Understanding businesses
through failure data

Methodology

Conceptual framework

The Global Failure Index geo-locates business that failed along with relevant variables to get a deeper understanding about failure. Each point on the map represents a failed business.

When trying to define  business failure, it’s important to distinguish between business closure and business failure.While other sources use them indistinctly, they represent a starting point for us to define failure – a business closure is not the same thing as the failure of a company. While a business closure allows the possibility of a voluntary closing due to an endless number of reasons, (Stokes & Blackburn, 2002), corporate failure is the termination of a company that didn’t manage to comply their goals (McGrath, 1999; Politis & Gabrielsson, 2009; Cope, 2011).

Part of the vision of the Failure Institute is to contribute and participate in the construction of a wider definition of failure. We’re aware that the evolution of language  involves the adaptation and the reformulation of concepts and ideas previously established. In our mission to defy the rules of the literature in terms of entrepreneurship, we know that it is not possible to force a vision. Instead, the feedback of the academic community is the best source of a broad understanding on any subject we want to approach.

Dimensions of the Global Failure Index

The Global Failure Index consists of 33 factors that gather information about the closure of a business. These include information such as  the entrepreneur’s profile, business profile, external support, and closure details.

Entrepreneur Profile

  • Gender
  • Studies
  • Age
  • Percentage of income coming from the business
  • Previous ventures that DIDN’T work out
  • Previous ventures that DID work out
  • What the entrepreneur did after the business failure

Business Profile

  • Number of partners
  • Number of partners that were family members Line of business
  • Business description
  • Number of employees
  • Business location
  • Licenses or patents
  • Date of the beginning of the operation
  • Date of legal formalization
  • Closing date
  • Initial investment
  • Monthly sales
  • Formal accounting of the business
  • Solvency

External Support

  • Access to credit
  • Debts when closing
  • Support from business incubators or accelerators
  • Access to government aid or other entity
  • Nature of the government aid

Closure details

  • Stage of the company when it stopped operating
  • Legal closure of the business
  • Reason of the failure

Key design principles

Exclusively business failure indicators

The GFI is the first database of business closures in the world. It presents exclusive variables of business closures, with the purpose to create a better basis for the study of business failure. When breaking down each failure in factors attributed to the entrepreneur, and the factors connected to the failed business, the user has the ability to  research the conditions and features on a case by case basis, and on a specific scale.

 

Holistic and relevant to all countries

Our goal is to create a holistic platform that collects and unifies every factor involved in a business failure. Because our efforts and partners allow us to obtain data from every continent, we can compare and contrast regions, countries or any other variable desired by the user. The constant update of this platform allows us to increase the quantity and quality  of the analysis for the obtained data.

 

Actionable

This platform aims to be a practical tool for entrepreneurs, policy makers, academics and civil society – allowing them to make better informed decisions, based on the analysis of failed businesses. To achieve this goal, the platform lets the user access  data in the level that adapts best to her study, detecting the strengths and weaknesses of the entrepreneurial landscape, and generating changes that resolve the most urgent and required needs.

 

Data sources

The Global Failure Index is  powered  by data provided from three sources:

●   The global community of Fuckup Nights, present in more than 70 countries around the world.

●   The Global Network of Failure Researchers

●   Business incubators, accelerators, entrepreneur conferences, and media that generously joined as data partners.

 

Data definitions

Point count. It refers to the number of failed business that appear on the map. The number changes if you zoom in or out

Stage of business at closure. For the purpose of this study we consider five stages:

  1. Initial Stage: The products are ready to be commercialized and have their first customers
  2. Acceleration and growth: Profits and customers increase
  3. Consolidation: The business has an established place in the market, with loyal customers.
  4. Expansion: Entering into new markets and distribution channels. Creation of new products or services.
  5. Maturity: The sales and profits stabilize, however, competition is still strong. With the passing of time, sales might diminish and the company needs to decide between expanding, innovating or leaving the market.

What you did after the failure?  Entrepreneurs of failed business can choose from 8 answers, the 5 most common are shown.

Debts at closure. If the company had debt when failing.

Accelerator or incubator. f the company participated in a business incubator or accelerator.

Governmental support.  If the company received government aid.

Credit requested. If the company requested a credit.

Was it granted? If the credit was approved or not.

Business lifespan. Shows the distribution of companies according to the number of years of operation.

Initial investment. Shows the average initial investment of the companies that are displayed on the map.

Monthly sales. Shows the average monthly sales of the companies that are displayed on the map.

Date of closure. This interactive timeline allows you to select the businesses that failed in a specific date range.

 

 

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