Opportunity Versus Risk

Entrepreneurs generally tell us that they did not really take a big risk when they started their business. In fact, it would have been more of a risk in terms of "lost opportunity" if they had not launched the enterprise. Their attitude reflects a belief in their ability to control the situation.

Educators (with little or no entrepreneurial experience) often quote the SBA data about how many small businesses fail in the first five years. "Failure" becomes their reason for not supporting entrepreneurship education in our schools.

Fortunately researchers are beginning to look at this data with a more analytical eye. But we have not found a perfect way to measure business start-ups or disappearances in this country.

In the first place we are learning that many new startups do not appear in the traditional data. The SBA is currently reporting that new business formation reached a record level of 819,477 new employer firms.

However, a new survey of 36,000 households (conducted by Gallup under contract to NFIB and Wells Fargo) indicates there were more than 4.5 million new business starts in 1995. Of these new businesses, 3.5 million were started from scratch, 900,000 were purchased from previous owners, and 68,000 were inherited. Now we are able to count new businesses as they are created, not just employer firms that are usually several years old.

Further, we have depended on reports of the U.S. Courts to identify "business bankruptcies" and also on the Dun and Bradstreet Corporation to identify "business failures", but neither has been able to capture the many reasons for these disappearances.

In a 1994 survey of those who had failed in business, more than 53% became owners of another business. When asked if they would have done it all over again, 61.4% said "Yes". Further, 73.2% said they plan to start a business again in the future.

Failure or Change?

According to the SBA, of every seven businesses which shut their doors, only one of seven actually fails...that is, leaves unpaid obligations.

If we were to brainstorm the reasons a business might "disappear" we could see that traditional ideas about business "failure" as a problem are often overemphasized . For example the owner

• might sell his/her idea to another company

• might retire and just close the doors

• might get a better idea for a business

• might invent a different type of product

• might take the business to another state or country

• might decide to work for someone else instead

• might go bankrupt (Dun and Bradstreet data)

• might pay all his/her bills and then close the door

• might decide the market for this type of business had disappeared and start another

• might die or become disabled

Most of us have heard that Henry Ford "failed" several times in developing an automobile company before he started the Ford Motor Company. Could anyone call him a failure? Perhaps business failure is a way of learning what might have been learned through experiences in entrepreneurship in the earlier years in school.

It is time we realistically weigh the risk of failure versus the loss of opportunity for success as we advise young people about their futures.

Note: This article was published in EntrepreNews & Views and may be copied for local school use. Please reference it as follows: by Cathy Ashmore, The Consortium for Entrepreneurship Education, Columbus, OH.