There are 28 million small businesses in the U.S., according to the SBA. They created 63 percent of new private sector jobs and 42 percent of private sector payroll. Headlines are grabbed by young entrepreneurs who are starting high tech companies, but in reality people over 50 own 51 percent of small businesses, while those between 35-49 own 33 percent and those under 35 own 16 percent. Women own 36 percent of small businesses, 2.3 million businesses are Hispanic-owned, 1.9 million are owned by African-Americans and 1.6 million are Asian-owned.
On Strategy reports that 66 percent of new businesses survive for at least two years, 50 percent make it at least four years, 40 percent make it to six years and one-third make it to 10 years. So why do new businesses fail at such a high rate? The number one reason is running out of money too quickly. When starting a business, you need to plan as if you had no sales for six months and have that money sitting in the bank to cover all the startup issues. Before the recession, business owners could borrow against the equity in their homes, but we don't have that same home equity in 2015. New business startups are rolling the dice and not having as much in the bank, hoping they won't have to face this issue. Established small businesses also face cash flow issues because they may be completing their projects but their clients are paying slower, so payrolls get missed and lights go off. The number two reason why businesses fail is overconfidence in their product that may be ill-timed or is a dud of an idea. If you don't test market first or you are not keeping up with the trends, there is a good chance customers won't purchase your goods. The third reason is a poor pricing strategy where competition may have a cheaper solution. If you must lower your price, there still needs to be enough margins to pay the bills.
Other reasons for business failures include an overdependence on one customer. This country is littered with manufacturing startups that were thrilled to get Walmart as a customer. They put too many eggs in one basket and when Walmart decided to go overseas to knock off their products cheaper, they soon went out of business if Walmart accounted for more than 50 percent of their sales. Small business owners do not know how to say no. Some small business owners promise the world, but going after all the business at one time drains your cash and profitability -- and you may lose sight of quality, delivery time and follow through. If you miss the mark with an inferior product or late delivery, your customers will put you out of business.
Many of my relatives on both sides of the family are in a family business. According to the Curchin Group, 70 percent of family businesses never get past the first generation, 85 percent don't make it past the second generation and 97 percent more never get past the third generation -- leaving only 3 percent of family businesses making it to the fourth generation. There are all kinds of reasons for the death of family businesses, but in reality they are not much different than what happens in real life. According to the Globe, over half of family businesses do not have a succession plan. Entrepreneurs are hesitant to place their passion into the hands of others and so they lack the plan to create a business roadmap. Internal family conflict, where not everyone has the loyalty to go in one direction, causes breakups. Generational conflict, where there is a disagreement in core values and business missions and where the next generation rejects established methods and the entrepreneurial vision, can bring down a business.
So the odds seem against you whether you want to open your own business or join your relatives in their business. It is much safer to join a big business, work hard and get your gold watch. But the Bureau of Labor Statistics recently reported that the average person born between 1957-1964 has held 12 different jobs. And Forbes reports that 91 percent of those born between 1977-1997 expect to stay in a job for less than three years, which means they will have 15-20 different jobs over their lifetime. So is taking a chance and opening your own business any different than working for a big business?
If you want to take the plunge into opening a business, America is there to help. One way is through a new program, "Big Ideas for Small Business," that was launched last year by The National League of Cities in partnership with the City of Chicago's Innovation Delivery Team. They have produced a toolkit that helps local leaders create ecosystems that supports small business growth with city resources and provides business owners with access to new sources of capital. Another resource is SCORE (Service Corps of Retired Executives), which has 364 chapters and 13,000 volunteers, whose mission is to foster small business communities through mentoring and education. These are successful business owners who are giving back to their communities. The NFIB (National Federation of Independent Businesses), of which my company is a member, is a great resource for information and interaction with other small businesses. And at DollarDays, on our Facebook page, we are giving away $5,000 worth of products during June to small businesses to get them ready for back-to-school sales, so please nominate a small business in your city or town that deserves our help!
This alarming failure rate of small businesses is a concern to every community. For our cities to recently jump in and realize this is a local issue that must be solved reinforces that these entrepreneurs are not in this battle alone -- they have their village looking out for them. This is a good start to reverse our small business death trend. But it also takes individuals in our communities spending in small businesses. These buy local campaigns truly make a difference. For each $100 spent at local businesses, $45 of secondary local spending is done, compared to $14 for big chains. This multiplier effect trickles down and has a dramatic influence in keeping our local businesses alive. America has been great since our independence because on the back of small businesses we have built an exceptional agricultural, industrial and intellectual powerhouse economy. We can't afford to let these small businesses die, because just about every impressive economic accomplishment in our country started in the mind of an entrepreneur.