Hi,
I recently read the following statistics from the book “The E-Myth: Why most small businesses Don’t Work and What to do about it” by Michael E. Gerber:
- 40% of businesses fail within the first year
- 80% fail within 5 years
- Of 20% that make it to year 5, 80% will fail by Year 10. That means only 4% of businesses make it.
- Overall, only 2% of businesses make more than 1M dollars a year.
So, let me clear: I knew the odds of sucess were low, but not like this. This makes me think: what is the purpose of starting a business? The Odds of success at 10 Years are completely negligible!
It makes no sense for a rational being (and besides beijg an entrepreneur, one must be also a manager and have a cold head analysing odds), knowing about these statistics, to start. Specially, knowing only 2 in 100 will surprass the 1M dollars mark per year.
Am I reading this correctly? Thanks!
EDIT: so now I am getting downvotes for asking a genuine question? This is incredible!
E-Myth: 80% of Companies Fail, only 2% surprass 1 M dollars, what’s the point?
byu/snake_eaterMGS inEntrepreneur
Posted by snake_eaterMGS
23 Comments
all business fail at some point, similar to employment. What’s the definition of “make it” ? What if I exit at year 4 with 5 mil. ? It’s completely arbitrary. What if you make only $500k? Still more than in employment.
>Am I reading this correctly? Thanks!
You should stop reading this pop science books or don’t take them to seriously.
I wonder what percentage of those “failures” were actually bought/absorbed by another company? According to the SBA, 99.9% of all businesses are considered small businesses. Small business is the backbone of America. Most may not be/become millionaires but I’d venture to say they’re comfortable and full a void on their communities.
You’re reading it correctly. One of the very good points of the E Myth is that most people would be much better off – lower risk, better stability, higher pay for the work – by working for a business rather than owning one.
It’s good to have the data so you understand the risks and understand that unless you have the skill to make your idea work, you’d be better off not wasting your time or money starting.
The idea that everyone should own a business is part of the problem. Most people shouldn’t. It’s a very different skillset needed to grow and manage a business than it is to be good at performing a task.
He explains why it’s true and how to avoid it. The whole point of the book is to help you not be part of that failed statistic.
You have to love the process.
Also, consider that most entrepreneurs don’t start just 1 business. If it’s truly a 2% success rate for each business, keep going after a failed attempt. You’re odds of success should go up on your 2nd attempt because hopefully you’ve learned. Beat the odds with volume and passion!
The book was written in the 80s. I wonder if these are still true and if the stats were updated in the revisited version. Anybody know?
The problem is, people are bringing their wants and needs to the marketplace, and the marketplace does not reward that.
It only rewards value.
That’s it.
If you don’t have skills or personal value -soft skills/character (watch Jim Rohn), then you are not going to be able to see, understand, and find the value to bring to the marketplace.
I always see these percentages thrown around, but I’ve never seen the actual numbers…..like what if there is just one dude out there opening thousands of businesses? Really going to mess the numbers up. Or what if ‘acquired’ means failed? I’d imagine the sector in which the business operates also plays a role.
To me these percentages are just too general to really be informative.
Probability is not a basis for not doing something. People who mistake probability for certainty or causality are generally mentally handicapped.
Most people who go into management/start a business are talentless and go in for the wrong reasons. The reason to go into business is because you have a productive solution to some problem not because you want to “be the boss.”
I’d also ask how many of those failed businesses are restaurants or retail? Only start businesses which are needed. When you run a business, you are in control of its success and failure to a large extent which takes probability out of the question.
Who cares? 99% of job applications sent are rejected, doesn’t mean you don’t apply. A good chunk of seeds farmers plant fail completely to sprout. More than that, statistics become irrelevant when the sample size is one. Businesses don’t fail on some lottery wheel where the stats are 2/100, as if its some roulette wheel. Business succeed or fail based on decisions made, make the right decisions and you won’t fail.
Hey man! landscaper here in year 7. From what I see it’s multiple reasons of failure, reason 1 would be just a broken dream, one who gives up and shuts down for a job, because they’re a technician with an entrepreneur spirit.
Second, those who dive too deep too fast, can’t pay their taxes and go under.
Third is similar to number two, but it’s more of spend too much too fast and then go under.
Just my sense from the landscape industry, friends in roofing and such.
You don’t start a business.. you buy a successful business… premise of the following..
[https://www.amazon.com/Buy-Then-Build-Acquisition-Entrepreneurs-ebook/dp/B07JKM2F5Q](https://www.amazon.com/Buy-Then-Build-Acquisition-Entrepreneurs-ebook/dp/B07JKM2F5Q)
You’re getting downvoted because where is the question exactly? This reads like it was created by chatgpt. Seriously what is the question exactly?
Because it isn’t a random 80% fail. Starting and building a successful company is in your hands. Your choices are what leads to success or failure.
What do they count as “starting a business”?
Opening a lemonade stand at a festival during a summer break?
Gardening for a few weeks in the summer at local houses?
From what I’ve seen, if you’re committed, consistent and reasonably smart on a half decent business model, the odds of success are much much higher than many people trying to sell books make out.
It’s still worth it. On average, ALL businesses only survive 20 years, which is why you need to plan to scale/exit.
I don’t buy it… I’m at 17 years and counting.. 120 ish employees.. You can do it!!!
On the flip side – 50% of companies that make the 10-year hurdle surpass $1M. Pretty good if you ask me… it’s all about perspective.
Because you can make a good living for over a decade controlling your time and work and making more than you would at the office and yet people call it a failure if you decide to close up shop and do something else.
It’s all stupid.
Here’s the point: success in business is not a lottery ticket. The success chance of a business is directly influenced by the founder’s ability and mentality.
Most entreprenuers prefer freedom over stability, and considered themselves to have what it takes to succeed so they are okay with the odds.
Entreprenuership is not for everyone and that’s okay because the society wouldn’t function if everyone wanted to be an entreprenuer.
Yes, but you should look it from a Bayesian standpoint and not only from a frequentist standpoint.
For instance, also a job application at Google has less then 1% of success rate… but this is only if I randomly pick an application, if instead I can look at the outcome for qualified engineers, with strong work experience and academic background, then it’s not anymore 1% but closer to 30% or even 50% success rate.
Same goes for business, if a random person here asks about starting a business then the chances of success are probably about 1% or less. On the other hand, if you plan on starting a business in the industry you have a decade of experience in, network, you have financial means to support yourself and invest in the business growth on top of a solid business plan… do you think we’re still talking about 1% success rate? That’s probably closer to 30-40-50%.
That’s why you copy businesses and make them better. It could literally be ‘better customer service’.
I personally knew multiple people doing my current business and knew how well they were doing. Most people had no clue.
Now I’m that guy doing very well in his small business and most people have no clue how well I’m really doing.
TBH its a really simple business that most people could do, IF, they had the knowledge that I had.
Information and knowledge is key!! You get that by experience, not reading chit online!!
Every year I have my business is like 10 years of working my old salary job. Even if I had to close shop tomorrow, i’d be in much better shape than the average person.
I’ve started 5 brands in the last 3 years. 3 of the 5 failed, the other two are $1m per year companies. 1 took ~3 years, the other ~1.5 years.
You are not limited to one try. Fail, learn, do better, repeat.
Stop overthinking it, it is not that big of a deal.