That’s a pretty good record

Of the roughly 60 endeavors started or promoted by Mr. Trump during the period analyzed, The Times found few that went off without a hitch. One-third of them either never got off the ground or soon petered out. Another third delivered a measure of what was promised — buildings were built, courses taught, a product introduced — but they also encountered substantial problems, like lawsuits, government investigations, partnership woes or market downturns.

The remaining third, while sometimes encountering strife, generally met expectations — notably the television show “The Apprentice” and the purchases of numerous golf courses, including properties near Philadelphia and in the Hudson Valley.

VCs expect a 9 out of 10 failure rate. In the more general economy 4 out of 5 new businesses crash within 5 years.

41 thoughts on “That’s a pretty good record”

  1. I think you mean that Venture Capital start-ups taking money from outside investors fail to repay those outside investors 9 times out of 10. Guys starting their own businesses using their own money (including those doing so by mortgaging their home) don’t 9 times out of 10 – the insolvency rate for the self-employed stayed quite modest – under 1% of the self-employed population a year – and relatively stable, when the insolvency rate among consumers who had spent like there was no tomorrow during the Brown bubble increased tenfold.

    So I think you are comparing Donald Duck with the wrong yardstick.

  2. Isn’t that the point The Donald tends to let others use his name (for a fee) and they provide the VC? Hence its not his money thats at risk? Risk to his brand maybe, but not cash.

  3. The Inimitable Steve

    Isn’t that the point The Donald tends to let others use his name (for a fee) and they provide the VC?


  4. John77 –

    If you really think guys build casinos in Atlantic City and skyscrapers in Manhattan with their own money, well, then you are residing in Richard Murphy Land.

    Real estate development isn’t easy and it never goes off with a hitch… and a fair whack of the developments proposed never get off the ground. That goes for residential as well as commercial development, by the way. The failure numbers given by Timmy match what I’ve seen with developers over the years.

    I think you’re the one measuring with the wrong yardstick: Failure rates for Joe Six-Pack mortgaging the house to open a wine shop or start his own plumbing business aren’t really comparable to real estate projects that run into the tens – or hundreds – of millions… largely because the endeavors aren’t comparable.

    And I don’t know where you got that 1% number, but I can guarantee you it is a crap measurement to be using in your argument. Ask any accountant that deals with small business clients and they will tell you the same thing: Most small businesses that fail do so before insolvency: Joe Six-Pack closes the shop and walks away from it when the failing of his business becomes obvious.

  5. Insolvency and bankruptcy are not quite the same.
    Plus there are those numbers below the table who just liquidate and wind up their own business. You won’t find them in insolvency figures as they haven’t applied.

    Lots of shops open then shut within months or a couple of years.
    Even after 5 years a business is still at risk, just in the first few years the risks are bigger.
    Some of the best business people I have come across have had failed businesses. And learnt from them.

  6. Indeed martin, and a business can fail without bankruptcy or insolvency. I’ve seen lots which are just marginally profitable at start-up so the aspiring entrepreneur runs out of savings before the business can take off and is forced to quit.

    Mind you, one junior I worked with (who obviously has far to go) said that he thought that “4 out of 5 new businesses fail because 4 out of 5 people starting a business are total fuckwits”

  7. @ Dennis the Peasant
    In a country run not quite as badly as the USA we have an Office of National statistics which publishes the number of insovencies and splits out the number of self-employed people declared bankrupt. It also publishes, in a separate document at a different time, the number of people employed, unemployed and self-employed. So anyone with a passable brain and choosing to use it can obtain the 1% figure by dividing number of self-employed going bankrupt by the number of self-employed people.
    I admit that the USA is different with Chapter 11 not carrying the penalties or stigma associated with bankruptcy in the UK but ninety times different? If it had been 42% against 43% I should not have chosen to quote UK data as the differences between the countries would have swamped the difference between the numbers. In the UK company insolvencies are double the number of self-employed bankruptcies but are less than 3% of the number of active companies (ignoring dormant ones that would dilute the figure).

  8. Gary, what I want to know, is how a fool gets his money in the first place. Now, that would be useful info!

  9. @John77

    I think you’re missing the point. A business doesn’t have to result in bankruptcy or insolvency for it to be classified as a failure. If I set up a company that made £1,000 profit after the first year at which point I’d run out of savings, I’d close it down and get a job. No bankruptcy, no insolvency, still a business failure.

    Most new ventures do fail. They don’t all result in bankruptcy or insolvency.

  10. “In a country run not quite as badly as the USA…”

    ‘Rude’ and ‘prat’ are words that spring to mind…

  11. “In a country run not quite as badly as the USA…”

    ‘Rude’ and ‘prat’ are words that spring to mind…

    Well… I can’t tell whether the UK is better-run than the US, but there is a fair argument to make that the US is incompetently run nowadays, if not actually criminally. The corruption at the IRS, at the VA, at the FBI, in the Secret Service, the incompetence of the EPA, the continuing shakedowns of corporations by the Justice Department (Deutsche Bank and VW being only the two latest), and on and on, certainly make it reasonable to wonder a bit.

  12. I sneeze in threes

    “Isn’t that the point The Donald tends to let others use his name”

    He’s like an evil/good (delete as appropriate) Richard Branson with the Virgin brand.

    Note to self, the evil one usual has the moustache.

  13. @ Andrew C
    “Nine out of ten VCs are a failure” but less than one out of a hundred self-employed goes bankrupt.
    There are two obvious questions: what sort of return do you need pre-tax for the after-tax return on the 10% of VCs that aren’t failures to provide an adequate risk-adjusted return on the investment in them and the 90% which is lost? Second is: why do the impressive guys who raise money from VC investors after getting past the high-mortality-rate sytart-up phase do so much worse than the little guy in the start-up phase?
    If you start a business selling left-handed books from a small shop and quit half-way through the lease because they aren’t selling you are still liable for the rent and rates for the rest of the lease. If you are called Cavendish or Grosvenor or Money-Coutts that is no problem, but most guys are bullied into making the venture a limited company so that they can only lose what they have put into it, not several £thousand on top in rent after the business folds. So in the real world nowadays most failed businesses are limited companies

  14. John77 –

    Scouring the statistics provided by the hyper-efficient British bureaucracy isn’t a satisfactory substitute for basic knowledge of the subject at hand. The fact that you’re under the impression that there’s a roughly one-to-one correlation between business failures and formal insolvency/bankruptcy proves that.

    First, and you should know this already, most businesses that fail do not end up in any sort of formal/legal insolvency proceedings/bankruptcy. That’s because the vast majority of those businesses have been self-financed, and, have little in the way of recoverable assets.

    Second, bankruptcy is expensive for everyone involved. So who pursues bankruptcy? The business owner who owes large amounts to either lenders or suppliers or both.

    Third: Guess what type of business doesn’t get loans from banks or credit from suppliers 99% of the time? Small businesses/business owners with no track record to speak of and little in the way of recoverable assets in any event.

    If you knew anything about small business, entrepreneurship or banking, you’d know this already.

  15. @john77

    Do you have a source for your claim that most failed businesses are limited companies? I’m curious because for the last 18 years every firm I have worked with has advised people to start sole trade or partnership and only incorporate once the business has established itself.

    VCs will typically work with companies as it is easier to buy a defined stake in one but VCs are involved in a tiny minority of businesses.

    You really are just plain wrong to equate bankruptcies with business failure. There are many many more of the latter than the former.

  16. @ Andrew C
    If the business is not a limited company then the creditors can (and in the case of HMRC *will*) pursue the business-owner for their debts. So, while the Cavendishes and Grosvenors can and will put a hand in their pockets, most others will be unable to pay three years outstanding rent on the property.
    Your guys are optimistic – if the business is sure to succeed then the guy is better-off starting out as self-employed, if it’s going to fail he’s better-off establidhing a limted-liability company.
    I did not equate bankruptcies with business failures – I approximated and said that they must be a guide to within TWO orders of magnitude – not one.
    Are you claiming that any responsible firm would advise clients to accept the risk of personal bankruptcy if they expected a 90% failure rate?!?

  17. Andrew C – and any business can have bad luck, poor service from suppliers, even something as simple as internet downtime or traffic jams can impact. Can try and reduce risk, cannot remove it entirely.
    And good old fashioned – a customer paying late so your cashflow is affected.
    For a limited company there can come a time when it must look at insolvency options – and take one. Directors duty.
    Many do not go that far – as you say simply shut up shop, walk away after having paid the bills and come out with little or nothing compared to what has been put in.

    Running a business yourself is easy. The average full time worker is a part timer compared to the business owner starting out.
    Done plenty of hundred hour weeks. Done plenty of weeks with more.

  18. These people completely misunderstand how this stuff works.

    It doesn’t matter if 99 out of a hundred of your ventures fail – as long as that winning one makes enough money to cover the other 99 losses you’re good.

    Hell, I’ve got people I know wondering how a local gas station can make money with their gas prices so low – they’re certain he’s selling gas below cost and losing money on each transaction. They’ll point out in detail all the costs associated with running a pump.

    I just point out the convenience store and restaurant the guy is running on the same lot.

  19. John77 – and even with a limited company a lot of landlords will try and get personal guarantee on the lease or jointly in the business name and directors name.
    That means in the event of being unable to pay or walking away from the lease the landlord can recover potentially up to the end of the lease from the director or directors personally. As a personal debt not just a business debt.
    All depends on the lease.

    Not all businesses can run without personal guarantees.

    There will be a ton of small limited companies that get into trouble and cannot go down the insolvency route formally. They are insolvent in real terms, just not recorded that way by government as they cannot afford an insolvency practitioner and do not have the assets to pay enough for anyone to take the job on.
    In which case they do it themselves, lot more work and lot more hassle. They invite creditors to wind them up (in which case the creditor pays fees for court action) and official receiver disposes of the assets. If no one does then the directors dispose of the assets, pay creditors as required – likely paying most creditor pro rata out of whats left if anything – and applies to have company struck off.
    Its not in the insolvency records, its in the struck off records.
    But for all intents and purposes such a company is insolvent. Just not on government data.

  20. @Agammamon

    I used to work with a guy whose parents ran a petrol station – strategically positioned on the one major road in/out of a coastal town, just at the town limits, and not a rival in sight.

    I could see that it would be a reasonably good business – the associated convenience store was pretty large by the standards of these things – but was still surprised to discover this one foray into the world of small business had made them pretty serious millionaires.

    After a couple of decades running that joint, they apparently got bored, thought it would be a good idea to move into something they had no experience of (a restaurant) and contrived to lose almost all their money. Managed to shut up shop and withdraw from the business entirely before they themselves went bankrupt, but they and their money were burned, big-style. Definitely a business failure, regardless of no presence in the insolvency statistics!

  21. The economics of petrol stations is fascinating. I went to a brief presentation on it once courtesy of my employer, and I nearly broke the table I was leaning on it so hard with concentration.

  22. I worked in a VC investment and they worked on a third being failures, a third being meh, and a third being successful.

    I’d like some source or context for that 90% failure expectation. Maybe in tech, where the upsides are astronomical, but not in the ‘wider economy’, surely??

  23. @TimN

    What’s the executive summary?

    (Personally I dont know why more British petrol stations, at least ones out in the sticks and with an associated shop, don’t install a public convenience round the back of the shop and whack up a big sign as part of their prices board to advertise it. Guess it would eat into shop space but there are places where I imagine it would do wonders for foot-fall.)

  24. @ Martin
    Creditors’ liquidations do show up in the insolvency figures – in the old format it was column G of Table 1 for companies and column E of Table 2a for individuals, now its Table 2 and Table 6a.

  25. @ Agammammon
    The portfolio approach works for Venture Capital funds but not for individual entrepreneurs. So VC funds gear up their investee companiesa to the eyeballs so the successful ones return thousands per cent and the banks take a hit on the losers (which is interest rates on mazzannine debt are so high).
    I do not think comparing the failure rate of “The Donald’s” investments with those of accumulator bets is very appropriate, either.

  26. Are you claiming that any responsible firm would advise clients to accept the risk of personal bankruptcy if they expected a 90% failure rate?!?

    Well, John, it’s good to see your knowledge of business advisory services rivals your knowledge of small business operations. You are nothing if not consistent.

    The first thing to note should be obvious: Entrepreneurs are entrepreneurs because they firmly believe the law of averages doesn’t apply to them.

    Second: When an entrepreneur starts laying down coin of the realm to lawyers and accountants, what he’s looking for is advice to help him succeed.

    Third: I can guarantee you that if you, as an advising attorney or tax accountant, told your new aspiring entrepreneur client they shouldn’t select a certain form of business because of the general failure rate of start-ups, you would be an ex-advisor in very short order.

    To re-state, they don’t give a fuck about statistics. They’re going into business because they’re convinced they are going to succeed.

    Fourth, and lastly: It isn’t the business advisors job to substitute their judgment for that of the entrepreneur’s. Their job is to lay out all of the options available, explain the advantages and disadvantages of each, and then let the client choose how they will proceed.

  27. John –

    Try learning what constitutes responsible (and ethical) behavior on the part of a licensed professional advisor (lawyer, CPA, CFP, etc.). It’s not about me not understanding the term “responsible”, it’s about you being so ignorant that you can’t even fathom what the responsibilities of a licensed professional actually are.

    You don’t know what you’re talking about… Quit while you’re behind.

  28. Most independent petrol stations that sell branded fuel get price support where the supplier sets the retail price and the station gets a guaranteed 3 or 4p per lt profit, all the shop sales are theirs though which is why most stations have a large shop.
    The well run ones cover all their costs with the small margin on their fuel (rates/licensing/staff costs/leccy bill etc.) which means that the 40% margin on a mars bar is all profit.
    The big players (supermarkets/chains) have welcomed bigger regulation because they can amortise the compliance costs over numerous sites, smaller sites can’t compete and so sell up/go out of business in favour of the larger.

  29. Just have to look at failure rates for restaurants to see the 1% rate doesn’t make sense.

    John is positively Murphyesque:

    First he seizes upon a couple of facts about something he has no education, training or experience in.

    Second, he uses those couple of facts to draw a broad conclusion about reality.

    Third, he then loftily declares what is RIGHT and WRONG, as well as what everyone else SHOULD BE DOING.

    Just another grotty little fascist.

  30. @ Dennis the Peasant
    Go on – be a total believer that the US is not just the centre of the universe but the whole of it!
    What some American thinks that “responsible” means is utterly irrelevant – Andrew C and I are talking English English (as one may observe from the £ sign in his post). In the UK the adviser has a duty to his client [I am aware that some advisers in the USA are fighting against a proposal to impose a fiduciary duty.on them] so a responsible adviser in the English English meaning of the word will not choose to expose clients to a 90% risk of personal bankruptcy.

  31. John Boy –

    I fully understood you were talking English English (you could just shorthand it to wog, you know). Actually, the fiduciary duties imposed U.S. advisors are pretty much the same as those in the U.K. That fact that you seem to be under the impression that U.S. professionals such as lawyers, CPAs and CFPs don’t have a fiduciary duty imposed on them simply speaks to your ignorance about the subject at hand.

    Once again, it simply comes down to the fact that you don’t understand the definition of fiduciary duty when it comes to a professional in an advisory role. I repeat: The advisor has a professional duty to present all relevant options, along with the advantages and disadvantages of each. If requested by the client, advisors can and do make recommendations… but only after presenting options and related advantages/disadvantages.

    See how it works now?

    What you don’t seem to understand is this: When the advisor substitutes his judgment for that of the owner and/or management, he breaches his fiduciary duty to his client. As an advisor, you never forgo presenting an option unless (a) it falls outside the scope of the advisory engagement, or (b) the client has expressly stated a particular option not to be presented.

    Your duty as an advisor is not to take steps to preclude your client exposing themselves to risk, because that isn’t an advisor’s job. Advisors don’t get to tell clients what they can and can’t do, John. The advisor’s job is to make sure that your client fully understands the magnitude of the risk and the potential consequences should the risk be accepted.

    Now, I fully realize that I’m only a credentialed financial professional with over three decades of experience providing, among other professional services, advisory services to individuals and small businesses. I also understand that having the appropriate education and training, as well as a wealth of experience, is completely trumped by the fact that you are English English and have a keyboard.

    Just thought I’d try to help you avoid Murphydom, but I can now see you’re determined to pixelate your to Murphy’s doorstep.

  32. @ Dennis the Peasant
    In the context of the behaviour of a UK firm of accountants, I don’t care what US interpretation of “fiduciary duty” may be. It is utterly irrelevant because the US doesn’t actually rule the world.
    The UK adviser has a duty of care to his/her client and advising clients to become sole traders when there was a 90% probability that they would be exposed to personal bankruptcy (not just Chapter 11) would be irresponsible.
    As a qualified financial professional with half-a-dozen professional qualifications,only two of which are “Mickey Mouse” ones, and over 40 years experience, why am I supposed to believe that you know UK rules and standards better than I? Because you are Dennis the Peasant!

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