Have you heard the “fact” about entrepreneurs, it’s called: “Within 5 years, more than 80 percent of them will fail”. If you google for that sentence, you’ll find plenty of sources that keep mentioning this as a solid fact. Have you ever considered that it might not be true, or have you accepted that as “researched fact” since people keep telling “researches indicate so” and “everybody knows that”?
I wrote about questioning authority earlier, and I think the lessons in that post are worth keeping in mind. I was reading book called Entrepreneurial Marketing (by Bjerke and Holtman, 2002) I discovered quite interesting study results.
Let me quote the book Entrepreneurial Marketing. They talk about “exit rates” rather than “failure rates”, since a firm can exit an economy for all sorts of statistical reasons without actually failing. For instance, a firm that is acquired by another firm is normally counted as one ‘exit’. Bjerke and Holtman give some figures about the survival rate of start-up companies. I believe these figures come from USA, Japan, Australia, Hong Kong and Indonesia. Their rough indications were:
- 20-30% of start-up companies will survive more than 8 years
- 50 percent will survive about 5 years
- 70 percent will survive 3 years
- 85 percent will survive the first year
50 percent will survive about 5 years? What happened to the “well-known fact” that “80 percent of companies will fail within 5 years”?
If you think about the statement: “80 percent of companies will fail” you can see some problems with it. First of all: it says “companies”. That suggests it takes into account all the companies in the world, all the industries. If you think about that bit more, could you see that perhaps “florist companies”, “IT companies” and “car seller companies” might have a bit different survival rate? Or is it so that in all companies, there’s no difference in survival rates? I doubt that. You can also think about the “80%”. That’s quite a rough number. Basically one could think that what if the number is 75% or 85%. What does this tell us? There’s tens of millions small businesses in the world. A 10 percent unit difference in these numbers would mean millions start-up companies. That’s quite a big number to make rough statements about survival rates. Yet people still keep us telling how 80% of companies will fail after 5 years. Why?
Don’t believe facts just because some authority tells you about them
What I’m trying to say here is simply that we shouldn’t believe every single ‘fact’ right away. Some “well-known facts” might be rough statements that are far from being true. I would also like to say that it’s not really necessary to question everything all the time. Sometimes it’s pointless to argue about some statements, since sometimes it just makes things more difficult.
For example, I think there would be no point for me trying to convince anyone that “80 percent of companies will fail within 50 years” is not true (any more than I just did). I think that the meaning behind that statement is “most of the start-up companies won’t be here much longer than 5 years”. That’s possibly quite accurate statement. I don’t think there’s so much harm done by saying that statement. I see no point questioning it more than I just did.
I simply rest my case by saying that statements that aren’t backed up by research findings (with specific authors, documents etc.) are not necessarily correct. Even if they point to some research articles, the credibility of those documents might need to be verified to ensure that the information is correct.
80 percent of companies won’t fail within 5 years just because some authority says so.