From Startup to Success Story

Launching any venture means confronting the possibility of failure. We examine the strategies three businesses employed in the crucial early years

by Stacy Perman

First, some good news for entrepreneurs looking to start new ventures: In 2005 some 671,800 new small businesses were launched, 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 (see BusinessWeek.com, 8/24/06, "Oprah's Favorite Burger?").

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."