What Do You Think About These “Business Truths”

I’ve been reading the book E-Myth Revisited and it’s pretty amazing to see so many “business truths” in a book that’s got so much good reviews and praise.

Here are some of the “truths” I’ve read from the book:

“Fact” #1: Within five years after launch, more than 80 percent of the US businesses will have failed.
It was quite amazing to see this “fact” in the second page. It was something that the author bases his ideas. And that’s pretty bad, because 80 percent of companies won’t fail within 5 years. Some merge to bigger companies, some business just survive. After hearing this “truth” in the beginning of the book, it was bit tough for me to orientate. I thought that if the author bases his book on false numbers, what else there is to believe?

I decided to ignore that fact, moved on and encountered the next “fact”.

“Fact” #2: Blue suits outsell brown suits
The author asks salespersons to wear 3 weeks brown suits and then 3 weeks blue suits, and he claims that blue suits outsell brown suits. He claims that “sales will go up during the second three-week period”. Well… I don’t buy it. I’m certain that if we took every possible sales situation and put people wearing blue or brown suits, blue suits wouldn’t differ that much. In some cases they probably could, not for every – or perhaps even close to that.

Just think about it. If you are hungry and go buy a hamburger, are you more likely to buy the hamburger from somebody who wears blue suit compared to somebody who wears a brown suit? I doubt it.

I believe that testing different combinations is important. I believe that in some situations blue suits might work better. Perhaps in some type of stores wearing hat versus not having a hat has an impact of sales. Which way, it’s not possible for me to say – but it might have impact. Small things can have impact, but they need to be tested.

But stating something like an absolute truth… is bit… unexpected. Which leads me to the last “business truth”.

“Fact” #3: Saying “Hi, have you been here before?” instead of “Hi, may I help you?” will increase sales by 10 to 16 percent
I don’t buy that. The author claims that if a salesperson asks from the customer: “Have you been here before” she can then continue (whether the customer says “yes” or “no”) by saying “Great, we have special program for new people/those who have shopped here before.” And that can lead to discussing more.

While I agree that it can be effective in certain situation, there’s a danger that the impact won’t last for a long. What if I go to that store 5 times per week. Every time some salesperson comes to ask me “Have you been here before?”. I would be like: “YES, YESTERDAY, THE DAY BEFORE, AND BEFORE THAT – AND YOU’VE ALWAYS ASKED ME THAT SAME QUESTION!”.

Or I wouldn’t go to the shop any more because I would know that the salesperson would try to hunt me every time I go there.

Which reminds me about a story from the past. I was very close to switch my phone operator years back. Every time we went to grocery store there was some phone company sales people handing us fliers. When we went to the store we got fliers. When we got back (and had hands full of bags) we got fliers. Over and over. I thought about purchasing a hat that would have said: “I’M THE CUSTOMER OF OPERATOR X” so the salespersons could read that and leave me a lone.

The point is… the sales can increase by 10 to 16 percent. Or they can increase 35. Or go down 2 percent. Who knows. What I do know that they won’t immediately increase 10 to 16 percent for every single store. In some stores it might have the opposite effect. It depends.

Bottom line
It’s true that certain type of behavior (even something seemingly irrelevant) might have a big impact on sales. Humans are emotional creatures, and make irrational purchases. There are many factors that influence our buying decisions, and those factors can be researched and experimented. I don’t think it’s such a good idea to believe these type of numbers, because frankly the results can vary a lot.

In the end, it’s a matter of researching and testing.

Enough from me. What’s your thoughts? Care to share some “business truths” you’ve heard of lately?

8 thoughts on “What Do You Think About These “Business Truths”

  1. When I became self employed my bank manager explained about the 80% statistic (it may have been a different percentage or different number of years, but roughly of the same magnitude). They said that it correlated with the number of businesses that they ran accounts for that had wrapped up due to closure, so it’s a fairly accurate figure in that respect, but he explained that it’s not the same as saying “80% of businesses fail” because:

    * It includes businesses being taken over, mergers etc. Quite often one business is absorbed into the other, as though one has folded.

    * It includes self employment. Some people register for self-employment and get employed later on (like me).

    * It includes failed startups – people who start a business with improper preparation, or realise that their hearts aren’t in it, or register the company but fail to get funding to progress. These are legion, but usually don’t last more than a year or two.

    * There are numerous other reasons why a business would shut down without it being considered a “failure”.

    Then having said that, he said that a lot of businesses do fail outright. If it were easy everybody would be doing it! :)

  2. I always love that 80% failure rate statistic. People selling business books and seminars to people without experience love to quote it. Consider this: A businessman in the USA starts as a sole-proprietorship. The following year the owner takes on a partner so he legally closes the business and reforms it as a partnership. A couple successful years later, the business again reorganizes as a corporation and the partnership is dissolved. A year later the business relocates to another state in the USA and has to reincorporate.

    If you just looked at the legal records, you could claim that businessman had 3 companies go out of business in five years in that state in five years! Is he unsuccessful?

    Another thing these guys don’t tell you is that many small businesses are formed simply as a legal structure for people doing business together for a short period of time such as the life of a single project. Those businesses are not intended to last more than a few years.

    If all these business gurus really held the secret to success, we’d all be taking their classes and making millions! ;-)

  3. Zeha and Tuna: check out the article I linked to. There you can find numbers based on research, not in “well known facts” ;)

  4. 80% is a high number, and it would seem that its impossible for that many businesses to fail but I’ve worked at so many places and seen many others go out of business very quickly. One of the first places I ever worked at failed because the owner had absolutely no idea how to run a business, it never showed a profit and continued to hemorrhage cash until the owner had to sell one of his investment properties to pay off current debts. I also remember back in my home town, there was this one building, and during the entire time I lived in that town there was at least 1 business that came and went each year. I think the main reason for the massive amount of failures is because people don’t know how to manage every aspect of a business. They may be really great at accounting, handling employees, or some other facet of business but you really have to be able to tackle every part of your business for it to be successful. Actually starting the business is what is most challenging, and the most challenging part of that is getting the proper amount of cash to do so. A lot of people under estimate the amount of money needed to start a business, and most businesses go under quite fast which is why I think the failure rate is so high. They fail so fast that a lot of people don’t even realize a business ever existed.

  5. [...] What Do You Think About These “Business Truths”Some merge to bigger companies, some business just survive. After hearing this “truth” in the beginning of the book, it was bit tough for me to orientate. I thought that if the author bases his book on false numbers, what else there is … [...]

  6. [...] What Do You Think About These Business Truths Some merge to bigger companies, some business just survive. After hearing this truth in the beginning of the book, it was bit tough for me to orientate. I thought that if the author bases his book on false numbers, what else there is … [...]

  7. [...] What Do You Think About These “Business Truths”Some merge to bigger companies, some business just survive. After hearing this “truth” in the beginning of the book, it was bit tough for me to orientate. I thought that if the author bases his book on false numbers, what else there is … [...]

  8. The first one may be true – because there are many people who try to kick off some business without passion or producing quality. And if you count all those – it may be true ;)

    But if you only take those who really try to provide something good, and those who really stand behind their stuff and, I think many of them will succeed. Maybe in some other way, just as you said. Take youtube, it got sold, but does it mean it wasn’t successful? ;)