Welcome to the new Independent website. We hope you enjoy it and we value your feedback. Please contact us here.

Spend & Save

The secret of success is a grey manager

At least, that's the story behind a recent report. And weak management is to be avoided at all costs
Business start-ups and failures are favourite government statistics. Warwick Business School's Centre for Small and Medium-sized Enterprises, the country's leading experts in the field, have recently completed research into the subject which indicates who is most likely to avoid failure!

One key finding is that only one in five (19 per cent) of those businesses starting up will survive to their fifth birthday. It is also clear that wise, experienced 50-to-55-year-olds are more likely to survive in business than young, thrusting would-be entrepreneurs in their early twenties. On reflection the statistic makes sense: sing if you're glad to be grey.

New businesses with more than one proprietor stand a better chance of survival than solo operations, and previous experience in the sector is important. Interestingly enough, the study suggests that gender, possession of a degree and previous ownership of a business are found to be irrelevant to success or failure. And a period of inactivity prior to start-up does not seem to be an impediment. Faster growth prospects are associated with proprietors who previously held full-time jobs, were home owners and had O-levels. The slowest growth tends to be in catering and retailing, and businesses started at home.

As for business failure itself, the best source of information comes from the Society of Insolvency Practitioners. Earlier this year they delivered a stinging indictment of the managers of failed businesses: it is your own fault that you went bust.

The society, which represents 85 per cent of the country's insolvency practitioners, has discovered that more than one in five (22 per cent) of business failures last year were caused by weak management. The list of weaknesses spans fraud, over-optimism, imprudent accounting, obsolete products, eroded margins and over-gearing. Taken together this rogues' gallery of failings causes management to be ranked second in the table of causes of business failure.

The number one reason for failure is disappearance of the company's market. I would argue that all this translates into bosses' failure to take control, or to react to their business environment. As these particular failings are not part of the "exceptional, external and unforeseeable event" category, it must be the managers who take the blame. Likewise the "financing" category, as a reason for failure, probably suggests that managers were being unrealistic about what the financial institutions would support.

The author is senior teaching fellow at Warwick Business School.