80% of New Employees Fail Within the First 5 Years
August 19th, 2005 by Steve Pavlina
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Have you heard the statistic that says, “80% of new businesses fail within the first five years?” That seems to be a favorite one for people to cite when attempting to discourage their friends or co-workers from starting a new business (with the best of intentions of course <- yes, this is sarcasm). Sometimes you’ll hear variations on this statistic like 75% or 90%. I heard another one that said that of the 20% of businesses that don’t fail within the first 5 years, 80% of those fail within the next 5 years. So that puts us down to only 4% that last 10+ years (20% x 20%).
Now can anyone tell me what percentage of employees fail within the first five years?
If you work at a job and get laid off after 4.5 years, would you qualify for this statistic? What if you quit? Left for a better job? Retired? Got a transfer? A promotion?
If your job ends, does that mean you failed? And if a business “fails” to endure, does that mean the entrepreneur failed? Isn’t every business going to fail eventually? Even Microsoft? <- no, this is not sarcasm.
If a business fails to endure, does that mean it could be considered a failure? Does “fail” mean that the business produced nothing of value or provided no revenue to the owner(s)? What if an employee is hired and then “fails” after a number of years? Does that mean s/he did nothing the whole time and shouldn’t have been hired in the first place? Of course not…
Don’t let goofy statistics discourage you from going the entrepreneurial route if you find it attractive. While a business or a job may cease to endure after a certain number of years, that doesn’t mean it wasn’t worth doing. You’re still going to learn and grow and create value along the way, regardless of the outcome. Just as a job can be a stepping stone, so can a business, and there’s no reason you can’t start a new business with the expectation that it’s only temporary. Jobs and businesses come and go. Your own personal growth is what endures.
My first and only stint as an employee lasted six months. My first business lasted 11 years and is still going. Go figure.
August 19th, 2005 at 5:35 am
I would hardly call leaving for a better job failing on the part of the employee. The longest job I have ever had lasted for 2 years. Like all other jobs before it I quickly rose through the ranks to become some sort of manager. I was given tons of praise and awards and I liked the job. When I started to feel things were stagnant I went to my management and told them how I felt. They looked for options to move up or into other divisions and ultimately could pnly provide me one option. I gave it a shot, found myself to be incredibly unhappy and went looking for a new job. That puts me where I am today. Again it took little time to start rising through the ranks and I have again hit a ceiling. There will be more opportunities for advancement in a few months and I am waiting for them. However, if I am overlooked and the horizon looks bleak I will start looking elsewhere. I hardly consider myself a failure. My friends and family judge me for jumping around so much but they can’t deny the fact that I make more than pretty much all of them and I’m usually happier and my conversations rarely involve the words “hate my job.”
August 19th, 2005 at 6:26 am
I’ve always found it odd that most people will talk, in terms of regular employment, about how it’s been “long enough” or that it’s “time to move on”. Heck, in many cases, when someone says they’ve worked somewhere for 10+ years, people stare at them strangely. Yet, when it comes to running a business, everyone expects that the goal is to run it forever. What’s wrong with the idea of building a business for 5-10 years and moving on either because that business’ niche is gone or the owner’s interests have changed?
August 19th, 2005 at 7:26 am
I agree with you J. I read an article a few months ago in FastCompany or some magazine like that. It was about people that are good at starting small businesses. They profiled 4 or 5 people that basically start small businesses and usually sell them after a few years when their interest change and start something new, usually in another field all together.
August 19th, 2005 at 8:06 am
I went through a similar phase that Steve went through. In my case I technically went through 3 jobs in about 6 months. It was in 2003-2004 after I graduated from college, and the IT industry was still very stagnant after the dot com crash (how are things now? I haven’t kept track since I left to work for myself). Over a period of about 3 months, I went through interviews with 4 different companies. Because the interviews were so far apart I ended up accepting the first offer (from the second company I interviewed with. first one rejected me) which was very crappy. It started with a “training course” where they paid you minimum wage and then sent you off to do consulting work for $12/hour. I only spent about a week at the training course because shortly after I started, I found out that I got accepted to another job. This one paid better (as I recall it was about $36K/year) but it involved very boring and tedious work (Quality Assurance, testing software).
About a week before I started this job, I went to another interview. This company was merging with another company at the time, and they told me it will take them a while to get back to me, so I had no choice but to take the QA job. About a month of being on the QA job, I got a call from the head of HR of the merging company. She told me that they decided to take me. At the time, this job seemed like the best job I could ever have. My title was Software Engineer, I got to program in C++ which happens to be my favorite language, and I was doing some very intereseting and challenging work. In fact I was hired to replace a much older programmer who was moved to another project. This is actually what I wanted when I got out of college. I think knowing that I wanted this was a major factor in me getting it.
Ok so here I am, great job, 45K. I doubled my income in just 3 months.
Everything was great for about another 3 months. There were many things that happened in that time, but one of them was me waking up to the fact that I’m barely scratching my full potential by working for someone else, as well as how much money I could be making. I realized that I would never be paid more if I worked harder (perhaps if you get paid hourly this isn’t as true, but I was getting a flat rate salary), and that even though my salary would (albeit very slowly) climb over the years, I would eventually hit the “salary ceiling” for my profession. No matter what kind of work you do, when you work for someone else you will never be able to make more money than a certain amount, be it 30K, 60K, or 100K. It’s just impossible. The profit of the business goes to the employer, not the employees. I also realized that I wanted to be free. Freedom right now is my #1 value. Obviously there was no way I could ever be free while working for someone else.
And so I left, after just 4 months at that job. My manager wasn’t very happy of course, but surprisingly when I told him I’m leaving to make games he offered me a contact in EA (Electronic Arts). But at that time I already knew that there was no point in replacing one job with another. A job wasn’t the answer. This is how I got to this point, where I have my own business. It’s not much yet, but I’m working on it and I know that eventually it will work out, even if it takes a very long time.
So what’s the point I’m trying to make? I feel that success and failure are too subjective to be determined objectively. I consider my job stint to be a success, because it catapulted me into where I am right now. And I consider my current situation a success because I’m living consciously, doing what I do with complete 100% conscious choice on my part, and feel that there’s nothing better I could be doing with my life right now than this. That to me is success, not having my business surviving for 5 years or 10 years or 20 years. Since we live in the present, we have to measure success in present terms, not in past or future terms. And we have to do it using our definition of it, not someone else’s.
August 19th, 2005 at 10:07 am
Interesting fact about Microsoft, billg is madly selling:
http://moneycentral.msn.com/investor/invsub/insider/trans.asp?Symbol=msft
Is this common, I don’t know as I don’t follow that that much, but it is just an interesting fact as I think to invest and for some reason MSFT seem pretty active. Maybe it has some risk, but at less it does move!
Now about the blog entry — the same fact can be said about a lot of thing, like relationship. Some people consider them failure when it ends. That is probably not always the case.
One of the problem sometime thought is to quit. Sometime you don’t want to quit, but you have to. You have to make choice. Sometime it is taking those conscious decision that is very hard. So what I am saying it is not that only quitting is hard, but learning to say no, to make a choice between a lot, to drop an option in favor of another, etc. And it is not as easy as said to begin to shift between that attitude and even when you succeed, you sometime fall back in the pattern. I am sure that what I am saying there applying to a load of people even thought it sound so easy to say “just make the best choice”.
August 19th, 2005 at 11:59 pm
A good advice for somebody starting a business is this:
Consider what will happen if the business will fail and you will want to work as an employee again. You will have a “gap” in your resume.
It is very important to fill that gap – to show that during the period when you tried to start your own business, you really worked.
This is why I suggest this:
- Keep proof that you worked during the period. Meeting notes, source code, design documents, etc.
- Don’t stop updating your resume, even if you work for your own company.
This will help also if you fail in the first business and want to get capital (from angel investors) for a second business.
August 20th, 2005 at 12:18 pm
The article title gave me a good, long laugh
Steve, I think you would be great at comedy.
August 20th, 2005 at 11:41 pm
I figure that part of the reason why many new business fail is that many of the people who start them are either lazy or stupid or both. I’m not saying that these things are more true about new business people than about regular employees. On the contrary, I think most people are mediocre and choose to remain mediocre because it’s too much bother to try and be anything better.
The thing is, you can get away with being mediocre in an organization. Chances are that (a) the good people will carry you and (b) you’re not going to be so much worse than all the other second rate people around you that you will stand out as deserving special treatment. But if the business is yours, if all the decisions are yours then there’s no place you can hide. If you think that running a business is just a matter of doing the stuff you like and waiting for the cash to roll it, if you don’t research your markets and you don’t care about your customers and you’re not prepared to work like stink to make sure that customers go to your door and not someone else’s then your business is going to fail. Success as an entrepreneur is like success in any other walk of life: if you’re smart and work hard you’re a damn sight more likely to get it than if you are neither of those things.
August 22nd, 2005 at 4:59 pm
[...] Steve Pavlina wrote an article about the failure rate of employees which I found quite interesting. The title of the post is kind of misleading, but it draws you in. Steve talks about the failure rate of employees compared with that of entrepreneurs. People are fond of quoting the failure rate for businesses, but don’t really quote the failure rate of employees, let alone employers. [...]
August 23rd, 2005 at 8:42 am
Items of Interest #54
In this issue: a flaming pantload of quizzes and carnivals, stoned cows and their milk, exploding invisible golfish, and more.
August 24th, 2005 at 3:40 am
If 9 out of 10 business fail, it only means you have to be willing to try it 10 times. If you really want to be an entrepreneur that’s the way to do it. Passion and commitment and instead of saying “I’l never try anything again!” after the first crash, one must learn from it and try again. After all, 1 in 10 tries makes it!
August 28th, 2005 at 1:31 pm
If a business fails to endure, does that mean it could be considered a failure? Does “fail” mean that the business produced nothing of value or provided no revenue to the owner(s)?
Good point. Who cares if it fails? If you don’t bet, you can’t win. Just use it as a learning experience. As Edison is reported to have commented after being asked about the failure to produce a workable filament after going through 8,000 materials. “Failed? Don’t be silly! I know THOUSANDS of things that WON’T WORK!!”
> I figure that part of the reason why many new business fail is that many of the people who start them are either lazy or stupid or both.
This is remarkably true — While never starting my own business, I’ve seen a number of them start and fail or succeed.
This usually comes down to a few once-pointed-out obvious observations which are the most likely pitfalls.
1) Laziness. Yep, they want to hire others to do the work before they have any income. The successful ones are usually the ones doing 60 hour work weeks for the first few years.
2) Economic incompetence. Basic rule: Don’t spend capital assets any more than you must. Blow cash flow on anything you want, but spend capital assets like they were your gonads you were trading away. Any office equipment? Buy cheap used until you can spend cash flow. Pirate software until you have a visible face worth suing. Don’t spend a damned dime you don’t have to in order for the business to succeed. Yes, to a small extent, appearance matters, so you DO have to do things like buy good suits if you’re in that sort of business — but anything which the outside world doesn’t see? Be a miser. Be the most penny-pinching miser you can imagine. I’ve seen at least 4 out of 6 businesses fail entirely on mis-spending money.
3) Marketing is everything. Everything. Don’t scrimp on this in your planning. “Build a better mousetrap, and the world will beat a path to your door”. It’s a crock, because how the hell will the world know your mousetrap is better? Answer: You have to market it to let them know.
Further, you can have the biggest, most bug-ridden piece of SH** on the planet. Good marketers will sell it as fertilizer. I’ve seen one software company I worked for stay in business for 4 years despite the fact that in almost every known case, the software worked for about 2 months and then crapped out and rarely worked after that, at something like $5k a pop (eventually, they died, but they lived longer than the ones I’ve worked for with excellent products). Oh, and then there’s the big hairy behemoth astride all this — Microsoft. An absolute piece of garbage, but, hey, it’s marketed by geniuses. ‘Nuff said.
Avoid these three pitfalls and you’ll at least be the one that fails of some far less common ailment in the 5th year.
August 28th, 2005 at 6:13 pm
Steve,
I really appreciated the different perspective offered by this post. I found it very amusing, as a direct challenge to the people too afraid to tempt success themselves, thus thinking it is their calling to make others realize their failure is also imminent. It’s about time!
– Hallie
September 2nd, 2005 at 9:51 pm
I don’t think that i have ever heard anyone but me talk about failure as being your biggest asset in the world of self owned business. I love auto racing, worked at a local speed shop from when i could drive til they went out of business. Since this is all i really know how to do, i opened a speed shop. Remarkably, in the same building as my previous, nationwide employer, i did very well in this location until i was faced with the responsibility of hiring employees. This is the most important decision you will ever make in owning your own business, period! Forty three or so employees later, in four years, i had a severe fire that forced me to close temporarily. The fire, not self inflicted because of employee problems, was uninsured by the ignorant S.O.B., ME, so here i sit with three storage rooms full of hot rod dust collectors and enough cars in my yard to start a wrecking yard making about one one hundredth of my potential because of a simple gliche in my budgeting in insurance. Moral: don’t let ones dreams be taken by such idiotic forgottens, yet make ones forgottens the strength of remembering how easy the dreams can turn to a gut wrenching, bankrupting reallity.
Your planning ideas are phenomenal and should be studied and followed by every potential business owner, which should be everyone at least once!