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It has been shown through research that 80% of the businesses fail within the first 5 years. Out of the 20% who survived, another 80% of it would fail in the next five years. That is to say, only around 5% of the businesses that got started, survives. If the 80/20 rule is true, only 1% of the businesses will thrive.
What can we learn from these statistics? We can safely say that entrepreneurship is a harsh journey. It is often the most challenging venture but it provides no guarantee of success, no matter how much money and effort you put into it especially in this fast paced, exciting yet challenging time where the world is changing at a rate like never before. A company can go from nothing to billion dollars in net worth (Facebook) and from billion dollars in net worth to almost nothing (Blackberry) in just a few years. It is also because of this reason that I do not like to invest in industries that are very volatile (example : technology sector). No one can predict what will happen in the next 6 months, not to say 5 years. Even when you thought that you're enjoying the lion's share, some college kids could be working on a product in their basement that will make your business obsolete in no time.
So, what can you do to protect yourself from such phenomena? Invest in a great and sustainable business with solid track record. What is solid track record? To have a solid track record, a company need to be making increasing profits year after year for at least 5 years and preferably the business should be around for more than 10 years. Why invest in a company with solid track record? because if a business can survive for more than 10 years and is able to consistently generate high profit, it is already in the top 1% of all businesses. Why invest in the top 1% of the businesses? The logic here is simple. If 99% of the businesses fail within the first 10 years, why is this business still around? If you look at all the companies that has been around for a long time and has been pretty lucrative, you will find that these businesses possesses a special quality that separates them from the others,they all possesses a competitive advantage. These businesses may have secured a government license (PLUS highway, Genting) , provides product or service that is part of customer's habit (Nestle, Tobacco, etc) or just having carved a brand name for themselves (Padini, albeit a very weak competitive advantage). These are the businesses that is likely to continue to thrive,even in turbulent times because of these advantages over their competition. This is exactly why I'm interested in these businesses. However, knowing when to buy them is another story that I will leave for another day.