Business is not as easy as most people believe, whether it’s a big business trying to survive in its market year by year or a small business just starting out, the success rate is not high. Big business must grow its top line sales and its bottom line profit just to stay in business as competition for customers, operating expenses, and inflation are relentless on a business. Not growing and expanding is dying for most businesses.
A publicly trading company must also attract investors and money managers to maintain their stock price and also their credit rating and ability to borrow money to stay capitalized. Business is a relentless sport of survival as Wall Street waits for every earnings announcement.
Most of these big businesses started out once as small businesses. This size of business is not easier. Approximately 20% of small businesses fail within the first year of operation, 30% of small businesses don’t make it two years and 50% will go out of business within five years.[1]
94% of start up businesses fail over the long-term. Business is a serious endeavor that takes research in choosing the right industry, at the right location, that you understand how to operate. Here are some business models with the highest success rates below to improve entrepreneurs chance of survival.
What type of business has the lowest failure rate?
Real Estate
“90% of millionaires got their wealth by investing in real estate.” – Andrew Carnegie
Rental property businesses have a 85.3% success rate. Overall, more money has been made in real estate over the history of the U.S. than all other industrial investments combined. Real estate businesses operate with assets that have intrinsic value and a floor for its minimum price.
Real estate creates monthly cash flow and most expenses are fixed. The asset also tends to appreciate in value consistently in time creating long-term capital gains at the same time you are receiving cash flow. Real estate also allows the investor to use leverage to buy the asset with borrowed bank money. The return on the loaned money can be much higher than other investments that require all the capital for buying an asset. You can also hire a property manager to turn a real estate business into a cash flowing asset that doesn’t require your time.
Self Storage
Self-storage businesses have a 92% success rate for owners and operators. With over 50,000 self-storage facilities now in the U.S. location is now an important factor that can determine success. With modern technology these businesses now can be operated with no employees as the process is mostly automated using software, online contracts, automatic bill pay, security cameras and alarms.
Trucking
These businesses can range from a long haul trucking company transporting goods across the country or just delivering the last few miles. Transportation companies tend to have about a 76% success rate. Transportation companies have low capital requirements except owning or leasing the trucks needed.
Vending
Vending machines is an interesting business model because you can start it with minimum capital and also scale it to any size you can handle. The varieties of items you can sale is also large. This business has great mark ups and profit margins, volume is what makes it profitable and worth the work. It’s like having a lot of little cash flowing assets.
The expenses for a vending business are in your products, gasoline cost, and time. To get in the best locations you will also have to pay a fee as the best high traffic businesses lease spots. But you can also build your own vending route with free locations if you can find businesses that will let you place vending machines where they are needed for free like breakrooms. It’s a great starter business with minimum risk. Vending machine businesses have an approximate 82% success rate. You can also build a vending route up and sale it.
Laundromats
Laundromats have an approximate 94.8% success rate over a five year period.
They tend to be cash flowing businesses and recession proof as people always need to wash their clothes regardless of the economy. Most laundromats don’t require employees and are cash flowing businesses 24-hours a day in most cases. They are not as expensive to own as you would think.
Senior Care Centers (Healthcare)
Federal, state, and city government subsidies make senior care facilities a high success rate business model as nothing pays more consistently than the government. Demographics in the U.S. are also favorable to this business now and in coming years as the population ages. Individual houses can be zoned for elder care as well. Of course, it is complicated with qualifications and regulations. [2]
What businesses have the highest failure rate?
Here are the five types of businesses that have the highest failure rate.[3]
- Construction industry businesses: 25% fail in the first year.
- Transportation industry businesses: 25% fail in the first year.
- Professional, scientific and technical services: 19.4% fail in the first year.
- Finance and insurance businesses: 16.4% fail in the first year.
- Food service industry businesses (restaurants included): 15% fail in the first year.
What are the Top 5 reasons businesses fail?
Bad operational management
Not being able to set up, manage, and operate a system for a business will result in its failure. A business can’t operate off ideas, opinions, and spontaneously. All successful businesses operate proven systems. That is what people are buying with a franchise, a proven systematic process for making money.
Bad financial management
Bad financial management can be from the start with not being properly capitalized to operate long enough to see if the business can be successful. It can also result from bad cash flow management and not being able to bill customers and also pay bills fast enough. The worst type is not managing profit margins, expenses, and labor costs to make any money. Accounting is an essential skill in business.
Poor business strategy
A business strategy is an outline of the quantified ways in which a business plans to position itself in the marketplace and industry. A strategy is the plan for how the business will achieve success and accomplish both its short-term and long-term goals. A strategy keeps a business growing in sales, revenue, and market share. This is the innovative part of business to insure survival by thinking in terms of the big picture of facing its competition and keeping up with advances in technology.
No leadership
Every business needs a leader to set the vision for the business going into the future. A leader also holds employees accountable for doing their job. A leader sets the example for work ethic, caring, and inspires everyone else to follow their example and mindset. The leader creates the business culture and affects morale.
Bad location
In business, location can be everything, especially for a retail business or restaurant. You must be where the customers are and also where the need is for your business or service. The city, state, and country your business is in is important because supply and demand are different geographically. Online businesses have an edge as they can operate worldwide on the internet but they must be able to be found in search for people to know they exist.
No demand
Businesses get paid by customers for fulfilling a demand. Sales volume is equal to demand. Demand can be created through advertising, sales people, and offering something your competitors don’t. The primary reason businesses fail is due to a lack of demand. Be sure people want what your business is selling.
