financing upfront to start. And this small hurdle cannot be attempted without some sort of written business plan, the banker will demand it before any consideration is given to the merits of the loan. The Small Business Administration has devoted substantial resources into educating the entrepreneur.
For the typical internet start up, such as someone starting an aged care technology company, none of this preparation takes place, many are victims of shysters selling get rich quick schemes, while others are just looking for a different life and begin the quest in earnest however with zero clue as to how to make it really happen.
I don’t want to come off as sounding holier than thou, because regardless of the planning and preparation involved any business can fail spectacularly for a host of reasons beyond the control of the owners, and without any way to foresee the demise.
In fact some amount of failure is always encountered in even the most successful business ventures. I have personally tanked three successful business ventures on my own, in what looked like in hindsight a keystone cop’s routine, literally a veritable comedy of errors so to speak.
I come from a long line of business owners and entrepreneurs, I was raised in it, educated in it, lived and breathed it, and still managed to crumble it around my head. Fortunately for me, I have always had the means and resources to recover and get back on top.
Knowing that failure is completely an option, I am very good at having an exit plan in place, and I have never been so in love with one of my ideas as to be blind to the possibility of failure. I credit this as the only reason I haven’t been on the docket for bankruptcy court.
I don’t want to sound gloomy and doom, however I do want to discourage people from attempting an online business, at least before they have properly planned the enterprise.
So what do I mean by properly planned? I mean first and foremost realise an online business is a business! So treat it like one. That means making a business plan, not just an executive summary, and for sure not some notes on a napkin made at the local pub. As a part of that plan, understand the financial basis of how the business works.
Like all investments that carry risk, know how much you can lose before you start, know when to pull the plug before the ship sinks. There is no honour in going done with a ship that you put the hole in. Pride can really be a killer especially if you haven’t had much experience in humility and failure.
Definitely stay far away from anything like Network Marketing, Multi Level Marketing, or anything else that promises the sky. Just like in a regular business the business owners work long and ridiculous hours to make it successful, so it is the same online. Don’t get suckered by the 4 hour work week hype. Success is directly tied to effort in almost all endeavors.
A quick revisit on education, while I am not advocating signing up for next fall’s Wharton School of Business. You do need to have a good handle on the basics, read some text books from well known business schools and courses.
Many schools now have open courses online giving the information away for practically nothing. Don’t buy into outsourcing the fundamental business functions. You most likely do not have it in your budget to begin with. Set up a proper system. Do your own social media scheduling. Learn how to sell. Clean your own dishes. Learn it, love it, and live it in the beginning.
It may seem obvious, and sure there are stories of guys starting businesses they understood nothing about, however those types are as rare as Keno winners. Learn the core function of the business. It may seem like it is understood, however how many of those online businesses would have succeeded, if the owners understood online marketing?