Business Failure and Fear

According to the Small Business Administration, more than 90% of small businesses fail within 5 years. Of those that survive 5 years, another 90% will fail within another 5 years. After 10 years, less than 1 out of 100 small businesses remain open. 

Why do so many businesses fail? 

Among  the most common reasons cited are insufficient starting capital and poor planning. Both can certainly contribute to the failure of a business. However, neither is a necessary cause of business failure—a business can survive with insufficient capital and/ or poor planning. 

A business is a dynamic entity. New products, new technology, economic conditions, consumer trends, and much more makes change a certainty in the world of business. Successful companies adapt to this ever changing business environment. Indeed, leading the change is often the path to success. This change has 2 components—one mental and one physical. 

The mental aspect involves conceiving of or embracing new ideas. It involves changing one’s perspective of the marketplace, procedures, or some other aspect of the business. It involves obtaining new information and knowledge. The physical aspect involves implementation—acting on the new ideas, information, and knowledge. It involves putting that new perspective into action. 

The failure to do this is what causes most small businesses to close shop. The failure—or refusal—to embrace new ideas and then implement those ideas is the primary cause of business failure. (Ideas without action are useless.) 

What then, prevents businesses from embracing and implementing new ideas? Why, given the statistics, do business owners refuse to expand their knowledge, and then act on that knowledge? 

The answer is—ironically—an idea, or more precisely, a set of ideas. 

Change necessarily involves an element of the unknown. While research and planning can certainly mitigate the risks involved, we cannot predict with absolute certainty the consequences of changes. Uncertainty breeds fear, and fear leads to paralysis.  

Fear is a natural response to the unknown. We fear what we do not know. A noise in the middle of the night can instill fear if we do not know its source. Our fear will vanish when we identify the source as a tree limb bumping a window. In other words, we overcome fear by obtaining information. 

On the surface, it may seem absurd to say that small business owners are paralyzed by fear. After all, owning a business is risky. But remember, most small businesses fail. It is one thing to take the risk of owning a business; it is another thing to succeed at it. There is a vast difference between uncertainty and ignorance. While we may not know for certain the outcome of an action, we are not totally ignorant of the consequences either. For example, we may not be able to predict the precise results of a particular marketing campaign, but we can make reasonably valid projections based on past experience (either our own or that of others). 

Successful businessmen learn to overcome their fears by obtaining the necessary information. Knowledge is power. Knowledge reduces uncertainty, and with it, fear. But knowledge alone is insufficient. We must act on that knowledge.  

The failure to act is a sign of remaining uncertainty. The failure to act is a sign of lingering fear. The failure to act is a consequence of not trusting one’s own judgment.  

Confidence is a crucial part of overcoming fear. A confident businessman evaluates the available information, makes a decision, and then acts. He takes calculated risks. He understands that failure is a possibility, but he takes measures to reduce the risk of failure. He trusts his own judgment, and acts accordingly.  

This does not mean that he never makes a mistake. Quite the contrary—he makes many mistakes. But he also keeps his eyes open as he moves forward, constantly obtaining new information, and re-evaluating his results. He is not afraid to act (or overcomes that fear when it exists), because he is armed with an ever growing body of knowledge. 

Businesses fail because of fear. Businesses succeed by seeking knowledge and having the confidence to act on that knowledge.