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THE numbers are stark--some 50 per cent of businesses do not survive the first five years. Worse still, some studies indicate only one in four new businesses survive the first year. But what do business owners do when their businesses fail? Do they give up? Do they fade into oblivion or do they rise to the occasion, like the proverbial phoenix from the ashes of their failed concerns?
Business failure is not only common with new start-ups but also with businesses that have been established for some time regardless of how successful they are. Business failure is not incompatible with economic dynamism.
Although business failure happens to businesses of all sizes, smaller concerns are the ones that appear to be exposed to bigger threats simply because they do not have the luxury of extra finance and resources that most large companies possess. Business failure occurs when a business has reached a point where it can no longer continue operating because it has become insolvent or economically unviable.
These problems may offer no feasible solutions and by continuing to trade, owners put themselves in deeper trouble. At such a juncture, it is important that they accept business failure early or face increased financial and legal problems as they try to save the business.
Knightsbridge Consultancy's principal consultant Richard Sng says: "Business failure does not always occur because of problems in your own business, but can be a knock-on effect from actions made by other businesses, suppliers, and customers. It is thus, important that business owners recognise the early signs of business failure before it is too late for the situation to be resolved."
He adds that public opinion often associates such failure with personal inability or worse financial impropriety. But these opinions should not weigh on the minds of failed business owners.
Business failures have a high cost in terms of employment, purchasing power (unpaid wages) and finance (unpaid debts). This cost could be reduced if businesses in difficulty received better assistance and, in the event of bankruptcy, if it made it easier for them to make a fresh start.
Furthermore, entrepreneurs who restart a business learn from their mistakes and subsequently enjoy greater success. For all these reasons, a second chance should be given to failed businesses.
Starting Anew
Business failure isn't the end of the world. Shajahan Shaik Alaudin of Masakan Shaik Firdaus is one example. Without many academic credentials, Alaudin decided that he had to set up a business for a better life. When he first started this business, he failed due to lack of capital. So Alaudin decided to offer door-to-door car grooming services to build up his capital. For 4.5 years, he saved S$200 daily from car polishing. With this accumulated capital, he proceeded on to enter the catering business, albeit on a small scale.
An unknown name then, Alaudin initially liaised with mosques for business leads. To penetrate the market, he placed advertisements on wedding packages in the newspapers. From a company with just one cook--Alaudin himself--the company is today a large and highly regarded catering company with reputable clients such as Singapore Airlines.
One Singapore entrepreneur who does not shy from her business failure is Nanz Chong-Komo. She is best known as the founder of the One.99shop--a chain of stores offering goods at S$1.99. After a short career in modeling, she caught her father's entrepreneurial bug and opened up a clothing boutique called Klis at the age of 23. Klis was so successful she sold it within 11 months for a profit of S$84,000.
ONE.99shop followed in 1997, which had 14 stores at its peak in 2002. In 2000, she was named the Woman Entrepreneur of the Year. In 2001, her business was worth S$14 million. By end of 2003 coupled with spiraling costs and the retail downturn due to the severe acute respiratory syndrome (SARS), the business had become unviable and Nanz was forced into bankruptcy.
When ONE.99shop finally closed in 2003, many asked: Why did One.99shop fail, and what would Nanz do next? She started a Web page with the tagline "I Failed, So What." She did not let failure stop her from moving on.
She recounted the issues behind the failure in a book which became a bestseller. Later, she took on the mantle of corporate speaker and trainer. Today, besides bringing her large personality and even larger heart into boardrooms to encourage teamwork and impart hard lessons to business leaders, she is also the face of Shi'jano, a Swedish science-based range of skincare recently launched in Asia.
When one has failed, it is easy to hide behind the excuse of "bad luck". Nanz recalls an encounter when she gave a business talk (after the closure of One.99). At the end of the talk, a lady in the audience asked if she considered what happened to her "bad luck".
She says: "My answer to that was if I had believed in luck, my speech would have lasted only a minute, because I would have just said 'Ladies and gentlemen, thank you for being here today. What happened to my business was pure bad luck! Thank you and have a good day!'"
"Calling it bad luck negates the need to analyse, review, and understand what went wrong and where. You cannot learn from a mistake if you cannot first admit you had made one! In my case, for example, if I had planned better for the tight cash-strapped period that my retail stores faced during the SARS health crisis, the fate of the company could have been different," she explains.
Another entrepreneur who has bounced back is Bernie Utchenik. The proprietor of Botak Jones started other successful food and beverage businesses like Bernie's, BFD, and Bernie's Goes to Town, before he faced hard times. He persevered and re-built his business.
He says: "After the success of Bernie's and BFD, I was bought out by my partners so I started Bernie Goes To Town at Boat Quay. I had a few reasons to succeed and had a bit of a chip on my shoulder and felt that I had to be better than I was before."
Unknowingly, Utchenik changed things that made the Bernie's so successful. At Bernie Goes to Town he started delegating too early and took his eye off the ball. By the time he realised how much trouble he was in, it was too late to turn it around and he had to sell it at a huge loss. That episode certainly changed the way he does business with Botak Jones (see next story).
What is worrying is that Singaporeans aren't really an entrepreneurial society. According to the Global Entrepreneurship Monitor (GEM) Executive Report, Singapore scored the third lowest rate of entrepreneurial activity among the GEM countries at 5.2 per cent, just slightly ahead Japan (5.1 per cent) and Belgium (4.6 per cent) but pales beside the 11.7 per cent figure for the United States.
It came as no surprise that Singapore scored low in terms of "cultural values" according to the GEM Report. If that is not bad enough, Singaporeans also ranked below average in terms perceiving themselves having the skills to start a business, and the proportion who perceive good start-up opportunities in the next six months.
This implies that Singapore's culture does not gel well with the spirit of entrepreneurial risk-taking, creativity, and innovativeness. Moreover, risk-averseness and fear of failure are deeply entrenched in the minds of Singaporeans. In addition, people in Singapore are lulled into indolence and contentment with stable and well-paying jobs, thus paying little heed to their inner entrepreneurial calling. They fear failure and thus bankruptcy. No surprises then that failed entrepreneurs are wary of repeat failures.
More Assistance
Thus more needs to be done to help local business entrepreneurs, even more for those who fail. So what is stopping many of the business owners who fail from re-igniting that entrepreneurial pursuit?
The issue isn't not being able to recover. It's the ability to overcome the psychological scars of business failures first says Sng: "Asians, by and large, fear business failure. We need to learn that new entrepreneurial attempts are part of a normal process of learning, research, and discovery. The media also have a role to play, particularly when it comes to combating the cliche according to which business failure is equated with personal failure."
He thinks that business failure should be prevented by helping entrepreneurs at some early stage. But even if a business fails, the owners should have some sort of assistance in rebuilding.
A recent local business poll by a leading consultancy of 503 business owners revealed that 87 per cent said they would be keen to start another business should their existing enterprise go under. The poll revealed that the majority would also only wait an average of four months before starting their new venture.
Sng says: "Many small business owners are operating in more difficult conditions at the moment and, unfortunately, as the credit crunch begins to bite, there's a risk that some entrepreneurs will find their livelihood under threat. Yet, it's heartening to know that their desire to bounce back from failure is so strong. It takes determination, commitment and tenacity to run your own business, and these qualities clearly stand entrepreneurs in good stead if they're forced to start all over again."
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Entrepreneurs learn valuable lessons if they have been through a business failure. The survey found that 73 per cent of entrepreneurs believe they would be less likely to make the same mistakes again next time around, while 31 per cent believed that business failure would make them more risk-averse.
Sng says there's no more effective tutor than harsh experience and we learn much more from our failures than we do from our successes: "Experience shows that many successful entrepreneurs have a history of previous ventures behind them. There is no question that previous experience of running a business, either directly as an employee of a small business or through businesses in the family circle, is a positive contributor to success."
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