How Many New Businesses Survive?
A friend of mine posted on social media recently that 9 out of 10 businesses do not survive past their first year.
Many articles on the internet cite equally disturbing and frightening business survival rates.
Fortunately, these frightening stats are not true.
Here is the real data, for the USA (for convenience, as the data is readily available):
According to 2018 data from the Office of Advocacy at the Small Business Administration,
- Around 80% of new businesses DO survive their first year
- About half of all new businesses survive five years or longer.
- About one-third of new businesses survive 10 years or longer.
Data from the U.S. Department of Labor studying businesses between 1994 and 2015 shows that over a longer historical timeframe, around 20% of new businesses have lasted for over 20 years.
(image reproduced from https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm)
Or to put it another way, there seems to be an 80/20 rule at play here:
- 80% of businesses survive their first year, 20% don’t.
- 20% of businesses sustain themselves for over 20 years, 80% do not (they are closed or sold before then).
Further data from the SBA reinforces the above diagram, to show that:
- Business survival rates have been fairly steady over time – they haven’t been going up or down.
- Business survival rates do not vary significantly across industries.
For example, 79.8% of businesses that started in 2016 in the USA survived until 2017.
The average first-year business survival rate over a 12 year period – between 2005 to 2017 – was very close to that, at 78.6% (keep in mind that there was a financial crisis in 2008 during that period – so we’d expect the figures to dip a little).
But what exactly is – or is not – a “business”?
This data does not precisely demarcate what exactly is or isn’t a business. It does not clearly differentiate between side-hustle businesses and full-time businesses, between people who set themselves up as a solo hairdresser or lawn mowing service versus setting up a multi-partner and multiple employee law firm or starting a high tech startup.
The SBA data does show at a broad level that around 80% of small businesses in the USA have no employees – they are typically sole proprietorships.
It does not differentiate businesses based on revenue or profit levels, or how many hours the founder(s) works in a business.
The business survival data in itself does not tell us “what happened next?” – how many solopreneur practice owners later scaled or grew their business out to hire other people, or significantly increase their revenue or business profit above a typical “job” salary level.
Microbusinesses (businesses with 1-9 employees) account for around 10.8% of all private sector jobs, and have a significant impact on economic employment flows. But the data is unclear about how many businesses start as microbusinesses, or become one.
Similarly, the data is not clear what exactly starting or closing a business means in practical terms.
For example, the SBA data similarly suggests that about two out of three business exits are the result of firm closures – presumably meaning that one third are the result of a firm being bought out by another firm.
This data seems to suggests that the typical failure rate – a business closing due to business performance reasons – after 4 or 5 years may be closer to around 33%.
What does this all mean?
Firstly the numbers aren’t as scary as they may seem. If you find people you can help, do the work and work smart, deliver value, and have effective marketing, you can start a business that succeeds, survives, and thrives.
But more importantly … don’t rely on the numbers, and don’t use them as a guide. They are aggregated based on all kinds of different types of businesses, in very different circumstances, in very different industries, for very different people. They are not your numbers.
Focus, instead, on forging your own destiny. Find what is working, now, for your customers, in your market.
Focus on the factors you can control, the risks you can reduce, the levers you can operate to ensure success.
Deliver value, and create your own success story!