How Many New Businesses Make It Past 5 Years?

Why Do So Many New Businesses Fail?

1. Lack of market demand. Business owners can easily overestimate the demand for their product or service. 
2. Inadequate capital. A business might not have the funding needed to continue operations. Some businesses require years of work before they can turn a profit. The owner must keep themselves and the business financially afloat during that time.  
3. Poor management. Inexperienced management can lead to mistakes in decision-making. Mismanaged finances, inefficient operations, and poor employee relations are all results of bad management.
4. Ineffective business planning. A solid business plan clearly defines objectives, assesses the competition, and strategizes for growth. Without a solid plan, businesses are rudderless. 
5. Over-expansion. Expanding a business too quickly without a sustainable plan or adequate resources spreads a company too thin.
6. Failure to adapt. The inability to change with market conditions, customer preferences, and technological advancements can leave a business lagging behind its competitors.
7. Insurmountable economic shifts. Supply chain disruptions, changes in trade policies, and major technological disruptions could make it impossible for businesses to survive.

 

How to Build a Business that Makes It Past 5 Years

1. Regularly conduct market research. Continuously analyze your market to make sure there is sustained demand for your products or services. Track trends and customer feedback to adjust your offerings to match changing customer needs.
2. Keep multiple funding options open. Establish multiple sources of capital, including savings, loans, investors, and grants. Keep a reserve fund to cover unexpected expenses and potential lulls in business.
3. Develop strong management practices. If you plan to manage operations yourself, invest in management courses to make yourself a more effective manager. You may also want to surround yourself with advisors and mentors. You could also hire an experienced manager to oversee operations on your behalf.
4. Create a detailed business plan. Your business plan should include realistic goals, thoughtful market analysis, clear strategies for growth, and contingency plans for potential problems.
5. Manage growth carefully. If you plan to expand, do so strategically. Make sure you have the necessary funding, systems, staff, and infrastructure in place to support sustainable growth.
6. Be ready to pivot. Make sure your business model is flexible enough to quickly adapt to changes in market conditions, consumer preferences, and tech.
7. Plan for economic volatility. Include a risk mitigation section in your business plan to address possible sudden shifts in the economy. This could mean diversifying supply chains to minimize potential disruptions or exploring new geographical markets in case demand drops in your local market.

Alternatives to Opening a New Business 

If you’re looking to find a passion project, consider flipping properties. 

• Potential for quick returns. Flips can often be completed in just 6-12 months.
• Control. You get to decide which properties to purchase and how to add value to those properties.
• Skill leverage. If you have experience in construction, design, or real estate, you can leverage those skills to maximize returns.
• High demand. There is no shortage of buyers looking for a turn-key property. 
• Tangible results. It’s satisfying to see the physical transformation as a result of your hard work.
• Strong return potential. You can make good money by flipping houses. 
  
  

If you’re looking to gamble on business start-ups, invest in multiple companies.

• Diversification. Even if some of the businesses you invest in fail, the returns from the successful businesses can bolster your portfolio.
• Passive income potential. Investing in other businesses allows you to avoid the day-to-day involvement required in running a business, providing a more passive income stream.
• Learning opportunities. Exposure to various business models and industries can expand your areas of expertise beyond what you could learn from just one new business.
  
  

If you’re looking to grow your wealth, consider real estate syndication. 

• Substantially less risk. By pooling resources with other investors and the sponsor, your financial risk exposure is minimized.

• Low investment minimums. You can potentially buy into a high-value deal with as little as $10,000. 

• Potential for impressive returns. Experienced real estate sponsors have systems in place to reduce costs and maximize returns. Gatsby Investment, for example, generated average annualized returns of 23% for investors from 2017-2023.  

• Passive returns. Since the sponsor handles all the work, your returns are completely passive. You don’t have to invest any of your own time, establish any of your own vendor relationships, or deal with any of the headaches of real estate development.

• No ongoing expenses. Unlike sustaining a new business, which requires paying constant expenses, syndication investors pay a single upfront amount and don’t have any additional financial obligations.

• Diversification opportunities. Diversifying by Investing in multiple syndication projects reduces market risk even further. And because of the low investment minimums, you can easily spread your capital across multiple deals.

• Tax benefits. Syndication investments offer tax advantages like depreciation and deductions.

• Economic resilience. Real estate often demonstrates resilience against economic downturns relative to other markets, making it a safer bet during uncertain economic times.
  
  
  

  

  
  
  
  

Invest in Real Estate Syndication with Gatsby Investment