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First, some good news for entrepreneurs looking to start new ventures: In 2005 some 671,800 new small businesses were launched in the United States, according to the Small Business Administration.
Now the bad news: About 544,800 of them closed not long after, felled by any number of issues such as capitalization and market forces.
However, there's no standard method of measuring startups and failures, and a 2005 Monthly Labor Report gives a considerably more optimistic picture: 66% of new businesses survive the first two years, and 44% the first four years.
"During the first two years a company is either on the road to profitability or the road to growing quite rapidly," says Bruce Phillips, senior economist at the National Federation of Independent Businesses, a small-business lobbyist in Washington. And if not, they are likely on the road to closure.
"I don't like to say these are failures, but business dissolutions," he says. And a business can dissolve for any reason at all. For Phillips, "a complete failure is bankruptcy, and that number is 35,000 to 50,000 [a year].
According to Phillips, while any number of reasons can bring a business to "dissolution," those small businesses that have the best chance of passing the two-year mark are generally helmed by people who have education and background in the type of business they are launching. "Often successful people have experience in industry. It's not like one day they don't like their job and, boom, become self employed," he says.
With the historical data in mind, BusinessWeek.com checked in with a handful of small businesses started in the past five years to gauge how they've fared in the crucial early years following their launches and to examine the strategies they've employed to keep moving ahead.
The Counter
In 2003, Jeff Weinstein opened The Counter, a build-your-own-burger joint in Santa Monica, Calif., offering 300,000 possible combinations and a hip atmosphere that attracted a steady following. Less then two years later the business earned national kudos when it was ranked No. 15 in GQ magazine's seminal list of '20 Hamburgers You Must Eat Before You Die.' After Oprah Winfrey mentioned The Counter's burgers on her show, sales jumped from $44,000 a month to $245,000, and Weinstein soon began plans to expand through franchising.
In 2005 he told BusinessWeek.com that he planned to roll out a new restaurant in Palo Alto, Calif., to be followed by 12 spots in 2007 and 60 by the end of 2008, with an eye toward 400 to 600 nationwide locations in Florida, New York, Arizona, and Nevada.
Last year the first franchise did indeed open in Palo Alto, and Weinstein says sales are on track to reach $2.1 million, up from the original target of $1.7 million. However, Weinstein has had to slightly scale back some of his early projections and goals. For starters, this year the company will likely open 10 stores rather than 12. "I was hoping for more to be open at the beginning of 2006, but real estate takes time, and the business climate changes," he says.
As well, in attempting not to dilute the cool neighborhoody feel of The Counter, Weinstein has found he's had to be prudent in hiring staff, partnering with franchisers, and developing new locations. "We are continuing to seek out the best people that fit in with our 'Counter-culture,'" he says. "It's difficult to find the right partner and people that will make us a success. So we've been over-conservative with who we hire."
And that of course has affected the speed of his expansion plans. "The problem from the start is that we didn't want to become too cookie-cutter. My goal is to have 500 stores, but I want them to be 500
That said, Weinstein says the company has hit most of its goals. He estimates the two stores will bring in about $5 million in sales this year.
Rick's Picks
Rick Field, a former producer for newsman Bill Moyers, turned his passion for creating artisanal pickles in his Brooklyn kitchen into a bona fide business, Rick's Picks, in 2004. During his first year in business, Field says, his sales increased 200%, and by 2005 he was selling 10 different varieties, online and in specialty stores in nine states, including Whole Foods and Dean & Deluca.
Now, Field says, Rick's Picks is a national business, and his Phat Beets and Windy City Wasabi are sold in more than 300 stores in 35 states. Sales have grown sharply, with a 120% jump in 2006 from 2005. "In 2004 we were only in business three months," he says, "so this is a more significant sign than the 200%."
While sales and retail distribution are strong, Field says he is trying to "recognize the power of the Internet for our small business. We are in the middle of [turning] a new Web site into more of a selling machine and enhancing the consumer experience."
One of the important lessons that Field says he has learned is the importance of understanding what made his brand -- which first garnered notice when sold at New York area green markets -- unique in the first place, and being able to communicate that message as the company continues to grow.
"I think that being able to work with distributors was a key step in spreading the message to the widest possible audience," he says. However, as far as missteps go, "ours is a brand that needs to be managed. When you go into a new region, you are starting a new relationship, and you need to be attentive to that new partner. As a small business, we are challenged in terms of human resources. I spend a lot of time on the road. I found we are less successful in places where we have not shown up physically and put the pickles in the mouths of customers."
Camp Bow Wow
Five years ago, Heidi Flammang launched Camp Bow Wow, a Denver doggie day care center, and a year later sold her first franchise. By 2005 she had 11 different locations and planned by the end of that year to expand to 75, each bringing in between $750,000 and $2 million in revenue annually, depending on size and location.
Like The Counter's Weinstein, Flammang has had to recalibrate some of her targets. "The company is doing very well, and everyone is very happy. But personally, I wanted to be farther ahead as far as the number of camps opened and as far sales go."
Flammang says she has sold 180 franchises, but only 35 are operating, well under her initial target of 75 in operation by the end of 2005. However, she says that by the end of this year she will have sold 225 franchises and there will be 75 Camp Bow Wows up and running.
"We are selling more [franchises] than we thought, but they are taking longer to open," she says. The biggest obstacles, she says, are zoning and construction issues. "It takes so much time, and we can't speed this up [because getting permits depends] on local municipalities."
Flammang has also readjusted her sales goals to $600,000 to $700,000 per store, in large part because she has also scaled down the size of each camp. "Our original model has not proven that bigger camps are better," she says. "We wanted to [keep the] intimate, boutique-camp feel. . . And having more than 150 dogs in a facility is too crazy."
She's learned a few lessons about franchising along the way. "One thing I've noticed is how important cash flow management is for us and the franchisees," she says. "It's important to have working capital and to invest wisely and to advertise. A lot of franchisers did not want to advertise. Now we have strict rules on that. We didn't have [those rules] a few years ago."
All in all, however, Bow Wow's future looks good. Flammang says the company brought in $10 million in revenue last year. Based on her new goals, she expects to hit $100 million by 2010. There are Camp Bow Wows in 28 states and Canada -- more than double the number in 2005.