of 17
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1/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Business FailureBusiness Failure
&&
ExitExit
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2/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Business are born to die or stagnate
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Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
95% firms employ fewer than 10 employees
99% firms employ 50 employees
Half of businesses cease trading after threeyears
Younger firms are more likely to fail than olderfirms
The longer a firm survives, the less likely it is tofail.
FAILURES AND FIRM AGE
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4/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
It is easier to close a smaller firm
Larger firms have more assets than small firmsand better able to fight adverse businessweather
ONE percent change in firm size leads to 7percent improvement in probability of survival.
FAILURES AND FIRM SIZE
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5/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Fast growth firms have less probability of failure
FAILURES AND FIRM GROWTH RATE
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6/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Fast growth firms have less probability of failure
FAILURES AND FIRM GROWTH RATE
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7/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Ingredients of FailureIngredients of Failure
LUCK
EntrepreneurialEntrepreneurial
charactercharacter
Business
culture
Business
decisions
Companystrengths or
weaknesses
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8/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Character problems of ownerCharacter problems of owner--
managersmanagers
Need for personal control
Unwilling or unable to delegate
Can distrust subordinates
Needs applause and recognition
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9/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Characteristics of ownerCharacteristics of owner--managers in failed companiesmanagers in failed companies
Exaggerated opinion of their own competence
Make decisions based on intuition
Inward looking
Inflexible and insensitive to change
Past not future orientation
Resistant to professional advice
Limited formal education and/or little readingin literature associated with business
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10/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Business success or failureBusiness success or failure
LUCK
EntrepreneurialEntrepreneurial
charactercharacter
External
Environment
Business
decisions
Companystrengths or
weaknesses
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11/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Bad Business DecisionsBad Business Decisions
Inability to identify target market or customers
Inability to delineate trading area
Inability to delegate
Belief that advertising is an expense, not aninvestment
Only rudimentary knowledge of pricing strategy
Immature understanding of distribution channels
No planning
Inability to motivate
Somebody elses fault
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12/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Business success or failureBusiness success or failure
LUCK
EntrepreneurialEntrepreneurial
charactercharacter
External
Environment
Business
decisions
Companystrengths or
weaknesses
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13/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Company WeaknessesCompany Weaknesses
Poor financial control
Poor information control
Poor debtor control
High stock holding
Limited diversification of product/services
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14/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
Business success or failureBusiness success or failure
LUCK
EntrepreneurialEntrepreneurial
charactercharacter
External
Environment
Business
decisions
Companystrengths or
weaknesses
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15/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
External EnvironmentExternal Environment
Failure to cope with changing markets
Changes in consumer demand
Changes in interest rates
Changes in inflation
How to cope with act of God; strikes, floods,
fire, accidents, riots
To be on the wrong place at the wrong time
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16/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
A firm with limited resourcesA firm with limited resources
operating in a highly competitiveoperating in a highly competitiveenvironment is more likely to failenvironment is more likely to failthan a firm operating in a marketthan a firm operating in a market
with low levels of competitionwith low levels of competition
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17/17
Paul Burns,Entrepreneurship and Small Business, Palgrave, 2001
A firm with limited resourcesA firm with limited resources
operating in a highly competitiveoperating in a highly competitiveenvironment is more likely to failenvironment is more likely to failthan a firm operating in a marketthan a firm operating in a market
with low levels of competitionwith low levels of competition