Business Survival Scenario Entrepreneurship literature is replete with business failure and mortality statistics. When it comes to small and micro businesses, the numbers are consistently alarming. In the U.S.A. and Canada, it is reported that of the new businesses started, 20% fail after one year and additional 10% during the second year taking the total to 30% in two years. This climbs to 50% by the fifth year and stabilizes at 65 to 70% by 10 th year.
So, the survival rate of small business in the North American context is only 35%. (1) (2) (3) Scenario in the Indian context is not much different. A report by IBM Institute for Business Value and Oxford Economics found that 90 percent Indian startups fail within the first five years. (4) A study conducted by Rajeswari Sengupta and Manish Singh of the Indira Gandhi Institute of Development Research, using ministry of corporate affairs data, shows that on average, new firms have a survival rate around 45%. This statistic is for the “incorporated” businesses. However, keeping North American figures in mind, it may be safely assumed that at the micro business and grassroots level, i.e. mostly “unincorporated” sector, the survival rate could be around 30% to 35% only. (5) Links to the notes and sources (1 to 5) are provided in the last two pages at the end of this document. Survival rate of 50% by 5 th year and stabilization at 35% after 10 years is indeed alarming and signifies avoidable waste of all kinds of resources– human and financial. Why Some Businesses Survive & Not Others In the ultimate analysis, businesses fail when consistently the number of paying customers and the price they are willingly pay for the product or service is not enough to recover all the expenditure incurred in starting and operating the business and create a surplus for the owner – commensurate with the efforts and capital employed. In short, business is not operating significantly above the break-even level. There are many reasons for such a situation of not enough paying customers. Some of the frequently spotted ones are: Not meeting quality standards, poor customer service, not meeting commitments, poor inventory management, not managing the cashflow well, costs not under control, insufficient start up funds etc. In short, these can be categorized as (i) poor planning, and (ii) ineffective execution (poor management of day to day operations).
While developing a business plan, certain assumptions are made with respect to different aspects of the business – cost of production, capacity to be installed and equipment needed, startup funds needed, fixed costs, competitive situation, customer needs and demands and many other critical aspects. Obtaining all required information in respect of these, which is authentic or as close to it is as possible, is the main objective of doing the research (both secondary and primary as appropriate) on different facets of the business. Such vigorous “Homework” helps the entrepreneur evaluate commercial viability of the business. This also helps in minimizing the downside of any potential risk and aids in planning for risk mitigation by appropriate strategy. Most often, the entrepreneur is not aware of the vigorous homework/research that is needed to be done. At times, even when he is aware of these requirements, he prefers to take a short cut either due to mis placed over confidence or due to lack of knowledge. Irrespective of the reason, result can be disastrous, and business fails. Equally responsible for business failure can be the ineffective or poor day-to-day execution of the business. Wide range of symptoms include – poor quality of product or service, not honoring the commitments, not managing the cash flow well, poor customer relations management, vendors and employees ill-treated etc. In short, any combination of these symptoms of lack of vigor in homework and ineffective execution can lead to business failure – time depends on the extent and quantum of symptoms. I Create Model & Impact In business, there are numerous variables that are beyond the control of the entrepreneur. Through rigorous research and homework, he can try to minimize the risks and chances of failure. To help in this process, I Create has developed a practical entrepreneurship development process that has helped many aspiring entrepreneurs. It includes idea generation (matching the skills and knowledge to solve problems), homework (to do research and collect relevant information about all facets of business), opportunity identification (determination of feasibility and viability), planning (preparing a blue print for execution), and effective execution (meeting customer needs and expectations consistently). Participants in our program are put through this process and they are mentored one-on-one to develop their business plan using the I HOPE mantra and process (I HOPE – derived by using the first alphabet of the 5 stage process : Idea, Homework, Opportunity, Planning, and Execution). Unique interactive workshop that puts the participant through the I HOPE process, and the subsequent one-on-one mentoring to develop a business plan has immensely helped the participants start and sustain businesses. We have tracked the veterans who underwent our program since July 2018 and started businesses. The sustainability
(i.e. survival of business) after two years is 85% compared to the 70% seen in other published data.