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Entrepreneur success rates: Online vs. Offline

     
3:45 am on Oct 21, 2009 (gmt 0)

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One thing that I find a bit surprising:

I've read several statistics about offline-entrepreneur success rates..and it seems that offline there aren't too many successful "serial entrepreneurs" - defined as entrepreneurs who run a successful business, and then start another one (or a third one).

People often talk about how luck is a vital factor in business success in the offline world, not "only" skill.

Online, on the other hand, it seems like actual skill is almost 100% of the formula. It seems that the people who have successfully launched and marketed/SEO'd a website (for example after working for a long time as SEO consultants/SEO employees), have little trouble doing so again, and again and again.

How come highly-skilled online entrepreneurs can pull it off so consistently, whereas offline entrepreneurs apparently have rather low success rates (even after running and selling a first successful business)?

Maybe the reason is that online, the cost of starting something is so much lower than offline, thus people who are very experienced/skilled in SEO,etc. can afford to launch multiple sites and if it doesn't work out, they can just abandon them....thus luck would even out?

Is anyone familiar with people who have pulled it off again and again offline?

Is success in online business more about true skill and less dependant on luck (in comparison to offline entrepreneurship)?

1:04 pm on Oct 21, 2009 (gmt 0)

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Please clarify how you're defining an online entrepreneur. Someone who sells their own products online? Someone who promotes other people's products? Digital products? Physical products? Some combination of the above?

Also tell us more about how are you defining success. It would be useful to know more about what you have in mind when you use the word.

luck is a vital factor

Luck can certainly be significant, but it's also a reality that the harder you work, the luckier you get.

Both online and off, "lucky" people work more, learn more, make more connections, make more sacrifices. They often notice things that the rest of us miss.

"Chance favors the prepared mind." -- Louis Pasteur

What's really vital is having the wit to recognize an opportunity when it knocks.

1:20 pm on Oct 21, 2009 (gmt 0)

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can afford to launch multiple sites and if it doesn't work out, they can just abandon them

That sounds like somebody just slapping up MFA or affiliate sites. I wouldn't count that as being an "entrepeneur".
2:50 pm on Oct 21, 2009 (gmt 0)

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@buckworks: I agree that the harder you work the "luckier" you get it seems, but if there's a correlation between how "lucky" you are and how hard you work then obviously that isn't really luck imho.

I would define luck as factors that are beyond your control, not something you can improve through hard work.

Defining an online entrepreneur...that one is tricky, I guess :-). I would simply define it as somebody trying to earn a living running websites. Whether it's selling his (or her) own product, or affiliate products, or adsense.

And being s uccessful I would define as making a normal income that can support himself/herself the same way a day job could.

@piatkow:

That's not what I meant, at all. I meant it as in taking a "portfolio approach". If someone who has been working as an SEO consultant for a long time, decides to run his own show, and they're successful at it, they'll usually end up running more than one single site, in the end (if they're successful at it)...whether they start them one after another, or a few at the same time.

Business owners/offline entrepreneurs usually can't run more than one business at the same time.

And the more "investments" you have in your "portfolio", the less likely luck is to play a role in the long run.

10:18 pm on Oct 21, 2009 (gmt 0)

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Offline businesses seem to go for an all or nothing approach, while online you can see what works, start slow and grow from there. The successful online sites probably dropped many things before they found what worked but did not get hammered financially like an offline store would.

By the time you figure out what works offline you have a lease, a business loan, a bunch of staff, and are in the wrong neighborhood. When you have to do bankruptcy it's hard to get up again.

11:17 pm on Oct 21, 2009 (gmt 0)

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I think off line might have higher failure rate due to people underestimating start-up costs and not being able to last until they are successful. Online people can have a lot less overhead, and since they don't have to physically be someplace, they can still work at the same time. Most people I know that tried to start B&M businesses had the mentality that if they just throw a bunch of money at something, it will work. Which obviously isn't the case.
12:02 am on Oct 22, 2009 (gmt 0)

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Interesting, thanks for the input.

What somewhat surprises me is that offline serial entrepreneurs (those who had run a business before) had only a 30% success rate for those whose first business was successful (vs. 20% for those whose first business was not successful).

On the other hand Ive also read that the vast majority of entrepreneurs (offline) enter industries that have the lowest success rates (restaurants for example), in other words picked industries where they have low odds of success in the first place

Basically this, I guess:

Most people I know that tried to start B&M businesses had the mentality that if they just throw a bunch of money at something, it will work.

Then again one would think that people who already had a successful business get that kind of thing right.

Never trust statistics unless you know every detail about the study, sample, etc. ..I guess ;-)

12:07 am on Oct 22, 2009 (gmt 0)

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Business owners/offline entrepreneurs usually can't run more than one business at the same time.

Not in my world: I know more than a handful serial offline entrepreneurs. Some businesses are better suited for it than others.

Nightclubs, bars, restaurants: both self-financed and with silent partners. Both hands-on and with capable managers. I see them all the time.

The more experienced ones have excellent track records and often several businesses running at any one time: with various themes, and catering to diverse audiences. After a few years, they roll it over and sell their place as a turn key business.

Added:

Read serial/parallel entrepreneurs above.

Also: generalizations are unhelpful, there is a reason for this...

the lowest success rates (restaurants for example)

Restaurant failures (specifically the small independently owned ones) tend to be because of inexperienced owners, who often do not possess the skills required to run a successful business and do not understand the competitive aspect of the sector... Prospective owners often romanticize becoming entrepreneurs in the hospitality biz, without realizing that it is a very hard, time intensive, and hands-on job.

4:19 am on Oct 22, 2009 (gmt 0)

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Keep in mind that some people don't define a successful venture in the same way.

A small shop opened down the street and I went in. They had some small items, but nothing that would in any way pay the rent on a store that size, and no real foot traffic. There was one lady working there who was the owner. I inquired about how business was coming, and she said 'well your here aren't you'.

I got the impression that making it financially was the last thing on her mind, all she wanted was the opportunity or to do something she wanted to do. If it 'ceased to exist' tomorrow or next week it did not matter. Several months later the place was empty.

6:40 am on Oct 22, 2009 (gmt 0)

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There is almost no overhead or start up costs online. Probably less than 30% of my sites make decent money but I never really lost anything except my time on the sites that didn't work out, plus even with each site that is a total fail I still still learn from my mistakes.

One of the problems with some of the online entrepreneur wannabes that post here is that they spend most of their time planning on what they want to do someday instead of actually putting different sites online and just seeing what works. You can't learn from your mistakes if you don't make any.

4:28 am on Nov 6, 2009 (gmt 0)

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From about 1989-1991, a baseball card shop sprung up in just about every small town throughout America...any moron it seemed could open up and make $30K to $50K a year.

Even the nightly news was touting it as the next big thing, and doing stories on owners and collectors (customers).

That lasted about two years...then most of them went under.

The internet (ecommerce, that is) seemed to start out the same way in the mid to late 90's...then it turned into REAL business, requiring real business knowledge, sense, and decisions.

Those that had those traits usually survived....those that didn't...

7:17 am on Nov 6, 2009 (gmt 0)

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I can find online opportunities much easier than offline ones.

If some of my online stuff has a bad month, I just make less profit. If my offline partnership in a nightclub or restaurant goes bad, I lose money.

The pendulum will eventually swing the other way as the big internet monopolies lock up the money making opportunities there.

1:10 pm on Nov 9, 2009 (gmt 0)

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Is success in online business more about true skill and less dependant on luck - Hmm my own experience, says a combination of all is required. My e com sites have been far more successful than real world businesses ive owned, I would say because of the lower over heads. No big big upfront fees for rent of an office etc, with a site I can ramp up expenses at the flick of a button and reduce them again instantly. Cant do that offline, so flexability is a major plus here.
4:56 pm on Nov 9, 2009 (gmt 0)

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offline partnership in a nightclub or restaurant goes bad...

I think I can spot your offline problem already. Invest in things, on or offline, that aren't sure fire money pits.

Baseball cards. Yep, example of a fun business bound to become oversaturated.

Much better idea are those urinal cleaning services. NO ONE wants to get into that field.

11:21 pm on Nov 9, 2009 (gmt 0)

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I agree... It's always the people doing the stuff nobody else wants to do that are laughing all the way to the bank.
12:27 am on Nov 10, 2009 (gmt 0)

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I agree... It's always the people doing the stuff nobody else wants to do that are laughing all the way to the bank.
I have a friend that does septic pumping. Laughs a lot. A whole lot.
4:27 pm on Nov 17, 2009 (gmt 0)

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Mmm I think I'll set up an online Urinal Cleaning service.

Low overheads, millions of prospects, set up a webcam in each one to see when it needs cleaning...

Should I use a automated system, or hire some ex-wall street bankers to do the actual cleaning ?

10:49 pm on Nov 17, 2009 (gmt 0)

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The easy answer is "selection bias".

It is easy to see the "offline" failures and successes. A restaurant opens, and a few months later, it is vacant. So it is easy to get a good feel for what the population is of entrepreneurs and the size of the groups that fail and succeed.

Online, it is very difficult to see the failures. It costs very little to put up a website, and that site could be there for years, generating no money, but costing 5 or 10 dollars every month for hosting. Is it a success because it is up or a failure because there is no profit? It is hard to determine.

I bet the failure rates are very different, with online having a HIGHER failure rate. Lots of people want to start an online business. There is tons of buzz on the TV about working from home by running your own business online!

2:05 am on Nov 18, 2009 (gmt 0)

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No where is business success harder to measure than with franchises. The local franchise sandwich shop may have been open for 20 years, but few realize it has been sold time after time to new suckers, I mean entrepreneurs.

And each owner had his whole family, including grandma and the kids, working hours that 19th century Robber Barons would have found unconscionable.

Quote I just saw:"A Bear Market Is The Best Auditor."

Lots of hot "concepts" two years ago are now in total collapse.

5:31 pm on Nov 19, 2009 (gmt 0)

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At Pubcon last week, Bob Brisco from Internet Brands talked about statistics they see in the success rates of online businesses. He threw out a number that 99% of new online businesses fail. His definition of fail was that they do not earn enough money to live off, or they are simply abandoned. Some may not consider that criteria as failure, but take for what it is worth, it really says a lot about how hard it is to build an online business that you can live off of.

He also talked about how hard it is to stay successful once you reach that point. With so many variable changing every day, and new competitors popping up daily, staying on top of the game is getting more difficult by the year.

He also talked about how it is not as easy as it use to be to start an online business with all the saturation out there. He agreed that there are still plenty of good ideas and businesses to be launched, but they face a steeper uphill battle versus say the someone launching in the same niche 10 years ago.

Bob is a fascinating speaker and personality. I found myself attending any session he or his company were a part of.

If anyone gets a chance, I would definitely recommend checking out his presentations and keynote from Pubcon. They might surface on some blogs in the next few weeks.

5:40 pm on Nov 19, 2009 (gmt 0)

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I do think luck factors in both offline and online:

Offline: price of land going up, getting good review in popular newspaper and ...

Online: good domain, back link from very popular site, specific keyword becoming popular on the news

I think online businesses are just more automated (live 24/7 + may run software’s doing most of the work) while offline businesses needs a babysitter and constant care.

Another thought is: many offline entrepreneurs start hiring some employee to continue their business while online entrepreneurs aka webmasters mostly do their business their own! An employee not having much stake in the offline business will only work from 9-5pm! Consider how many hours you put in your online business cause you can. You can work from anywhere, anytime!

One of the problems with some of the online entrepreneur wannabes that post here is that they spend most of their time planning on what they want to do someday instead of actually putting different sites online and just seeing what works. You can't learn from your mistakes if you don't make any.

I agree. Planning to be perfect before going online VS going public then improving step by step. There was a term for that, and I cant think of it right now.... hmmm

[edited by: dailypress at 5:47 pm (utc) on Nov. 19, 2009]

5:43 pm on Nov 19, 2009 (gmt 0)

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Maximillanos

x2

That is exactly what I have been thinking over the last year or so, with all the thousands of new "online businesses" it makes it harder for the ones already established. There is only so much ash to go round.

1:38 am on Nov 20, 2009 (gmt 0)

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I think there are at least two reasons why the Web breeds "serial entrepreneurs":

1) Web businesses can often (not always) be started cheaply and easily, so if Site X is successful, why not try to duplicate that success with a Site Y?

2) Web businesses are often built around fads, trends, search-engine vulnerabilities, technical advances, etc. Thin affiliates with disposable domains, made-for-AdSense scraper sites, user-generated content sites, and (more recently) long-tail cheap-content sites have enjoyed windows of opportunities at various times, but when those windows have closed, the owners have had to move on to the next big thing. This happens in the brick-and-mortar world, too (think of croissant shops giving way to bagel shops, or Vietnamese restaurants being replaced by Thai restaurants), but in the offline world, change--and the need to react to that change--tends to occur more slowly than it does online.

3:17 am on Nov 20, 2009 (gmt 0)

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One of the problems with some of the online entrepreneur wannabes that post here is that they spend most of their time planning on what they want to do someday instead of actually putting different sites online and just seeing what works. You can't learn from your mistakes if you don't make any.

I agree. Planning to be perfect before going online VS going public then improving step by step. There was a term for that, and I cant think of it right now.... hmmm

I agree that many people are overanalyzing stuff, and seem to never "jump in".

However, thinking about it: Obviously the 99% of online businesses who fail probably don't fail because they're not taking action. (I guess finding the right balance is hard as most people tend to either overanalyze or act to impulsively)

It reminds me of a friend mentioning that the truly successful entrepreneurs all seemed to have one thing in common: they all failed the first time.

And that made me think: "Yeah, there's some truth to that -but...all the unsuccessful entrepreneurs who never made it (many more than the successful ones) probably failed the first time, too" :-)

3:36 am on Nov 20, 2009 (gmt 0)

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Is success in online business more about true skill and less dependant on luck (in comparison to offline entrepreneurship)?

I believe most of us are (online people developing websites) are good at more than one thing, and this allow us to do many things on our own: one man band or something like that.

It seems to me that the offline thing depends on a lot of factors (more people involved) while if you think about it, online: you code, design and write, done! the SEs can help you a lot and visits would come by themselves. I mean, IS NOT THAT EASY, you have to do it right but I think there is a huge difference.

Per example there is a lot more to certify (paperwork and registrations) for offline ideas than online projects. Just my two cents.

4:14 am on Nov 20, 2009 (gmt 0)

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Offline failures are more expensive than online failures.

Generally.

It's hard to guess at success rates online. If someone slaps up a site for $100 and it fails, one of the main reasons for that failure is probably lack of traffic. Nobody knows it existed in the first place.

Kinda different from the Grand Opening banner in January and a Going out of Business banner in July.

4:59 am on Nov 20, 2009 (gmt 0)

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It reminds me of a friend mentioning that the truly successful entrepreneurs all seemed to have one thing in common: they all failed the first time.

And that made me think: "Yeah, there's some truth to that -but...all the unsuccessful entrepreneurs who never made it (many more than the successful ones) probably failed the first time, too" :-)

I think the term for that is surviorship bias. In order to analyze why some people succeed, you can't just look at the traits of people who succeed, like initial failures, because that trait may just as common among people who never succeed. You have to look at the traits of the people who fail and succeed and see what traits are unique to the successful entrepreneurs.

The Millionaire Next Door books are interesting because they not only have traits of millionaires, but the traits of people with high incomes who could be millionaires but are not (usually because of conspicuous consumption habits).

9:50 am on Nov 20, 2009 (gmt 0)

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I think the main reason online is a easier to become successful in is that it's a hell of a lot easier to move onto the next business area - even if your business has been going a while and has been successful then if it starts to wane you can start again pretty easily, using your existing resources.

As far as offline goes, I agree with the urinal cleaning sentiment - we've got a saying here in the UK - "where there's muck, there's brass"

1:58 pm on Nov 20, 2009 (gmt 0)

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@Jane - interesting..at first I thought you were reading a bit too much into it, but then I googled it and noticed survivorship bias has nothing to do with emotional bias and the like ;-)... Anyway..I just remember a friend saying that, and when I heard it, it made sense (persistence obviously is important in business), but then a bit later I thought jokingly "LOL! Yeah right, but obviously the unsuccessful ones had the same experience"
;-)
3:40 pm on Nov 20, 2009 (gmt 0)

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Web based businesses can cater to a fragmented audience with lower cost. Similar to the traditional catalog house although even cheaper.

Real estate is one of the most difficult pieces of offline businesses. Look at bank branches, gas stations, restaurants, etc. Once the competition moves in, you can't move your building very easily. On the web, you can change your product mix, advertising, prices all very quickly.

Take a look at traditional catalogers that have invested heavily in opening stores. Smith & Hawken, Restoration Hardware, Hammacher, Eddie Bauer

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