BDI: Many new businesses fail to survive

Analysis showed that the majority of new businesses about 41% were being opened in the Tel Aviv area.

bdi 88 224 (photo credit: Ariel Jerozolimski)
bdi 88 224
(photo credit: Ariel Jerozolimski)
As the economy expanded for a fifth consecutive year, more Israelis than ever started new business ventures last year, but many of them are doomed to fail, said business information company BDI-Coface in a survey released on Sunday. In 2007, Israel secured a relatively high spot in the BDI league table measuring the number of new businesses opened, compared to European countries. Around 48,500 businesses were launched in Israel last year, making up 11% of all businesses in the country. In comparison, in Britain, 14% of all businesses were new, as opposed to 10% in Hungary, and 8% in Finland and Italy. Despite its high standing of new business ventures, Israel suffers from one of the highest failure rates for new small and medium-sized businesses in international comparison, as only 58% of new ventures survived after two years and 30% after five years. In Portugal, 96% of small and medium-sized businesses survived after two years, 88% of such ventures made it over the two year mark in Sweden, 82% in Britain, and 75% did so in Holland. Speaking to The Jerusalem Post, Tehila Yanai, joint CEO of BDI - coface, said founding a new business requires a delicate balancing act which can be easily upset by any number of factors. "When entrepreneurs start new businesses, they take out bank loans for investment in their venture. They can run into difficulties if their business plan doesn't materialize, and their income doesn't match their prediction. When that happens, paying back the loan becomes problematic," Yanai said. Fluctuating market conditions, tough competition, and new overdraft laws forbidding transgressions from credit limits all play a part in making life for a new business difficult, she said, though it was too soon to measure the effects of the new overdraft laws on businesses. "Our Israeli mentality encourages entrepreneurship and individual activities, and we are not surprised by the increase in ventures in 2007 [up 3% from last year]," Yanai said adding that the state of the market was good, which was why so many entrepreneurs were trying their luck starting new ventures. "Young entrepreneurs who open cafes - a sector which is seeing many new business starts - don't have economic backing, and a temporary tough spell such as weather or terrorist attacks could cause major crises for them," Yanai said. In the coffee places market, chains with fancy interior designs are also putting increased pressure on local neighborhood coffee places, she added. Hi-tech, another sector marked by strong growth of new business, is populated by young entrepreneurs who lack experience, and many fail despite their belief that they have brilliant innovations. Dreams of selling off hi-tech startups for millions of dollars after a couple of years often don't materialize, Yanai said. Despite the overall low survival rates, start-ups in the computer industry, especially in the software, hardware, and computer services, displayed a high level of resilience, with 95% of them surviving their first year, according to the survey. After five years, 59% of those new businesses were still around. New businesses in the trade sector also did well, with 86% of new industrial product companies surviving their first year. Geographic analysis showed that the majority of new businesses about 41% were being opened in greater area of Tel Aviv. Haifa came third place with 14% of new ventures opening. Jerusalem came in at fifth place, with just 9% of new businesses in Israel opening in the capital. The Golan and upper Galilee came in last, with 1%. BDI-Coface analysts said an entrepreneur's age played a crucial factor in a business's chances of surviving. Those under 30 had a 59% chance of surviving, while entrepreneurs aged 31 - 40 have a lower chance of about 27% to make it. Entrepreneurs over 41 have a mere 14% chance of survival. University educated new business owners had a 52% chance of survival, while those with a high school qualifications only had a 38% of surviving.