We are in month seven of a business start-up. All things being equal, we are therefore only 29 months away from failure, according to most statistics.
Statistics New Zealand tells me 53 percent of SME enterprises fail within 36 months. Research suggests that “difficulties associated with poor financial management” is the reason two-thirds of businesses collapse.
Other countries like the US, Canada, and Australia range from 8 out of 10 new businesses failing within the first five years, to 80 percent failing within three years, and, alarmingly, eighty percent failing in year one. Either way, it seems that 80 percent of start-up’s will fail sometime in the first five years.
Recent data released by Statistics Canada show that 145,000 new businesses start up each year and 137,000 declare bankruptcy each year. That’s an annualized net gain of 5.6 percent – aka 94.4 percent failure.
And of real interest to SME owners is a Dun & Bradstreet report that shows businesses with fewer than 20 employees have only a 37 percent chance of surviving four years.
So other than running head long into the gale force hurricane of start-up statistics, Envoy360 has myriad other quirks too. It’s a maritime risk management and security company and therefore operates in the world’s high risk zones: East and West Coast Africa, The Red Sea, Arabian Gulf, Somali Basin, Gulf of Aden, and, nowadays, the wider Indian Ocean due to pirates having an increased range and operational sustainability to launch piracy operations from large mother-ships.
This particular start-up needed considerable legal and administrative forward-loading to ensure we were wholly compliant, legally and ethically, with various international and flag-state conventions and legislation, including compliance with maritime law, before we could start operating.
We only recruit ex-Tier One Special Forces and they aren’t quite as plentiful as sales reps, and we are now operating out of multiple countries in the Middle East and Asia concurrently.
Statistics, it seems, are very much against us. Any Banker will tell me this; many have and not for the first time. It’s familiar territory having bankers and accountants tell me what will and won’t work.
This is of course why they do jobs of that nature and I choose to be an entrepreneur; in this case purposefully mixing a new business venture with 27 years of military service. Many of the doubters are concerned friends, or close professional associates, but I’d rather have my tongue hammered flat on an anvil than be an accountant; I’m sure they feel the same.
The difference between us is of course a strength. I’d encourage all SME Owner / Managers to develop their relationship with banking and accounting professionals, many of whom bring an important, albeit conservative, perspective to those who lack good financial skills. Remember, statistics say two-thirds of business collapse is due to difficulties associated with poor financial management.
Which leads me to Paul Graham’s (of Y Combinator) Start-Up Curve. It’s brilliant. And it’s been developed by someone who knows about start-up’s. Mr Graham is obviously a serial entrepreneur and a risk taker.
While there is no time scale on the X axis, when I apply it to our new business, Envoy360, we are in very good shape given the company was incorporated, in Dubai, in Aug 2011. We are only 7 months old and we are defying statistics – at the moment anyway.
My pick is that we are well clear of the Trough of Sorrow. It was awful to see grown men, all with military backgrounds, cry, but hey, we hugged our way through it. We may still be experiencing the odd Wiggle of False Hope but in the main we are tracking on a clear bearing towards The Promised Land. And the reality about Wiggles of False Hope is that every business, start-up or mature, will pursue some opportunities that just don’t come off. That’s life.
We were determined not to fall into the Crash of Ineptitude trap – couldn’t afford to actually given the nature of the business – so we conducted considerable customer research into what shipping companies, insurance brokers and international logistics firms actually wanted. And this is exactly what we give them – at the highest of International levels according to our latest series of audits.
So after seven months, some of which was spent crawling through our own little Trough of Sorrow, we can take heart in the fact that we are tracking in the right direction . . . towards The Acquisition of Liquidity aka positive operating cash flow.
Importantly, Paul Graham’s model recognizes the importance of exit / succession planning by leaving some Upside for Buyer. Strategically we entered this sector as our research showed there will be significant Mergers and Acquisition (M & A) activity over the next three years.
Our vision is for Envoy360 to grow generically in some areas, and through M & A in others, to create a globally respected risk management and security company.
All we need to do now is defy start-up statistics.
Tenby Powell is Chairman of ENVOY360 FZ LLC and a Director of Hunter Powell Investment Partners. He is also Chair of Waikato Link (the commercialization company of the University of Waikato), a Director of Antarctica New Zealand (a Government entity) and a Trustee of the Auckland Rescue Helicopter Trust (Westpac Rescue Helicopter).