Fearless Money

Mark Taw has an article on his site titled "Why Most Businesses Fail (A Theoretical Model)". It seems to be getting quite a bit of discussion from three types of responders. Either he is "spot-on", he is an idiot, or he is being misinterpreted.

I think he is just misinformed and doesn’t really grasp math or due-diligence all that well. Here is a key quote:

It’s common lore that 9 out of 10 new businesses fail each year. I suspect the number is much higher than that, those stats are probably gathered from tax records, and most new businesses never reach the point where people claim them on their taxes. The odds are probably closer to a thousand to one. There’s good reason for this - starting a new business is much harder, more time consuming and expensive than most people think. We pin our hopes and dreams on our ability to beat the odds, and we mistakenly believe that starting our own business will be easier or more enjoyable than working for someone else. For 999 out of 1,000 people, this simply isn’t true.

- Mark TAW

Errors of fact

As I mentioned before, the "9 out of 10" number is completely inaccurate. It has no basis in truth at all. In reality, the majority of businesses are still operating years after start. When a rant/opinion-piece starts with bad facts, it is automatically a bit suspect in my mind, especially when these facts are easily checked.

Errors of assumption

Another crazy (I might even say innumerate) error are his graphs. $1000 a month for expenses, and $1 per month income, increasing at 10%? So, that means in the last week, my business has somehow leapfrogged 5 and a half years of profit-building while incurring less than a third of his expected operating expenses? Simply absurd and contrived. Absurd premises do not make good arguments, even as "thought experiments."

His defenders

Some of Mark’s defenders make the argument that he is just pointing out that it is important to be making a profit before quitting your day job, or that it is important to keep expenses low. Even if so, I think those are obvious points, but your mileage may vary.

Others say that he is just trying to give a dose of reality to overly optimistic wanna-be entrepreneurs. I think these two quotes put it better than I can:

I dunno. If I had to make a blanket statement, I’d say that skepticism and fear dominate, and are by far the prevalent take on things (perhaps rightly so). Sure you find enclaves of people trying to build up each other’s confidence, but on the whole I don’t think the market is really in need of a reality check. Every dreamer who openly contemplates starting his own business immediately gets shot down by the hundreds of fear-of-change chairwarmers that desperately worry that someone will succeed where they fear to tread.

-Dennis Forbes on Crazy On Tap

For most folks it doesn’t even take a single failure to put ‘em out of the game. For the AverageJoe, just the thought of a failure –the *potential* for failure — keeps ‘em out of the game from the get-go.

Sgt. Sausage on the Joel On Software forums

Conclusions, not all bad, just mostly

His bad assumptions and incorrect facts aside, the article is not all bad and poorly thought-out, just the numbers and the conclusion. I do like his 12 tips for "Would-be Headbangers"., though I’ve read similar points before without all the poorly-reasoned negativity poisoning the atmosphere around them.

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