If you’re preparing to start a company or you’ve recently started one, there are a couple of things you need to know from the get-go.
Although more complicated, building a successful business in 2021 is not impossible. Consequently, the best way to make a robust development plan is by familiarizing yourself with some facts and stats.
Top Business Failure Statistics: Editor’s Choice
Small Business and Startup Failure Rate
1. The survival rate of small businesses in their first year is 80%.
As the SBA claims, small companies’ survival rate in their first business year is around 80%. Although this percentage seems relatively high, it decreases to 70% within two business years.
2. The average lifespan of a small business is only eight and a half years.
Starting a new business isn’t an easy feat. It takes great determination and a strong attitude to succeed, considering that small businesses usually last less than nine years.
3. Nine out of ten startups fail.
A startup is a young company founded by entrepreneurs to create and market a unique product or service. Typically, a startup relies on funds that founders or friends, and family provide.
It needs a convincing product to attract investors who would be interested in getting it off the ground. Therefore, as small business failure statistics show, it’s not unusual that 90% of startups fail.
4. The average age of a startup owner is 45.
When it comes to the entrepreneur success rate, it’s widely believed that young individuals are the best entrepreneurs.
However, entrepreneurs aged around 45 years launch the most successful startups.
5. Startups in the information industry had a 63% failure rate.
The information industry has the highest startup failure rate in the US, which may be surprising, considering how fast the information industry is developing.
A possible explanation for such a high rate is that the information industry is a low-barrier industry that typically has many high-risk startups.
Why Do Most New Businesses Fail?
Every business strategy should start with a winning business proposal. Inadequate business planning, poor management, and lack of capital are some of the most common reasons small businesses fail. But these aren’t all the reasons why early-stage companies don’t survive.
6. Due to coronavirus, 31% of small businesses in the US were non-operational in 2020.
The global pandemic has affected every aspect of our everyday lives, including the world’s economy. Nothing is quite like it was before, and many businesses suffer because of it.
Based on the latest small business statistics, nearly one-third of small companies in the US had to close in 2020 due to government or health authority orders.
7. The majority of new businesses go bankrupt because the market doesn’t need their products or services.
Even though a high number of small businesses survive their first year, that number starts dropping rapidly after two years. Only 45.4–51% of small businesses pass their five-year mark.
By analyzing business failure statistics, we concluded that the need for a product is essential for business success. Other factors that make or break the business are product quality, pricing, budget, employees, and competitors in the industry.
8. 82% of businesses fail because of cash flow problems.
When it comes to statistics regarding the small business failure rate in 2021, insufficient capital is another commonly cited reason for failure. Lack of funding and low cash flow can quickly ruin a small business.
9. 19% of startups fail because they don’t monitor what their competition is doing.
A little healthy competition never hurt anyone. However, it can also be the very reason your small business can’t stay profitable. According to reports, 19% of startups fail because they ignore their competition.
10. According to business failure stats, 18% of companies fail because of pricing issues.
Pricing can make or break a business, as there are several unwritten rules to be followed.
Generally, as a business owner, you have to price a product high enough to cover your costs and generate revenue, but at the same time low enough to bring in customers.
11. 14% of businesses fail because of poor marketing skills.
One of the most essential skills to master as a business owner is assessing your target audience and figuring out how to get their attention.
Many entrepreneurs fail because they don’t know how marketing works. Similarly, the biggest startup failures stem from overlooking customers’ needs.
12. 23% of companies fail due to an inadequate team.
Business failure stats clearly show that a diverse team with different skill sets is crucial to a company’s future success. Without the right team to get the job done, there is only so many founders can do.
13. Statistics indicate that the business failure after disaster recovery is 40–60%.
The events classified as disasters range from earthquakes, hurricanes, floods—even massive IT fiascos, such as enormous data breaches and information loss.
In case it’s unable to reopen within five days after the disaster, nine out of ten businesses fail within the following year.
Business Failure Rate by Country
We can certainly bring up each country’s pros and cons when it comes to starting a company. Although failure rates are similar, they do vary slightly depending on the region.
14. In the United Kingdom, less than half of startups survive the first three years.
If you’re an aspiring business owner wanting to start a company in the UK, you might be interested in the fact that only 40% of startups make it past the three-year mark. As UK business failure statistics further show, 20% of startups will shut down within a year.
15. Roughly 50% of US businesses fail after five years.
American companies have a slightly higher survival rate compared to other countries. As business failure stats show, 50% of small businesses fail in their first five years in the US.
Furthermore, a staggering 70% fail within 10 years of doing business.
16. 60% of Australian small businesses fail within the first three years.
As small business failure statistics in Australia show, SBs have a 40% chance of surviving their first three years, much like in the United Kingdom.
17. 15% of Canadian companies fail within the first three years.
Statistics on business failure show that 85% of small Canadian businesses that enter the marketplace survive for three full years, which is marginally better than the business survival rates of the countries we discussed above.
Business Failure Rate by Industry
How many businesses failed in 2019? When talking about failure rates based on industry, competition is one of the main factors to acknowledge. Some industries have higher competition rates than others. Here are some facts you should consider before starting your business.
18. Businesses backed by venture capital have a failure rate of 25–30%.
There were a total of 6,613 US businesses initially backed by venture capital between 2006–2011.
Out of those companies, 84% are operating independently. The remaining were acquired (11%), out of business (4%), or in IPO registration (1%).
19. Franchise businesses’ failure rate is 38% after four years on the market.
This means that 62% of franchised businesses actually find their way and survive four years—a rate not unlike that of small businesses. Small businesses succeed at the rate of 68%.
British franchised systems have a 50–50% chance of succeeding once they’re past a 10–year mark.
20. Startups in the transportation and utilities industries had a 55% failure rate.
According to business failure statistics, companies in the transportation and utilities industries had one of the highest failure rates, standing at 55%. Many factors contribute to such a high rate, such as lack of product-market fit or problems with marketing, finances, employees, etc.
21. Construction startups had a failure rate of 53%.
Construction had the third-highest failure rate of 53%. Furthermore, according to Embroker, the likelihood that a new construction company will last more than five years is 36.4%.
22. Restaurant failure rate in the first year is 17%.
There is a massive misconception about the restaurant industry businesses having a failure rate of 90% in the first year—however, this has proven to be false.
Additionally, plenty of service sectors struggle more than restaurants to keep their businesses afloat during the first year: 21% of real estate agents and brokers offices, 19% of landscapers, 19% of automotive repair businesses.
23. Failure rate of a typical family business shows that 70% don’t last long enough to be taken over by the second generation.
Additionally, only 10% of family-owned businesses stay afloat until the third generation gets to take over.
Publicly owned firms have one CEO for six years on average, while family businesses sometimes don’t change leaders for 25–30 years.
Businesses Failure Statistics: The Takeaway
To launch a startup means to risk a high failure rate. If you’re considering starting your business in 2021, it’s essential to take the new normal into account before doing just that.
The global pandemic has changed how people consume products or use services. An aspiring business owner should be aware of these changes and adapt accordingly.
Instead of starting one of the more traditional businesses, you should consider some of the most successful types of small businesses like consulting, online reselling, online teaching, online bookkeeping, app developing, freelance copywriting, and digital marketing.
Frequently Asked Questions
What is the percentage of businesses that fail?
A staggering 80% of businesses survive their first year. However, that percentage continues dropping as years go by. More precisely, 70% of companies survive their third year, while 50% survive their fifth year. A whopping 70% don’t pass the 10-year mark.
What are the top five reasons businesses fail?
There are quite a few reasons why many new businesses fail. The most important ones include no product-market fit, flawed business plans, lack of financing, bad location, poor online presence and marketing skills, overpricing, and growing competition.
What percentage of Australian businesses fail in the first year?
Australian companies don’t fare any better than those in other countries. As statistics show, 20% of newly started Australian businesses fail in their first year.
What percentage of new products fail in the marketplace?
According to Harvard Business School professor Clayton Christensen, approximately 30,000 new products are launched every year, but only 5% are successful.
What percentage of businesses fail in the first year?
Have you ever wondered how many businesses fail each year? It’s one of the first questions a new entrepreneur asks before starting a company. Based on research, roughly 20% of new businesses worldwide fail within their first year.
How many businesses survive 25 years?
Although there is no specific statistic about the number of businesses that survive 25 years, the number should be relatively low. According to business failure statistics, only 30% of US companies stay in operation for 10 years.
Sources
Bemedia, Business Insider, CBInsights, Failory, Forbes, Forbes, Fundera, Fundera, Harvard Business Review, Harvard Business Review, Limelight Digital, Moyak, Nav, NFIB, Oberlo, The Balance SMB