This actually occured to me while watching Ghostbusters the other day believe it or not…
I’v often seen this thrown around on other boards that 80%-90% of all new business fail. But I have two questions about that
Is this really the case? I dont think the people claiming that are intentionally lying, but I havent seen any actual sources for that.
If it is true, how many fail because of genuine market forces(bad management, unexpectidly high production costs, unexpectedly low demand, etc) and how many fail because of the government(either being directly shut down by the government or being unable to afford paying for taxes and compliance with regulations etc?).
Are you familiar with the concept of creative destruction?
It is a necessary thing that failure be prevalent in business and the players dominating the market come and go. As Friedman said, losses are more important than profits in the best allocation of scarce resources.
In other words, 28.5% of new businesses were no longer operating after one year. Of course, the exit rate depends on a range of factors such as general economic conditions, size of business, industry, etc. Also, the longer they stay in business the better their survival rate.
Every socialis thinks like that, recently that argument is used in favor for Zeitgeist.
“All businesses fail within the first 1-3 years, so our only chance is to do a revolution”
Damn it, they can’t seem to grasp why they fail.
Like I said, failure always happens because the entrepeneur made a terrible mistake. Either he doesn’t have a strong work ethic, not very determined, not enough education and/or doesn’t know how to please the consumers.
It’s very hard to fail just like that!!, for no reason, other then your own.
I was watching Free to Choose with Milton Friedman the other day. He presented this fellow who created a “oil absorber” powder thingy, he was a scientist and his invention could save oil companies bilions.
Well, I did some research and the chap didn’t make it big. Apparently he had a “female problem”, he liked to sleep around, slept with a married woman and got shot by her husband…go figure!!
There’s a small percentage who have “bad luck” in business, but not really.
Are you familiar with the concept of creative destruction?
It is a necessary thing that failure be prevalent in business and the players dominating the market come and go. As Friedman said, losses are more important than profits in the best allocation of scarce resources.
I’m guessing it must come as a shock to socialists who think you can just “own” something and automatically profit.
You guys are all missing the point (except maybe the first poster), for me the fact that 80% of all new businesses fail is something that should incline people towards libertarianism. The reality is that there are countless examples of people with what seems like a great idea who end up going bankrupt within a year, which to me suggests that ex ante guessing of what should be in the market isn’t always as easy as it looks and that attempts to do so are more hubris than genuine insights. In other words, whether entrepreneurs are smart or stupid, the market will (usually) stumble towards a collectively rational outcome.
Well it does demonstrate what a difficult business satiating consumer demands over long time horizons is and does serve to paint interventionist hopes of supplanting the market system for that as, shall we say, quaint.
I’ve bootstrapped two businesses. It isn’t easy. People who don’t understand the business cycle (most people) are really susceptible to macro economic events which can interrupt the best of plans.
What’s the methodology for that statistic? If I set up a business to capture World Cup 2010 wave and then close the business once the World Cup 2010 is over, then that does that mean that the business failed?
LibertyStudent, surely that does not explain how many businessmen have succeeded without knowing economics. And in the case of Warren Buffett’s protectionism and desire to restrict foreign investment, we even see medieval era economics being supported by one of the shrewdest men.
Like I said, failure always happens because the entrepeneur made a terrible mistake. Either he doesn’t have a strong work ethic, not very determined, not enough education and/or doesn’t know how to please the consumers.
It’s very hard to fail just like that!!, for no reason, other then your own.
I have to sort of disagree. This would be true on a free market, but with the state being able to regulate businesses(and change those regulations on a whim), take their money, and forcibly shut down business that dont comply, I think its fair to say that at least some business failures can be directly attributed to the government.
That was why I started this thread, my gut reaction every time I hear ‘80%-90% of all new businesses fail’ is that fewer would fail without the state, but I was curious how many fewer…
I wasn’t taking those factors in consideration, but in America that doesn’t happen all the time. Well it’s rare, I agree it’s becoming harder. But Amaericans still have a lot of rights that aren’t taken away yet.
I don’t get it? Besides government intervention and regulation, is this not showing (all other things being equal) the absolute efficiency of the free market in responding to consumer demands?
It seems that the demand for incompetence or poorly thought out services or goods don’t rank very highly on the list.
LibertyStudent, surely that does not explain how many businessmen have succeeded without knowing economics. And in the case of Warren Buffett’s protectionism and desire to restrict foreign investment, we even see medieval era economics being supported by one of the shrewdest men.
Some people are good at obstacle races. Some corporations thrive even as (perhaps because) certain regulations weaken competitiveness. However, having a government that introduces uncertainty in a) interest rates b) the actual level of inflation/unemployment and c) regulation certainly makes a business all the harder to run. As for Buffett, I think that he - like Soros - know more than they’re willing to let on.
As for how many would fail absent the state, I don’t think that’s something you can easily quantify. It depends largely on how large a market they try target and how easy said market is to please, amongst other things. Figuring out exactly what will captivate consumers’ interest is hard work, especially when competitors might figure out how to do it better.