Understanding the life (and death) of a business

Businesses are inorganic life forms. While they are not biological, they are born, they live, and they die.

How each business travels through these stages determines its success or failure. And like us humans, it tries to push back the third stage for as long as possible. It’s a harsh reminder, but if the man with the scythe can come for Nortel, he can come for all of us.

Historically, it’s during periods of great technological advancement that new businesses open in large numbers.

Even if these startups initially prosper, time can drag them into business limbo or, worse, business hell.

So, what can a modern Canadian metal manufacturer do to lengthen its lifespan? The answer starts with understanding the data. It also requires a company to get through the dreaded first five years.

A new report, “Key Small Business Statistics January 2019,” from the Ministry of Innovation, Science, and Economic Development Canada, shows how important small businesses are to the Canadian economy. As of December 2017, there were 1.18 million total businesses in Canada and, of these, 1.15 million (97.9 per cent) were small businesses.

It must be noted that the government counts your business as small if it has 99 or fewer employees.

Surviving in the business world is tough, and not every business makes it. According to the report, between 2010 and 2015, the average number of SMEs created annually was 95,000, and the average number of businesses that disappeared annually was 85,000.

This net change is called creative destruction. And it is very real.

The good news is that, in any given year, nearly 100,000 new companies are born in Canada. The bad news is, obviously, that most won’t live to see the age of five.

The solution may seem counterintuitive: Start big.

The report indicates that there is a positive correlation between survival rate and initial business size.

Operations that began with more employees have a higher survival rate than those that started with a small number of employees. After five and 10 years, 60.5 per cent and 42.4 per cent of businesses that began operations with one to four employees were still active, respectively, compared with 73.2 per cent and 55.4 per cent of businesses that began operations with a workforce of 50 to 99 employees, respectively.

Go big or go home, I guess.