The Perils of Starting a Business: Why Few Sustain Success Over Decades

It has been argued that only a scant four out of ten companies survive beyond ten years. While some might dismiss this claim as a mere statistic, my personal and professional experiences lend credence to its validity. Over my 50 years in the industry, I've conducted my own empirical tests, revealing a stark reality about business longevity and profitability.

Empirical Evidence: A Case Study in Business Mortality

Working in a sector that has a rich history, I was curious about the lifespan of companies in my field. Deciding to dig into the Yellow Pages, I counted the number of companies that had ceased to exist within a single year. The results were startling: a comprehensible and sobering 30 companies had vanished in one year alone. Extrapolating this over a decade, it becomes easy to understand why only a handful (perhaps as few as four) of the original ten might still be in business by then.

Myth versus Reality: Challenging the Longevity Myth

However, the statement of ‘only four out of ten companies’ surviving over a decade is more about making a point than precisely defining a mathematical probability. The assertion is often misinterpreted and made into a focal point of debate, which can be futile. Each sector may exhibit different survival rates, yet the overall sentiment remains unshaken. The data, while imperfect, is not without value; it does highlight the challenge of long-term business viability and profitability.

Beyond the Numbers: The Factors Affecting Business Lifespan

Undeniably, the data is mired with complexity and nuances when it comes to defining what constitutes a ‘company.’ Sole proprietorships and asset protection enterprises often complicate the statistics, skewing the perspective. For instance, in private aviation, numerous aircraft are registered under LLCs for liability protection, despite not generating any revenue. These vessels, while they exist, do not contribute to the profitability or longevity of the larger business ecosystem.

Similarly, there are countless companies designed to serve specific functions and dissolve after their purpose has been fulfilled. Holding companies, for example, often hold intellectual property (IP) without generating revenue. My own holding company, which focuses solely on securing and managing IP, exemplifies this role. Non-profit organizations, while crucial for philanthropic and community work, also dissolve after accomplishing their primary objectives. Furthermore, the startup culture is characterized by numerous feasibility studies that shut down when market viability is not established.

Moreover, many businesses are launched by individuals who are 'virtually unemployable,' often due to multiple failed ventures. These entrepreneurs often find themselves in the annals of bankruptcy, with ideas that, while creative, are often destined to fail due to infeasibility or lack of market demand. A Thai restaurant in a town with fewer than 500 inhabitants, for example, is a tale of misguided entrepreneurship, further underscoring the challenges of starting a business without thorough market research and a clear understanding of the local ecosystem.

Conclusion: A Path to Steady Success

While the challenges of business longevity and profitability are daunting, a strategic approach can significantly enhance the chances of success. Proper planning, adequate capitalization, and a deep understanding of the market are essential. Entrepreneurs must also consider the sustainability of their business model beyond initial milestones. By being well-prepared, thoughtful, and informed, it is possible to build a business that not only survives but thrives over the long term.

Call to Action

For those embarking on the entrepreneurial journey, it's crucial to conduct thorough research, consider the broader business landscape, and be prepared for the unexpected. With careful planning and a solid foundation, the path to sustainable success can be navigated effectively.