Saturday, August 30, 2008

If that is success....

A couple of days ago, the local Jackalope Grill Blog pointed out a N.Y. Times article, "Love Food? Think Twice Before Jumping In." August 26, 2008.

"...two of every three new restaurants, delis and food shops close within three years of opening, according to federal government statistics, the same failure rate for small businesses in general" the article says.

Well, that caught my attention. Two out of three, within 3 years? That figure seems really high.

In fact, it runs contrary to what I think I see -- most businesses last at least three years.

Extend that timeline out a bit further, and I might believe it.

Sure enough, when I researched it, there is a good deal of controversy about small business failure rates. But most agree with the 'rule of thirds'; something like one third of all businesses lose money in the course of their lifetimes; one third break even; and one third make money.

And, in a very vague way -- what's a failure? what's a small business?--- it might be said that a third of all small businesses go out in the first few years, more than half after five years, and two/thirds after ten years.

These figures are more in accord with what I think I see.

"When Linda Lipsky taught a course called “So You Want to Open a Restaurant” at Temple University in Philadelphia, she deliberately made the business sound like a minefield. She warned her students that it is possible to lose their homes, their life savings, and even the rights to their own names. Her goal, she said, was “to get two-thirds of them to quit,” starts the article.

Which echoes what the people said to me up at the Small Business Administration at C.O.C.C. Their job was to guide people through a small business plan, and if many people never follow through because of what they learn, that's considered a successful result.

I'm probably more severe in what I consider a success than most people: Businesses close all the time, but it's the rare case that a business closes or sells at the conclusion of a 'successful run.' (I hope to do so, someday, so I won't say it impossible, just rare.) I don't believe most business close or sell when they are truly profitable, no matter what the owners says. But no one wants to admit defeat. Any and every other reason is floated as to why the business is closing/selling. So, just as some successes are obscured by the statistics, so are many of the failures.

Even the example of a successful restaurant in the article seemed a little iffy. The example of the fellow who is now 'only' working 90 hours a week (exaggeration is part of the deal) and only "modest salary," meanwhile having borrowed 440k from the SBA -- well, to declare that a success is a little too soon and a little too broad.

If that is a success....

But at least he's devoting his full attention to his dream.

The other example, of the lady lawyer who kept her day job; this always bugs me. This may seem smart, but shows a complete lack of confidence. Leaving yourself an escape clause is almost a guarantee that the clause will be used.

Anyway, it's still a very interesting article, especially for Bend with it's 8,343 restaurants.

Hey, I work 100 hours a week....I'm too tired not to exaggerate.


eyepublius said...

"something like one third of all businesses lose money in the course of their lifetimes; one third break even; and one third lose money."

Therefore, NO small businesses MAKE money. Frankly I find that a little hard to believe.

Duncan McGeary said...

Oops. Sorry.

I've corrected that.