After the recession of 1990, startup companies seemingly abounded. Companies created before March 1993 have dismal survival rates according to the Bureau of Labor Statistics, with less than half of these companies surviving beyond just 5 years. Companies starting after 1993 haven’t fared much better. Since 2006, startups (new business openings) have declined over 24%. There are other statistics that show that as startups add employees, their risk of failure substantially increases. Government reacts with the hope that promoting small businesses will grow the economy. Programs, grants, loans and policy changes often follow post-recession periods to encourage small businesses.
One certainty is that Cash is King and SMBs forgetting this must Pay the Piper.
There are two ways of looking at the SMB failure rates. One: considering cash and the need of cash, it is amazing that businesses survive beyond 5 years--because less than half will. Then, of those that do survive, the odds are still stacked against them because as time rolls on these businesses continue to close. Looking at businesses as opportunities, and then plotting the openings and closings on the above USBLS graph clearly shows a negative trend. Pumping money into startups and new ventures calls for a higher level of scrutiny than ever since the odds are against more than half of all startups. More importantly, it calls into question the government's role in infusing money into predictable lost causes. There's the fundamental issue of how startups and young companies surviving in the initial stages use their funds to ensure their survival. Then, in using the funds these businesses must make heads or tails of how to use cash or credit.
The graph above also shows peaks and valleys including numerous data points that lead to a downward trend. These same peaks and valleys are found in the monthly P&L, sales, cash flow and other business reports. Smoothing out these peaks and valleys is what SMBs and startups must learn to do before they spiral out of business. The above graph shows an alarming trend that businesses are failing, along with the tanking rate of new business startups.
Technology rightly applied and used can reduce the burn rate of cash and improve employee and service responsiveness that can pare down the width between the peaks and valleys in cash flow, sales, operations, customer service and business cycles. While technology is only one area of a business that can contribute to success or failure, companies that use it to their advantage will benefit and chances for continuance improve.
Today's startups aren't too likely to garner a lot of attention or even funding without rock solid business plans detailing how the organization is going to carry out its mission profitably. In the past twenty or so years, I've been privy to both successes and failures of businesses that we serve. Business owners and even VCs aren't always willing to reveal key information to their vendors, while some customers will. New startups without a good alignment between the business plan and the right mix of technologies are apt to repeat the same pattern of failures. Entrepreneurs and investors know that the rules of starting new ventures are changing, but do vendors know how and when to monetize on the opportunities?
SMB CONSIDERATIONS
* Other People's Money (OPM) is harder to acquire--this means startups and companies need to hone their business skills and better manage cash flow and the balancing act between OPEX and CAPEX--either of which can sink a company.
* Debt is more precarious to assume and manage
* As a company emerges from startup and ages/matures, applications of technology will change and should change, with a migration towards continuous improvement to obtain best value for the organization without forsaking business needs and quality
