Why 9 out of 10 Businesses Fail

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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Nearly every entrepreneur and small business owner has had this statistic thrown at them at one time or another. Many have debunked this "fact" and the actual number of businesses failing is closer to somewhere between 40% and 15%. Still, the stat contains a nugget of truth.

Starting a business from scratch is hard, and not everyone will make it, and many never live up to their full potential, or even become profitable. In fact, a good chunk of businesses are treading water, not really sure if they're going to make it. They have sales and maybe even profits, but their success in the future is unclear. So why do so many businesses live in this world of uncertainty, where survival is so uncertain?

Don’t Become too Process Oriented

Many small business owners train within the tiny realm of their business: the processes, the everyday creating and selling of widgets. We gobble up industry information, we track numbers, analyze, split test, and try to do everything right. Productivity is paramount! Starting a business is hard, and if we don't do these things, the dream dies.

The problem is, when we spend all of our time on the everyday processes and in survival mode, we don't give enough attention to what made us succesful. We don't set aside time for creating, for trying new things. Here's the really crazy part: innovation is probably what brought success in the first place. You provided something new and different, and that's what attracted your initial customers.

Don’t Stop Innovating

I know a very successful software company that came out with revolutionary software three years ago. It was a great product—something the market needed and was willing to pay for. Pretty soon the company, which started as a fun side project, became a good source of revenue. The product was on the Head Honcho's radar, and soon there was a lot of financial pressure on the product. Now the cool, innovative software wasn't being improved or developed, but merely maintained, supported, and sold. There was too much at stake to worry about anything other than selling and supporting the existing software.

Fast-forward three years. The once-innovative software is now just like every one of its competitors. The fear of not making enough money cost them their innovation. They aren't trying new things; they're treading water and slowly sinking.

Don’t Be Afraid of Uncertainty

My friend Jonathan Fields knows a thing or two about the fear associated with owning a small business. He signed the lease for a large yoga studio in downtown New York City on September 10, 2001. The next day his business dreams came crashing down. But instead of letting the fear get the better of him, he instead opened up his brand-new yoga studio for free to anyone who needed a quiet sanctuary when everything else seemed like too much to deal with. His gesture of goodwill got plenty of publicity and loyalty, and before long became one of NYC's premier yoga studios.

What's the point of the story?

The point is that there is always a plentiful supply of doubt and uncertainty when running a small business. Businesses have a lot of moving parts, and a lot that can go wrong. But the biggest mistake is to not invest in what got you there in the first place: innovation. As one of my friend's favorite sayings goes: "You gotta run with who brung ya."

What they don't tell you is that owning a small business is mostly all about managing uncertainty. Jonathan Fields has written a fantastic book that deals with this topic in-depth: managing the unknown and investing in innovation and creativity.

So really, the first stat I mentioned should really go like this: "The nine out of ten businesses that allow fear to cripple them will fail." Innovation is what got you started in the first place. Continue to invest in it. Don't let the fear of profitability, success, or anything else convince you that maintaining the status quo is more important than creating.

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