It is always an exciting venture to introduce a new product or service to the market. There is usually optimism; however, the reality is that many businesses are unable to sustain their operation over the long term.
According to a Statistics Canada study, Canadian New Firms: Birth and Survival Rates over the Period 2002–2014, on average, 96,000 new firms entered the Canadian economy per year, sixty three percent of new firms survived five years, and 43 percent survived 10 years. The highest number of new firms and the lowest survival rates were in the accommodation and food services sector.
The findings also indicated that larger firms have higher survival rates. During the first three years, 23 percent of entrants with 1–4 employees failed while only about 14 percent failed among those with 20–99 employees. More than 57 percent of new firms with 1–4 employees failed after 10 years, but less than 50 percent of firms with over 20 employees failed after 10 years.
While these numbers provide us with some insight regarding the businesses that are most likely to succeed, what are the main reasons for failure? There are various contributing factors ranging from how the product is marketed to how the organization functions.
Companies offering products and services that don’t adequately distinguish their business from the competitors’ often fail. If there is nothing distinctive about a product then there is very little motivation for purchase. It is also insufficient to have a distinct product without making sure it is what your targeted customers want, and that the timing and marketing method is appropriate. Business owners should produce a unique product of substantial value that adequately appeals to its customers to ensure a greater demand for the product. It is equally important to strategically market the product at the right time to create brand awareness.
Some organizational factors that lead to failure are the concept of groupthink and embracing closed innovation rather than open innovation. Groupthink occurs when a team decides to go with the opinions of the majority even if they realize that is not the best approach. This need to achieve consensus often jeopardizes the well-being of the organization. In a similar vein it is crucial for businesses to understand that excellent ideas can be generated outside their own organization; by doing so they will be demonstrating a willingness towards open innovation.
Failure may also be a result of companies choosing to opt out on some crucial stages of product development such as conducting a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis to develop appropriate strategy, generating, screening and evaluating ideas, conducting business analysis to assess features of the product or service and the marketing strategy needed to bring it to market and thorough market testing.
By overlooking these key steps, the business may have prematurely entered the phase of development and commercialization leading to the introduction of a substandard product or service. To increase the likelihood of success, it is important to undergo a comprehensive feasibility study as well as following all the steps mentioned above.
Considering the nature of what is involved to increase the survival rate of a business it is apparent why some smaller businesses or those in certain industries fail. Most larger corporations are more structured and have the resources, knowledge and expertise to ensure that they take the necessary steps.
The challenge is for smaller businesses to invest in the needed resources that will increase their likelihood of longevity. It is especially important for immigrants and newcomers with an entrepreneurial mindset to thoroughly research the market to get a deeper understanding of the Canadian market, prior to undertaking their business ventures.