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Start up, Close down

04/16/2010

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You only have to walk down the average high street or watch any episode of Dragons’ Den to know that a lot of small businesses just aren’t what they say they are. Sure they’re small, but there is no business. The guy who likes comic books so decides to open a comic book shop. The couple that like antiques so open an antique store. Whilst running a business needs passion, having a passion doesn’t make a business.

Conventional wisdom has it that 50% of small businesses fail within the first year and up to 95% in the subsequent years. And whilst I’m sure this is for a myriad of reasons, I can’t help thinking that a lot of it will be this confusion between enjoying and being interested in something and seeing a really business opportunity. I’ve never run my own business, but I’ve been involved in the start-up of a lot of new channels and operations within large organisations. We only ever did it where we thought knew we could make a return.

When I look at the proliferation of Social Media consultancies within business I think the same. How many of these are in it because they can demonstrate clear blue water between themselves and their competitors? How many of them have developed a genuine USP (Note here: just because you say it is a USP doesn’t necessarily make it one)? How many of them can prove (and I mean prove) ROI? And how many are in it because they find social media cool and fun and they want to mess around with Twitter all day?

I’m not trying to knock anyone here and I am sure there are a whole host of decent individuals and organisations out there doing great things.  But based on the amount of emails that I receive each day there seems to be a disproportionate amount of providers to the size of business available.  I would never wish ill on anyone following their dream to set up their own business, but I have to wonder how many will still be in place in 2012?

6 Comments leave one →
  1. 04/16/2010 10:52

    I think you’re actually being a little over generous in your inference that many are “…in it because they find social media cool and fun and they want to mess around with Twitter all day”.

    I think many are in it because they’re like delusional XFactor contestants who can’t really hold a tune – they get a “quirky idea” & (because their mum has always told them how brilliant they are) reckon it’s going to be the next FriendsReunited – sorry, myspace – sorry, Bebo – sorry, Facebook. And in a rapidly changing space where users/consumers are overloaded with choice and massively fickle, everyone’s desperate to try and back the next Google. So through over use of smoke and mirrors these “internet entrepreneurs” build something with the sole intention of building a potential perceived value to a point where some overly keen investor(s) will get greedy and offer obscene amounts for something they know very little about – at which point generally starts the demise (or indeed the rot that had set in long before then becomes obvious), not least because the new owner has to then try and actually turn that “percieved value” into actual revenue, which generally kills the experience dead there and then.

    Of course the (comparatively) low cost barriers to entry of creating anything on the web (not least an initial buzz if you’re quirky enough) also acts as a massive catalyst to this.

    So what we end up with is a whole bunch of what I’ve often referred to as “Emperor’s Tailors” – selling ‘new wave solutions’ through convincingly packaging their nothingness with lashings and lashings of spin and BS. If you like – modern age virtual Snake Oil salesmachines.

    It is indeed galling to sit to the side and watch this as a young web based business ourselves, not least because I find it makes me more cynical about new products,platforms and facilities than might be fair or healthy (e.g. the raging twitter debate I’m having re the real prospects for foursquare). Generally though I try and take a breath, step back and get on with building a web based service that actually has a revenue model that pays employees and my mortgage today – and that’s through invoices from real clients, not through rounds and rounds of ignorant VC funding looking for a 3year exit strategy through the hope of some far flung hope of a £million IPO.

    Anyway – good post as always – keep up the good work
    🙂

  2. 04/16/2010 13:19

    I am not surprised by how many businesses fail. Many of them are started by idiots.

    Case in point: husband’s parents wanted husband’s brother and family to move to Florida so husband’s parents would have company. (They are too mean to make their own friends.) Told brother, who is an awesome chef who worked in a school lunch program, they would finance a restaurant for him.

    They bought a restaurant without doing any research on prices. Used their own money – banks don’t lend money on bad risks, so yeah, use your own.

    Threw a gajillion items on the menu, including things that needed perishable ingredients. (I.e., if the items weren’t ordered, the ingredients had to be discarded.)

    Refused any outside help: husband’s father is the SMARTEST MAN IN THE WORLD. Husband’s mom can do the books. She’s a chemist who has no business experience. Husband’s father is an English professor. Brother’s wife, who has a lot of business experience, was told to stay away.

    Didn’t do a market analysis, so spent promotional $$ willy nilly: cash to advertise in school football game program, even though brother chef wanted restaurant to be more upscale. Never put up a sign, so you don’t see the restaurant when you drive past it.

    When restaurant failed, husband’s father discovers brother chef has not been paying payroll taxes. As HF is the official owner, he is the one on the hook for thousands of dollars. How do you run a business and not know this crap is going on? They never had an accountant involved.

    Has been paying employees under the table (ie, income tax fraud) and HF knew about it. This is illegal and unfair to those of us who do pay our taxes.

    They sell restaurant for 1/3 of what they paid for it. They signed a contract with the broker, but broker didn’t find the buyer. HF is furious when he discovers he has to pay a commission to the broker anyhow. But that’s what was in the contract – that HF, the Smartest Man in the World, did not read.

    I am rolling my eyes at the whole thing because if any of these people had ever run a lemonade stand, they would have known better.

    PS HF despises businesspeople like me. Except I am never stupid enough to sign a contract I 1. have not read and 2. do not understand.

  3. 04/16/2010 13:28

    OK. That was kind of long. Please delete if you want.

  4. G-dog permalink
    04/17/2010 00:50

    I wish I understood the whole process of starting a business – but at least I am aware enough to know what I don’t know!

  5. 04/20/2010 10:56

    @Alex Hens – Alex thanks for the comment, you are clearly very passionate about the subject and I completely understand your frustrations. Why anyone thinks that an internet based business is any easier than brick and mortar eludes me. As for 4square….I spend my time trying to make sure people don’t know where I am……not publicising it to all and sundry!

    @The gold digger – Yup….that would be the one…..how not to do business! Thanks for the comment by the way, between Alex and yourself, I think you more than trebled the word count on the page!

    @G-dog – Awareness of our limitations is a strength. I never try and dance for example……!

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