Tag: Percent

Why 90 Percent of Entrepreneurs’ Businesses Fail

Entrepreneurship has become the general dream work for both the employed and unemployable. Business opportunities are springing up everywhere, enticing and calling you to make the leap of destiny into the wealth and affluence you’ve often dreamt about. It is also notable that 9 out of every 10 businesses collapse within 2 years of starting. Even the best of well-read gurus collapse in the face of numerous tests that would have heralded the enthronement of a celebrated business idea.

Despite the numerous complaints about the challenges of building businesses in Nigeria, some are still transforming themselves into formidable forces of repute. It is therefore important to know the necessary factors that affect the entrepreneur, his idea, and his growing business.

Not considering pests!

Pests are crazy little creatures that cause immense damage to food and materials in a house, shop or office. Ok, I am not talking about local pests, but in business parlance means Political, Economic, Socio-Cultural and Technological environment; factors which are not necessarily within your control. Some other standard business books give their own academic variations.

PESTLE/PESTEL: Political, Economic, Sociological, Technological, Legal, and Environmental.

PESTLIED: Political, Economic, Social, Technological, Legal, International, Environmental and Demographic.

STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical; and

SLEPT: Social, Legal, Economic, Political, and Technological.

This considers external factors, which if not well considered, can suck life out of any aspiring business. I remember Sokoa Chair Center (Nigeria)’s story for which they explained how the National Government’s ban on importation almost ran them out of business. Her ability to navigate her business out of the murky waters of challenges became the foundation for the world class enterprise she manages today.

Political: political stability, security, freedom of press, regulation and Tax policy, and trade and tariff controls

Economic: Stage of business cycle, economic growth, inflation and interest rates, unemployment and employee turn-over, impact of globalization (Global Financial Crises)

Socio-Cultural: education and social mobility, market demand, public opinion, social attitudes trends,

Technological Environment: Impact of emerging technologies, (automation, internet, e-commerce e.t.c.). Compaq recently launched a 24hr laptop battery, while DELL was busy putting finishing touches to launch their 16hr laptop battery, if DELL were a run off the mill company, they are grounded!

Eating your investment, and not profit

No sooner than a small business begins to level up in terms of income, our wonderful entrepreneur begins to think of changing levels and status. He buys a new car, wardrobe, changes office space, all from the proceeds of the business which is actually the capital and not profits. When spending, it pays to separate personal funds from the business. The business pays you your money, and you must learn to live within that means. Problems occur when initial deposit is given for business only for our aspiring business man goes to celebrate the huge success of his business.

An entrepreneur seeking to build a business must understand the separation and marriage between business and personal life.

Mismanaging reality

When entrepreneurs venture out, they are usually motivated by a deep passion-either for themselves, their idea, getting rich, an opportunity or some other object of enthusiasm. Armed with such passion, they take risks and set sail against unexpected signs of reality.

Yet passion tends to distort reality. The ability to succeed in business depends on the skill of adjusting the plans and dreams to the prevailing conditions. The idea that the challenges will bow to your plans and dreams will burn the drain the entrepreneur’s time, energy, and money pursuing an ill-defined endgame without a realistic path. And when the issues start pouring in… expenses not turning into expected results , potential customers are not that crazy about the product, missed deadlines, shortfalls in sales,- objectivity and reason become even further blurred by the mind-bending distractions of doubt, fear and disappointing replies to investors. Entrepreneurs are found to cave in under these kinds of pressures not knowing it is a bend towards the shining light of achievement.

When personal failures affect business

The personal faults, habits and failures of an entrepreneur are usually obvious especially when he has a lot of people under him. Inability to manage funds, not being detailed and bad people management skills are some indirect factors responsible for the high rate of business failures. Entrepreneurs, like any pioneer, have their own lapses, but must be able to manage them extensively. I know an entrepreneur who does not negotiate price but leaves it to his financial manager because he never succeeds in negotiating a beneficial deal. Many entrepreneurs are successful in spite of themselves. The key is in working well, and enjoying, full understanding of their weaknesses and mitigating the likely risks.

Good at starting business, bad at running them.

This is very true of many entrepreneurs, since most of them are powerful initiators, but terrible managers. Most are more interested in making money than it is to build a business. Most technicians think because they understand their product or skill, they will automatically transform those ideas into business. Most of them have this great obligation to run their businesses and become a great manager. Working on a business and working in a business are two different worlds. While the entrepreneur works on his business, the technician works in the business. He feels if he gave in more, worked harder, profit will come. How untrue!

These are some of the factors I have considered and will love if you ponder on them while thinking, planning, starting and managing your business. Don’t forget also, out of the first 20 richest men in America, only 4 are employees.

Unsecured Small Business Loans – Good News – Stimulus Bill Allows SBA 90 Percent Guarantee For Loans

Anyone remotely involved with small businesses, whether as a consultant, lender, supplier, leasing specialist, trade association, or simply as a consumer who is tired of driving by sections of town and wondering why your favorite business unceremoniously threw in the towel, would very much like to hear some good news. Not to mention the small business owner itself. After all, there are 27 million small businesses that deserve to be thriving in this nation, but too often were ignored by the Bush administration. Classically non-complainers by nature, they just want a scrap of hope thrown their way. And I’m not talking about wide-eyed idealists looking for handouts-in all due respect to Emily Dickinson, they’re not looking for the”thing with feathers that perches in the soul”. Just give us a few bucks and we will run with it. This is a continuing article (20 in all) on the subject: Help. Is anyone out there loaning to small businesses anymore?

Fortunately there is a loan program out there and SBA lenders are actually making loans currently: the Community Express Loan Program. This gives unsecured small business loans between $5,000 and $50,000 with very little paperwork, answers typically in two days, interest rates presently at 7.75%, funding and two weeks, and monies wired directly to your business account. There are still lenders participating in this program, although Congress has failed to make the program permanent and still has a 10% cap on the number of loans.

Enter the Obama stimulus bill. Let us look how it affects this program and small business lending as a whole.

If you have tried to wade through the 1,100 or so pages of the new stimulus bill (American Recovery and Reinvestment Act of 2009), you know its like chipping through granite. But let me pull out a little gem. It now allows the U.S. Small Business Administration (SBA to you) to guarantee up to 90% of loans made by private lenders under their program. Let me explain. This is great for Community Express.

When the Small Business Act was enacted in 1958, it had a very simple mission. Find a way to get loans to small businesses that couldn’t get them through traditional channels. It did this in an ingenious way. They knew banks where reluctant to loan to small businesses, especially startups, because of fear of failure. So the SBA collected a fee on each loan and used this as a fund to pay banks if there was a default. Bingo, there was invented the SBA guarantee fee. It doesn’t take a degree in rocket science from MIT and an MBA from Harvard to know this gives incentives to the banks to make more loans.

SBA loan programs have guarantees from 50% to 85%. Specifically, the SBA currently has an 85% guarantee on loans up to $150,000 and up to 75% on loans above $150,000. On the other hand, there are some programs that only go as high as 50%, including the Express Loan program (for those types of loans the new guarantee will not change). With the new stimulus bill, the SBA has the right to increase these fees to 90%.

Think about this for a moment. Simple math tells us more guarantee, the greater the likelihood of the bank making the loan. For goodness sakes, 90% is tapping on the door of a 100% guarantee! Also note the guaranteed portion is typically sold on the secondary market (which has recently shut down to almost nothing) so there is more chance for loans to be sold and more money to go back into the coffers of the banks for further lending.

Notice I said the SBA has the right to increase it to 90%. It can pick which program. And it has not occurred yet. But if I was a betting person, I would say they would be seriously looking at most of the programs because everyone is scraping for ideas to revive the economy.

For those addicted to primary source documents, this is what the new statute, in relevant part (my attorney wanted me to add that) says:

SEC. 502. ECONOMIC STIMULUS LENDING PROGRAM FOR SMALL BUSINESSES. (a) PURPOSE- The purpose of this section is to permit the Small Business Administration to guarantee up to 90 percent of qualifying small business loans made by eligible lenders.

(b) DEFINITIONS- For purposes of this section:

(1) The term ‘Administrator’ means the Administrator of the Small Business Administration.

(2) The term ‘qualifying small business loan’ means any loan to a small business concern pursuant to section 7(a) of the Small Business Act (15 U.S.C. 636) or title V of the Small Business Investment Act of 1958 (15 U.S.C. 695 and following) except for such loans made under section 7(a)(31).

There is also a sunset provision under Subparagraph (f) that the guarantees are only good for one year after enactment of the bill, unless extended by Congress.

So what does it do for me now as a small business owner? Well now the not so good news. I predict the SBA will be increasing many of its programs to 90%. But to get the banks in the lending mood again, there has to be a secondary market. There is also new legislation on that, which we will discuss in another article. But once we have a secondary market, I predict that they banks will not only loan, but do so in a big way. For three reasons:

First, history tells us when there is economic inactivity due primarily to depressed conditions, when the cycle changes for the better, like a sling shot affect, it changes dramatically. Remember when people were unable to refinance or purchase their homes because of tight markets and high interest rates? The rates went down and many jumped at the chance to refinance, improve their homes, and purchase (some say too precipitously) with abundance. Although this is an overstatement and also depends upon other factors such as employment, standards of living, etc., the analogy holds that when things loosen up, there will be a substantial number of business loans.

Secondly, banks are in large part in the business of making loans and they have not been doing so for some time. They will be anxious to make profits again.

Lastly, simple economics tells us when there is a vacuum in the market; capital will rush in and take advantage of that open market and initial lack of competition. Large banks are not making business loans so small community banks are starting to rush in to take over the arena. Give them a secondary market and they will explode.

So for the small business owner, I think this news of 90 % guarantees is favorable. Why did it take them so long?

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