Settle Down, The Small Business Failure Rate is Not what you Think Settle Down, The Small Business Failure Rate is Not what you Think
We were working on an article explaining how fear is commonly used in marketing messages (for example, did you know that your family will be crippled with debt and ongoing liabilities (yes, even the cute babies) when you die unless you sign up to some random insurance policy today…) and came across the troubling statistics of small business failure rates.
Did you know that almost half of small businesses fail within the first three years?
That is very concerning, and it is also completely false.
This is an example of how adding fear to taking context and reframing it in a manner that compels “us” (actually fear) to buy a particular product or service.
Then Statistically, What is the Failure Rate?
It’s almost impossible to find out.
The Australian Bureau of Statistics tells us that for the Financial Year of 2013/2014, there were 282,336 new ABN’s registered for businesses of less than 20 employees in Australia. At the end of June 2017, there were 154,486 of these ABN’s still registered1. This equates to a reduction (or exit rate) of approximately 45%.
That is not to say that 45% failed.
The ABS specifically state on their website that a business exit does not necessarily equate to a business failure2. It effectively means that an ABN is no longer active. The reasons for this are not defined but could comprise of any of the following:
- An ABN was registered but the “business” never eventuated through one reason or another (over zealousness, change of personal circumstances or motivations etc.) and thus it expired.
- The ABN holder retired or voluntarily stopped trading.
- The ABN holder decided to return to the workforce as an employee for a myriad of reasons – more security, less responsibility, parental entitlements, more stable routine etc.
- The ABN was cancelled as the business was sold or transferred to another party.
But this does not equate to failure.
So Why say Failure?
“Failure” is a trigger word. It is the perfect opposite of “success”, and if we are not succeeding, or successful, it is assumed that we are doing something wrong (and therein our entire universe as we know it will crumble around us). “Failure” triggers emotions, emotions are persuasive, and the likelihood is that we will take action (e.g. sign up for a service or product) to appease our emotions.
How many consultants, coaches, gurus, or advisors use the small business failure rate as a way to start a conversation or display their value? How many business-to-business providers in general use the small business failure rate as a lead in to promote what they do?
The “failure rate” was likely created once, and then most of us ran with it never really questioning its authenticity because it was so widely adopted. The truth is without surveying those whose ABNs were not renewed, we can’t know for sure why they didn’t renew. Those small businesses that actually “failed” (bankruptcy, or were consistently losing money without a positive outlook) may well be as high as 45%. But it may be much lower.
So Running a Small Business is Easy then?
Unless you are a hustling, ass-kicking, go-getting crypto-riding ninja guru, it’s hard work. And that’s why communities like Smallville, LinkedIn or business networks can be so valuable. They give you somewhere to learn and vent, rather than feeling isolated.
It’s certainly not easy, but don’t be fearful or intimidated when you see small business failure rates tossed about. Unfortunately, it is just marketing at its worst and shouldn’t get in the way of genius project.