Small Business Startup News

Some Mobile Apps Know If Your Business Will Fail

Written by Tim Morral
Published: 9/8/2015

Mobile app vendors may be able to tell if your small business is unlikely to make it, says a new academic study.

If you want to know if your small business is going to fail, talk to Lei Wang , Ram Gopal, Ramesh Shankar or Joseph Pancras.

Predicting Business Success or Failure

These four academic researchers wondered if data from Yelp and FourSquare could be used to predict the viability of a small business -- whether the business would make it or end up failing.

To test their theory, they ran Yelp and FourSquare data pertaining to New York City restaurants through several predictive modeling techniques to see if the data might be able to predict which restaurants were going to make it and which might be closing their doors soon.

Results Suggest Data Can Predict Impending Business Failure

The results from this study are quite interesting.

It seems like the folks at Yelp, FourSquare and other location-based mobile services could, if they wanted to, actually predict with a fairly high level of accuracy whether any given business is going to fail.

The study author's reported that mobile app customer check in data shows "strong predictive power on business failure."

Another interesting finding from the research was that the more nearby competitors a restaurant has, the less likely it is that the restaurant will fail.

The authors published their study, On the Brink: Predicting Business Failure with Mobile Location-based Checkins, earlier this year in Decision Support Systems.

The long-term implications for this study could be that "big data" gathered from mobile apps might be used to proactively advise business owners on steps they should quickly take to avoid small business failure. In another possible scenario, banks might use this data to evaluate risk when issuing small business loans to a going concern.

Do you think data can be used to determine an entrepreneur's ultimate fate?

My sense is it may be a better determinant than opinion or gut feel.

As the brilliant W. Edwards Deming once said: "In God we trust. All others must bring data."

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