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Why Do Some Firms Succeed and Others Fail?

In: Business and Management

Submitted By plashchuk
Words 427
Pages 2
New businesses make an important contribution to the economy; however it is inevitable that many of these establishments will eventually fail. Data supplied by the U.S. Bureau of Labor Statistics shows that roughly 50% of new businesses do not survive more than 5 years [1.]. As many folks pointed out, there are many variables going into the reason for a success or failure of a new business.
Education: A potential business owner needs to be educated to know how an industry works. It is essential to know the industry regulations, governing agencies, and competition in the market. Many successful business owners that I know started working entry positions in an industry that interests them, before opening their own business. Essentially, they learned from their competition, capitalizing from their mistakes.
Business Planning: Most of the failed businesses that I encountered failed because of insufficient planning. Over 75% of startup trucking companies do not make it to their second year of operation. Most of these failures are due to poor budgeting and planning. They do not see the true cost of doing business and begin by under bidding their competition. After a year of operations, the overhead cost such as unplanned breakdowns, equipment maintenance, insurance, taxes, or workers compensation begin to eat away their profits. Inevitably the new company fails, mostly due to poor cash flow.
Economy: The state of the economy is the biggest factor that is uncontrollable by business owners but plays a crucial role in the fate of a business. It is important to know the general market trends before opening a business. For example, when fuel prices took a dive down last fall, freight rates were lagging behind for months due to a shortage of trucks. The barrier to entrance was lowered to the trucking industry by low fuel cost so many entrepreneurs opened trucking companies. The increased supply of truck availability and inexpensive fuel caused the freight rate to tumble down. Most of the new companies are now in trouble due to poor cash flow.
Ability to Adapt: Adapting to change is key to business survival. Thriving in today’s complex and turbulent market requires an adaptive approach. The change can be caused by changes in the market trend, new technology and new competition. A business must effectively innovate, adapt and perform to stay competitive. I have witnessed businesses drastically change their core operations to meet the customer needs and thrive, while beau acratic businesses slowly fail.
Reference:
U.S. Bureau of Labor Statistics: Establishment Survival.
http://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm

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