Summary
The failure figures for SMEs are staggering in any country analyzed. Statistics indicate that, on average, 80% of SMEs fail before five years and 90% of them do not reach 10 years. For the owners of SMEs, the reasons for failure must be sought outside the companies, but business analysts are more oriented to identify the causes of failure in the SMEs themselves and, in particular, in the management capacity of those responsible.
There are data that corroborate this second point of view.
Alarming figures
The failure figures for SMEs are staggering in any country analyzed. Obviously, they vary according to the country, but remain at very similar high negative levels. Thus, for example, in Spain, for García Ordóñez, from the University of Cadiz, "80% of companies fail in the first five years." These figures are confirmed by "Emprendedor XXI", from La Caixa, which warns that "the statistics tell us about a high mortality rate in newly created companies: according to 2003 data, more than 70% of businesses do not reach four years of life". According to ECLAC "in underdeveloped countries between 50 and 75% cease to exist during the first three years."
For Francisco Yañez (Mexico) on turning 10 years old, "only 10% of companies mature, are successful and grow." According to Cetro-Crece, also from Mexico, “75% of new Mexican companies must close their operations after just two years in the market. For degerencia.com: "experience shows that 50% of companies go bankrupt during the first year of activity, and no less than 90% before five years".
In the United States of America, according to Samuelson and Nordhaus, "the average life of companies is six years and more than 30% do not reach the third year." The Argentine Association for the development of Small and Medium Enterprises affirms that: "Only 7% of the enterprises reach the 2nd year of life and only 3% of the enterprises reach the 5th year of life." Finally, in order not to overwhelm with more figures, in Chile, according to Rodrigo Castro F., a study in which 67,310 companies created in 1996 were followed, indicated that 25% of them disappeared in the first year, 17 % in the second year, 13% in the third year and 11% in the fourth year.
Why ?: the vision of entrepreneurs
As we can see, the death rates of SMEs are very high in any economy or country that we analyze. The important question is: why is there such a voluminous disappearance of new ventures? The answers to this question are divided into two large opposing groups. Those given by the owners of SMEs and those offered by business analysts.
For the former, the reasons for the high failure rate must be attributed to forces external to the companies, which act in the economic-political-social environment. We refer, among others, to little official support, deficient aid programs for SMEs, almost non-existent sources of financing, excessive government controls, high tax rates, high cost of available financing sources, and the like. While admitting the existence of all these problems and obstacles, the question always remains: why, despite having to face the same problem, some SMEs survive, progress and grow, even to the point of becoming, with the passage of time? years, in large companies? We don't think it's just a matter of luck.
Why ?: The analysts' view
The second group of responses, those of business analysts, even taking into account the negative environment in which SMEs operate, is more oriented towards finding the causes of failure in the SMEs themselves and, in particular, in the management capacity of their companies. responsible. Thus, taking as a starting point a first synthesis elaborated in Conamype, we can group the various causes of failure into five large areas:
- Problems to sell Problems to produce and operate Problems to control Problems in planning Problems in management
A large group of analysts offers more or less extensive lists of the factors that cause failure, which we can redirect to the five areas mentioned above.
Trouble selling. Resistance to abiding by customer preferences, poor customer orientation and service, poor location, lack of focus on precise market segments or niches, lack of formal marketing and sales plans, not having systems that allow them to detect opportunities market, reluctance to invest in advertising and promotional activities, poor sales network training, marketing myopia, not taking customer complaints into account, ignorance of what is being sold and to whom, ignoring the customer, ignoring competition, ignorance of one's own competitive advantages, and the like.
Problems to produce and operate. Lack of technical capacity to manage production and operations, ignorance of the sector in which it operates, negligence and little interest in the business, supply difficulties (raw materials and materials), high operating costs, poor handling of purchases, little previous experience with managed products, lack of effective information systems, serious deficiencies in internal processes, high levels of waste and waste, poor time management, error in the calculation of dead center or balance, operating in a sector with a deadlock or very high equilibrium, ignorance of the life cycles of each activity and the like.
Control problems. Inadequate handling of credits and collections, fraud, ignorance of the true financial status of the company, unnecessary expenses, serious errors in security matters, bad management of inventories, serious failures in internal controls, deficiencies in budget control and management, mismanagement of debt and liquidity, mismanagement of funds and the like.
Planning problems. Serious deficiencies in establishing strategies, non-existence of alternative plans, setting unrealistic objectives and expectations, non-existence of a business plan, inadequate planning, unplanned growth, lack of foresight, lack of pre-investment studies, and the like.
Management problems. Inability to surround oneself with competent personnel, lack of experience, excessive investments in fixed assets, deficiencies in personnel policies, absence of continuous improvement policies, lack of training of the head of the company, deficient systems for decision-making and problem solving, unprofessional management, resistance to change, reluctance to consult outsiders, taking a lot of money out of business for personal expenses, poor selection of partners, not knowing yourself, getting sucked into the nice part of the business, having negative attitudes towards employees, nepotism, poor risk management, non-compliance with tax and labor obligations, lack of entrepreneurial leadership, little clarity in defining objectives,discouragement at the first major obstacles, poor corporate culture, lack of experience in the administrative part of the business.
Undoubtedly, the above lists can be used by current entrepreneurs as a guide to "red alarms", a map of danger zones to prevent one of those time bombs from exploding underfoot. All this in order to introduce corrective measures in time. That is, at bottom, the purpose of this brief analysis. And, as has been said so many times, creating a small business is easy if you have or find the necessary funds; the hard part is keeping it alive and getting it to grow.
Ultimately, all the failure factors mentioned above lead to a single great conclusion: the need for SME entrepreneurs to be trained in the key aspects of managing their companies. And, as has also been said, only smart work leads to positive results. One piece of information that confirms this statement is that, according to the United States Department of Commerce, after 10 years, only 27% of non-franchised companies survive, while 90% of those that do not survive. They operate under the franchise system. Without a doubt, the knowledge, management systems, marketing approaches, operating models, and others, that the franchise chains contribute determine the great difference between one percentage and another.
As also affirmed by the Argentine Association that we cited before: “In 97% of the cases, failure is due to POOR MANAGEMENT. The success of a micro, small or medium-sized company is strongly conditioned by the knowledge of its owner. "
