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Small Business Failures: Australia's Most Deadly Business Myth

Business myths are like urban myths. They are wildly exaggerated stories originally told by somebody's uncle's best friend, a person of unquestionable authority. These stories have stood the test of time and have been perpetuated for so many generations that they're automatically accepted as fact. That is, until one day when the real facts emerge and the myth falls into disrepute. Today is going to be one of those days. Today will see the demise of one of Australia's most outstanding business myths.

Here's a question for you: What percentage of businesses fail in their first year of operation in Australia?

It's not a trick question. What sort of figures have you been told? 40%? 50%? 60+%?

Take a moment to think about where you heard that statistic. Was it from a fellow business owner? A consultant? An accountant? Someone else?

To confirm any 'fact' or statistic you need to go to the people who are actually in a position to know the truth. In the case of business failure rates that would be the respective State government departments responsible for business and the Australian Bureau of Statistics.

The following quote comes from the website of the NSW Dept of State and Regional Development. We have checked out websites of other State departments and they show the same statistics.

"Despite what is commonly thought, relatively few small businesses fail. Over the 2 year period 1994-95 and 1995-96, an average of 23 200 small businesses or 6.1% ceased operating in Australia. Less than 10% of these closures were due to bankruptcy proceedings (in the case of unincorporated businesses) or companies being liquidated. The other businesses closed down for reasons such as the owner retiring, seeking a different lifestyle or dying.

The failure of Australian businesses fell significantly during the 1990's. It is estimated in 1999-2000, there were 3.6 failures per 1000 enterprises."

Surprised? Take a moment to really think about it. How will knowing these statistics change your perspective on being in business?

Why Australia's 'most deadly' business myth?

1. When you started your business were there people around you who took great pains to tell you exactly how likely you were to fail?
2. How did this impact your attitude and approach to business?
3. What did it do to your confidence? Was it a case of face the fear and do it anyway?
4. Did business advisers try to solicit work from you on the premise that, left to your own devices, you would probably fail like all the people before you?
5. Are you still carrying the legacy of those fears with you today?
6. Have you ever heard someone say "that person manages to stay in business despite themselves"?
7. How many budding entrepreneurs are sitting in jobs they hate just out of fear of the perceived likelihood of failure?

People's beliefs around business failure rates have a profound impact on their motivation and the way they relate to their business. We believe the Australian business community has laboured long and hard under the weight of distorted beliefs around failure rates. The cost to individuals, our communities and country is immeasurable. With ever-increasing pressure from global competition, compliance law and the sheer speed of business, it's time to replace this business myth with knowledge that is more empowering.

The Roles of Fear and Attraction

There are two forms of motivation in business, fear and attraction. We can make decisions based on fear of consequence or attraction to a particular outcome. Both types of motivation have an important role to play in managing a business. The trick is to keep them in appropriate proportion. When fear is allowed to be the primary driver then it can stifle progress, innovation and risk taking. Anyone who has achieved in business will tell you experimentation and 'educated risk-taking' are factors critical to their success. The same would be said for positive thinking.

On the other hand, remove all fear and we end up with the reckless entrepreneurship that was the hallmark of the 1980's. If we focus purely on the outcome we want, without consideration for the consequences of our actions, then we are only step away from being commercial psychopaths.

Keeping it all in Proportion

The upside of all this is next time someone quotes some outlandish figure about business failure rates you will be able to choose a response. It may be:

1. Have a good chuckle
- particularly if they're trying to sell you something using fear
2. Correct their knowledge
3. Refer them to EWO
4. All of the above

The formula we keep in mind at Eyes Wide Open is:

Business Vision / Goals = Progress
Risk Management = Sustainability

The current status of the business will tell you where focus needs to be put. If you have just been through a substantial growth period then maybe it's time to review your risk management strategy. If your business is making little progress, and this is a problem, then visit your business vision and shift gear toward being future focused and goal driven.

Whichever way you're heading, take confidence from the fact that, in business, Australians are far more prone to success than failure.

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