small-business-statistics

How Many Businesses Fail? Small Business Statistics In A Nutshell

There are about 50% of businesses that survive more than 5 or 10 years in operation. Unfortunately, an approximate 20% of newly established businesses will fail within one year of operations. 

Background story

The role of entrepreneurs in the economy of the United States is vital. New businesses are the contributing factors to the growth of the economy with the employment and wages they can generate. 

The good thing about starting a business in the United States is the ease of doing business. You can start your business quickly and easily. But with the birth of new businesses also comes the death of a business. Not all businesses survive the first year of operation. 

There are many factors that can lead to business closure. The interplay between the birth and death of businesses is not fully understood with an array of economic measures presented in the US statistical organizations.

The Rate of Business Failure in the US

The Business Employment Dynamics (BED) can provide complete and comprehensive access to data on the trends of business establishments and closure from the year 1994 to the present. 

There is an obvious fluctuating trend in the cycle of starting a business across all industries in the overall economy.

companies-a-year-old

Source: bls.gov

Different entrepreneurs open an average of 500 thousand new businesses every year. According to the data, more than 715,000 new businesses opened in the year 2006 which was the highest of all time while the lowest was in the year 2010, with just over 560,000 new businesses opened that year across the United States.

The Rate of Small Business Survival by Industry

There are about 50% of businesses that survive more than 5 or 10 years in operation. Unfortunately, an approximate 20% of newly established businesses will fail within one year of operations. 

Half of the businesses opened yearly will not make it their 5th year in operations.  However, certain business industries never go out of business and are always flourishing.

If you are planning to open a business about social assistance and health care, prepare for a profitable and sustainable business journey down the road. 

The health care and social assistance industry has the highest survival rate of all time. The lowest performing business industry of all time is the construction, warehousing and transportation industries as shown in the graph below.

survival-rate-companies

Source: bls.gov

Common Reasons Why Businesses Fail

It is common statistics that half of the business establishments will not make it past the 5-year mark. However, it is not also alarming that 80% of businesses fail within ten years.

The highest number of business deaths was recorded in the year 2009 when there were more business closures than business establishments.

births-death-companies

Source: bls.gov

So what are the factors contributing to the death of a business? There are many factors affecting business failure. Here are five of the most common reasons why businesses fail according to several reputable business statistics agencies:

Failure to deliver value

Think of what you can under-promise but over-deliver. Always add value to your products or services. What differentiates you from other competing companies?

Failure to connect with customers through deep conversations

The inability to connect with your target audience will pose a threat to your business. Your clienteles are the key to your business success. You need to walk 1000x miles in your customer’s shoes. 

Listen to what they truly want not just what they need. Help them achieve a certain emotion or status. Make your product or service solve their problem. Know your customers by heart by listening and establishing deep conversations with them.

Lack of originality.

Expect that there are hundreds, if not thousands, of similar businesses like you that are playing in the same field with a similar offer at certain price points. Learn what sets you apart. What differentiates your product or services from similar companies that offer the same packages.

Leadership breakdown.

Your business is your baby. Treat it like you are raising your own kid. A breakdown in leadership acts as a catalyst for failure in business. If you are not attuned with personal development, you better start seeking Personal Development coaches. Your success in business will greatly rely on your personality as the founder.

Failure to establish a profitable business model.

Most businesses fail because of this factor. If you don’t have a system that racks profit, your business is going south fast. Try to make a business offer that allows you to have profit. It is going to involve a lot of trial, error, and failure. It is inevitable that you are going to fail along the way, you better fail fast and bounce quickly.

Surviving and Growing Businesses

Every entrepreneur wants to grow their businesses. There are helpful guidelines that allow the business owner to fast forward the success of his business.

  • Create a business plan. If you just discovered the business by chance and you think you can create profit out of it, learn all about the business. Some people say you need to have a passion for what you do to achieve success. If you truly want to achieve success for sure, you need to create a business plan. In your business plan, envision your company’s growth many years from now. Determine the things you need to perform to get to that status you want. Even if you are a small business, you still need a business plan to start with. It becomes your guideline or road map in achieving your goals.
  • Track your expenses and keep them low. The true indicator of business success is positive cash flow. For you to know if you are on the road to success or failure, you have to manage your finances wisely. Poor money decisions can lead to a flop business.
  • Reinvest some profits back to your company. To grow, you need to reinvest a portion of your profits back to the company. This will upgrade your products or services to address your customer needs and problems better. Customer satisfaction means more business revenues.
  • Measure your productivity. Sometimes you get too busy with so many trivial things. Some business activities don’t contribute to the company’s success. When considering client requests, event or marketing opportunities, or even partnership opportunity, make sure it complements your goals for the company. Choose carefully what you allow into your business. Make sure you still follow your business plan and guidelines.

Entrepreneurship can be both exhausting and rewarding. You need to pack yourself up with loads of perseverance, endurance, determination, focus and will power to find ways to sustain the enterprise.

Guest contribution by Gabe Nelson, part of the team at buildapreneur.com

Related resources:

Related sidebar

Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which he brought to reach over half a million business students, professionals, and entrepreneurs in the last year | Gennaro is also Head of Business Development at a tech startup, he helped reach over six figures and become profitable in a year and a half | International MBA with emphasis on Corporate Finance | Subscribe to the FourWeekMBA Newsletter | Or Get in touch with Gennaro here

Leave a Reply