These 5 Businesses That Have the High Failure Rates in America – And Why Fail?
A large chunk of businesses fail within just a few years of launch. If you want to succeed, you want to make sure you are starting a business where your odds of success are favorable. This blog will highlight 7 businesses with the highest failure rates in the US.
We shall explore why they fail, and what you can do to increase your chances of success if you are in any of these businesses.
As a benchmark, about 50 percent of small businesses fail in their first year.
1. Gyms
The failure rate for Gyms is abysmally in the 80 percent range in the first year alone. It requires a fairly large capital investment to start and a healthy subscription rate/base even to manage it.
This is one business that often starts as a hobby, pawned out of a passion for fitness by the owner but very little consideration of the business aspects like finances, subscription fees, marketing plans, additional services, etc
The popular axiom of “do what you love and the money will follow” is not enough to succeed in the Gym business.
You need a blend of passion and business skills to keep a Gym from failing.
Jim Thomas – Founder and President of Fitness Management USA Inc. offers this piece of advice on running a successful Gym.
If you are not an expert in gym sales and marketing find someone that is. Embrace sales and marketing.
It takes a lot of work to run a successful Gym as a business.
2. MLM/Direct Sales
Becoming an MLM distributor is a business that has been pitched to many of us by either friends or relatives. Multi-layer Marketing (MLMs) are companies that financially incentivize you to recruit and sell their products to other salespersons.
MLM distributors earn commissions on their direct sales and recruitment under them. And also some commission on the persons they recruit several levels down.
If you love sales, MLM may look good on paper, but the reality is that the failure rate is about 95 percent.
The problem with an MLM Business model, (according to research by the Federal Trade Commission) is that the compensation plans for distributors assume an infinite market, and a virgin market, neither of which exists in the real world. This makes MLM inherently flawed, unfair, and deceptive.
3. Automated Teller Machines (ATMs)
Running an ATM seems pretty straightforward at first glance but running the business can be very challenging. The reality is that the failure rate of ATMs is above the 50 percent threshold.
The ATM business is heavy on logistics and security, increasing your cost significantly. The result more often than not is a relatively thin profit margin (compared to risks).
The normal location in the US will have about 150 -300 ATM transactions per month, an average of $80 per transaction. Your income on those is about 1-2 percent as a fee.
The more challenging thing about running an ATM business is the declining user base. More and more people are going cashless -with government policies also supporting a cashless society. The use of cash will not go obsolete in our lifetime but it is certainly witnessing a decline.
There are still opportunities in the ATM business in areas where physical cash is a priority and witnesses a significant volume of transactions.
4. Dry Cleaning Services
Dry Cleaning Services is a business that is in decline – a strong indication that less number of persons are using the service. Below is a graph from the US Bureau of Labor Statistics showing the decline.
When you run a Dry Cleaning Service, you use Chemicals to clean, which are often harmful to the environment. The impact on the environment can be substantial and it is often your responsibility to do the clean-up(Remediation).
Remediation can be very expensive, especially if you run the business for a long time. It can range from $10,000 to easily over $100,000. Some States in the US also impose very strict regulatory restrictions when it comes to businesses that directly impact the environment.
5. Amazon FBA (Fulfilled By Amazon)
Amazon FBA is a business that lets you outsource your order to Amazon. Forget the fact that many YouTube channels are telling you how easy it is for you to start. The truth is that only 1 percent of Amazon FBA make $100,000 – $250,000 a year.
You put in a lot of effort but the chances of making a decent living solely from it are very slim. The reasons for the high failure rate for Amazon FBA have a lot to do with Amazon itself. The platform is structured in such a way that you are almost in direct competition with them (Platform risk).
Another problem with the Amazon FBA is that there are usually cheaper knock-off Chinese versions of the products you display, further diluting your chances of landing a sale.
All content on this site is based on my personal experience reflects my own opinions and should NOT be taken as financial, legal, or investment advice. Please seek the guidance of professionally trained and licensed individuals before making any decisions.
