expert advice: David Banfield
Entrepreneurism-alive and well?
Entrepreneur -vs - Franchisee Does an entrepreneurial start up businesses have a better success rate than an equivalent franchised business? While there are no clearly defined statistics to provide a definitive answer all the typical indicators tend to point in favour of franchisee success over that of an entrepreneurial individual start-up. Businesses fail for many reasons as would be expected however, there are 3 main areas where businesses consistently fail. Those 3 failure areas can be summarised as, Money, People and Planning.
Start-up businesses fail at an alarming but consistent rate. Only about 80% of start-up each year will reach their first anniversary date. One in five new businesses is statistically heading to failure in their first year. Unfortunately, the curve does not flatten out after year one as statistics show an even greater failure rate in year two at 30% and of those remaining businesses 38% are destined for failure in year three of their lifespan. Some industries will perform better than others but the underlying reasons for failure are inherent in all types of business therefore starting an enterprise
in a particular industry is no guarantee for success. We cited Money as a one of the 3 reasons for early demise and this may indeed be the main reason for failure as so many ventures commence operations undercapitalised and with no clear plan as to how to deal with the inevitable event of cash resources running out. Entrepreneurs are probably, by nature incredibly optimistic people, if not they would probably never take the initial step of starting a business. However, optimism alone without a basic and sound financial plan is not a recipe for success. While many companies start in an undercapitalised manner many at least have a contingency plan and course of action to take when the cash flow dries up. Without such a plan success is hard to achieve. The second component of our top 3 reasons for failure is People. Having already said that entrepreneurs by their very nature are optimistic individuals many also see themselves a one-person organisation and they fail to realise from the outset that they cannot undertake every task in the business. It is therefore a critical start-up step to create a solid management team that can cover not only the start-up phase but hopefully the meteoric growth that all entrepreneurs anticipate. One of the reasons often cited as to why a business owner did not create the allimportant management team is money. This takes us right back to the need for adequate start-up capital. A mature management team is without doubt a costly element for a start-up business and so to offset that cost entrepreneurs can look at ways of using contract professionals to contribute on an as needed basis rather than being permanent pay-roll fixtures, a
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