The Myth of Business Failure

The following is a guest blog post by Dr. Matthew G. Kenney…

We often hear that 80% of small businesses fail. However, did you know that there is no valid or reliable data to support this statistic? While this myth is widely cited, the actual success rate of new ventures, according to at least one scholarly source, is approximately 50%. About 28% of new ventures closed voluntarily and only 18% left outstanding debt.

Mark Twain told us “facts are stubborn, but statistics are more pliable”, and he was entirely correct. So then, is the failure rate for businesses 18%, 50% or 80%? Does it really matter? If you are thinking of starting a business why is the failure rate of other businesses relevant?

Statistics are important and we should use them as part of our decision making process, but statistics pertaining to small business success and/or failure may not be reliable. The majority of businesses in America are sole proprietorships and their closure rates are not closely tracked by the government. Some entrepreneurs will close one venture to pursue another, or close a business to accept a job offer. I once closed a consulting business to accept a position as VP of Operations for a venture capital funded start-up. Should I consider that business a failure? A statistician would…I wouldn’t.

What is more relevant than statistics is how you define the word failure. One of the biggest differences between entrepreneurs and employees is that each group defines the word failure differently. To most people failure is viewed as the inability to accomplish a goal. To entrepreneurs, failure is defined as an unwillingness to try and reach a goal. Entrepreneurs focus on the process, not just the end result. A project or venture that isn’t profitable isn’t viewed as failure, rather an investment. Money and time spent is viewed as tuition, not a loss. If you agree with this view self-employment may be for you.

Dr. Matthew G. Kenney is president of Kenney College Graduate School of Global Entrepreneurship, which offers a MBA with an entrepreneurship specialization. He is the author of two books and has been published in peer-reviewed journals in the areas of marketing, management, technology and entrepreneurship. For MBA program information please visit www.kenneymba.com.