SBA Study: New company failure rate not so high

New companies don’t fail as often — or as fast — as thought. Instead, 67% of new ventures are successful after four years, says a study that contradicts the widely held belief that 90% of start-ups fail in year one.

By Jim Hopkins, USA TODAY

The study of 12,185 companies found that 17% were wrongly considered failures because they had closed. Instead, owners deemed them successful, and closed them after retiring or selling them, says Brian Headd, a U.S. Small Business Administration economist. He says many would-be entrepreneurs are scared by the 90% failure number, and that the new research could encourage would-be entrepreneurs at a critical time.

Entrepreneurship, which leads to the small businesses that create most new jobs, is hitting speed bumps. The share of all U.S. workers who are self-employed hit 50-year lows during much of last year. Venture capitalists have cut investments in start-ups since the technology bust and the stock market’s swoon. Ventures most likely to survive begin with:

* More than $50,000 in capital. Many companies fail because founders don’t start with enough to cover expenses while they build revenue. Ted Jordan, 42, set aside $50,000 to cover his salary and the cost of computers, travel and other expenses when he started his computer consulting firm in 1998 in Cleveland. JordanTeam Consulting had $45,000 in annual revenue and was profitable last year.

* A college-educated owner. Education gives an entrepreneur more resources to keep a business going, Headd says. Cecilia Chavez-Protas, 45, who worked for AT&T in human resources for 13 years, earned a business management degree so she would be better prepared to start a company. That helped in 1998, when she accepted an AT&T buyout and started Competitive Edge Consulting in Mesa, Ariz.

* A home office. Companies begun at home have lower start-up costs because the owner doesn’t pay office rent. Also, such entrepreneurs likely enjoy working from home, so are more likely to keep a struggling business going longer.

Kim Rowley, 30, started an online shopping service at her home in Pierce, Neb., in 1999 because she wanted to be closer to her four young children. No local employer would let her telecommute in her 1,774-population town. Rowley’s http://www.Shoppingbookmarks.com helps consumers find discounts on products from apparel to videos. It has $75,000 in annual revenue, and a new, potentially lucrative deal with Procter & Gamble.

http://www.usatoday.com/money/companies/2003-02-17-starts_x.htm