Why small businesses fail

Contributing editor Jeff Hayden writes in Inc. Magazine that most US businesses are small. The Small Business Association statistics show that 99 percent of all enterprises are independent companies with fewer than 500 employees.

While estimates vary, according to Bureau of Labor Statistics data, 20 percent of new businesses fail within two years, 45 percent during the first five years, and 65 percent during the first ten years. (Only 25 percent make it for 15 years or more.)

Hayden did say that “fail” is a loaded word. I may start one company, see a better opportunity, and shut down the first to launch the second. That’s not a failure; that’s a savvy shift.

Even so, why do so many startups fail? Hayden featured the former principal owner of the Dallas Mavericks of the NBA, co-owner of 2929 Entertainment, and one of the main “sharks” on the ABC reality TV series, Shark Tank personality Mark Cuban, and what he had to say in a Wired Q&A. Cuban talked about the salient points on why businesses fail.

Sales. “No business has ever succeeded without sales,” Cuban says. That may be why Cuban says sales skills are what made him wealthy. “Period. End of story.”

Here is his advice.

Before you start a business, take a job in sales, even if part-time. You’ll gain confidence and self-assurance, and the skills you gain will serve you well for the rest of your business (and personal) life.

That’s because sales skills are communication skills. Think of selling as explaining the logic and benefits of a decision, and everyone – business owner or not – needs sales skills: to convince others that an idea makes sense, to show bosses or investors how a project or business will generate a return, to help employees understand the benefits of a new process, etc.

Gaining sales skills will help you land customers, get financing, bring in investors, and line up distribution deals, especially in the early stages of starting a company; everything involves sales.

Learn to sell.

Preparation. “When you start a business,” Cuban says, “have you done all your homework to know about your industry, your competition, your products, the profitability, your customer base, your demographics? You need to know these things.”

That also involves being financially prepared. Cuban doesn’t recommend quitting your full-time job to go all-in. “We hear all of these stories about all of these people who quit their jobs, started a company, and made all of this money,” he says. “What you don’t hear are the stories of the people who quit their jobs, started a company and failed miserably, and are now working at a job they hate.”

Take the advice of Arnold Schwarzenegger. He says: “This is why I always say don’t listen to these “follow your passion people” who tell you to quit your job and jump off the deep end. You need money, and if you quit your job, you will have to make decisions you wouldn’t make otherwise to make money. I could say no, but only because I had my bricklaying and real estate businesses, so I wasn’t desperate. Preserve your power to say no.”

When money is tight, horizons shrink – and so do the choices you can make.

So, make sure you’re mentally and financially prepared.

Effort. “It’s not easy starting and running a business,” Cuban says. “It’s hard. If it were easy, everyone would do it.”

That’s why Cuban says success comes from something other than money or connections. Success is based on a willingness to outwork and outlearn everyone.

Effort? It’s the great equalizer. You may not be smarter. You may be less talented. You may not have the same connections, the same background, or the same education. You may have none of those things if you’re on the downside of advantage, you may have none of those things.

But you can always, always, always work harder than everyone else.

Effort can not only keep your business in business, but it can also be your competitive advantage.

Brains. “You gotta be smart,” Cuban says. “You gotta learn this stuff. You have to be curious to be successful at business.”

Cuban frequently recommends books. As Cuban says, “If you’re not reading, you’re [xxxxxxx!] because you’re not expanding your mind. I tell my kids, ‘Somebody who doesn’t read lives one life. Somebody who reads lives an unlimited number of lives.’”

Seek to learn constantly, and your business may also live at least a long life, if not an unlimited number.

Great advice from someone who is in the know. And you would not hear him say (as many speakers would), “Follow your passion!”

(Francis Kong’s podcast “Inspiring Excellence” is now available on Spotify, Apple, Google, or other podcast streaming platforms.)