What Percentage of Businesses Fail – The Real Number

What percentage of businesses fail?

You are told that most businesses fail. People quote failed business statistics left and right, but the numbers are all over the place. I recommend that you read The Ten Commandments for Business Failure.

First of all, let’s consider a few questions about failing businesses:

  1. What time frame are we talking about? Are we referring to businesses failing within the first year, or the first two years, or 5 or 10 years? The failure rate among businesses is very different, depending on how long they have been in business.
  2. Does fail mean the business no longer exists or that it exists in a different form? For example, how do we count a business that was merged with another business? Is that business a failed business? What if the business owner retires and closes the business down. Does that count as a failed business?
  3. Are we looking at failure rates based on an industry? Do we get an accurate number if we lump all businesses under one umbrella?

I have read an article in Fortune Magazine that stated that 9 out of 10 startups fail, but where do they get their numbers from? There is no source for this claim, so can you believe it?

The U.S. Census Bureau reports that 400,000 new businesses are started every year in the USA, but 470,000 are dying.

Does this mean that more businesses are dying than businesses are starting?

Wow. That is a scary number. It is also a bit strange to have more businesses fail than businesses started.

Does that mean that all businesses that started fail?

I hope not.

“More than one-third of businesses today will not survive the next 10 years”. John Chambers Cisco’s CEO of 20 years

There is a recent Harvard University study done by Shikhar Ghosh that claims that three out of every four venture-backed firms fail.

According to the U.S. Bureau of Labor Statistics, about 50% of all new businesses survive 5 years or more, and about one-third survive 10-years or more.

This is an interesting statistic because it shows you that a more mature business has a better chance to survive.

According to the Small Business Administration – The SBA – close to 66% of small businesses will survive their first 2 years. What that means is that only about one-third of total businesses will fail during the first 2 years. The SBA also tells you that about 50% of businesses fail during the first year in business.

This is a much better number than the 9 out of 10 failures that some claim.

Another very important thing to consider that a closed business doesn’t mean that the business has failed. For example, the business owner might retire one day and shut down the business. Or, an entrepreneur could get sick or die.

I don’t think we should treat closing a business with a failing business.

Regardless of who you believe when you start a business there is a good chance that you will fail. Your job as an entrepreneur is to maximize your chances to succeed in business.

While you get inconsistent numbers on what percentage of businesses fail, you can do a lot to prevent your own business from failing.

Before you start a business consider the reasons businesses fail.

  • You can’t pay your bills. When you run out of cash your business has failed. You can make profit predictions all day long, but the only thing that helps you pay your bills is cash. If you ever do business with large companies, you will find that many of them are slow to pay. I mean it’s not unusual for a large company to take 4-6 months to pay. They are masters at controlling their cash flow. Learn from them.
  • You are offering something people are not willing to pay for. This one is easy, but so many miss it. Especially, those who end up creating a product or build software without confirming with the market that there is a demand.
  • Failing to attract paying customers in a cost effective way. You might have a product people are willing to pay for, but you can’t figure out a way to market it in a cost effective way. If it costs you more money to get a new customer than you can afford you don’t have a business.
  • You don’t have the skills to manage your business and you are not willing to learn. No one is a born entrepreneur. Entrepreneurs who succeed are fast learners. Learn or your business will fail.
  • Unable to build a winning team. When you start out, there is a good chance that you have to do everything, but you will only build a business if you can build a team around you.
  • Unable to create systems. If you look at a successful business, it runs on systems. It doesn’t rely on an all knowing business founder. There are systems within the business that enable the company to scale and grow.

Of course, there are many more reasons a company can fail, but I wanted to list just a few.

In the comments section below, share what you think is the reason so many businesses fail.

photo credit: zero percent box

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George Meszaros is the editor and co-founder of Success Harbor where entrepreneurs learn about building successful companies. Success Harbor is dedicated to document the entrepreneurial journey through interviews, original research, and unique content. George Meszaros is also co-founder of Webene, a web design and digital marketing agency.
  • Great article, cited in our blog post about small business failure 🙂

  • Justin Hatch

    Finally! Someone is addressing this! We have been searching for the actual numbers and found they were all over the place and not based on any actual research. Thank you for taking the time to put this article together.

    We asked an author at a significant new s source and her reply was “Just ask any VC, they will all tell you the same thing”. Not exactly what I would call peer reviewed research study.

    • Thank you, Justin. What kind of business are you in?

      • Justin Hatch

        We have a forecasting business for startups and small businesses named startegy.com. We have been trying to find out the real data behind failure rates for a long time now. It is hugely relevant in the forecasting space.

  • Emerald

    This article was very informative. As an up and coming business owner myself I want to be able to assist my clients on how to grow and go through the tough times of business. I’ve seen so many peoples business fail due to inconsistency. Customers get use to a certain thing which makes them repeat customers. ex. customer service in an organization can always be on 100% but if it slips just a little bit and declines to 95% someone will notice. So no you cant have a bad day at this company because it would be inconsistent according to a customer that has been coming to your establishment since the grand opening..

  • ryan leavitt

    I was just listening to the E myth on audible and his numbers were blowing my mind so I did a google search and found you. I’m just coming up on my first year in business and we are getting more stable every month, but had several months where I thought we were not going to make it. My business http://yetihelpers.com relys on a lot of labor and cash flow was killing us waiting on larger customers to pay us (90 days). We turned it around focusing a little more on residential clients that pay the same day so we could build up our cash flow while still building out commercial base.

    • Hi Ryan: Thank you for taking the time to comment on Success Harbor. I would not want to own a business where a large percentage of the revenue relies on net payment terms. You did what successful entrepreneurs do. You were faced with a challenge and made an adjustment to your business. I wish you much success with your business. Perhaps we could do an email interview with you about your business. If you are interested email me through our contact page.

  • BlueThruandThru

    How many small businesses fail in the first 2 years that receive funding from the SBA?

    • Good question 🙂

    • From the site:
      “SBA does NOT provide grants for starting and expanding a business.”


      • Thank you, Kathleen. I appreciate the feedback. What kind of business do you have?

        • I used to have a community advertising publication that I copied from a company in another town that was doing very well, so I did the same thing in my little town. When I started it, I didn’t realize I had started the “perfect’ business. No inventory, no sales tax, no receivables. I don’t run the ad unless it is paid for. —- The more I learned about business, the more I realized how good I had it. —- It broke even from the first publication. Was doing really well by year three, and I sold it after 7 years.

          • Congratulations, Kathleen. Not only you were able to start a successful business, you were able to sell it too. That happens rarely.

  • BlueThruandThru

    Isn’t the quality of Customer Service a determinant in success or failure?

    • Not necessarily, I remember, for years, Amazon didn’t have a customer service phone number, yet they continued to succeed. It depends on the business. Mostly, customer service is important, but it is not always an absolute must.

  • Thank you for taking the time.

  • John Erehsaw

    Thanks for the article! This was an interesting read. I believe one of the reasons some new businesses fail is because of overwhelming stress. It’s difficult to understand the pressure that comes with owning a business when you are in the beginning stages of making a business plan. It’s a million times easier to be an employee rather than to be an employer.

  • Simon Goodall

    Great article. I am fortunate to 15 years ago start from scratch to now running 85 staff including overseas. It has been challenging times and stressful. I found what worked best was talking to people who had done it before. A mentor was good but that had not walked in my shoes. We have changed a lot over the years the way we do business and at times have got it wrong but you just keep looking ahead

    • Congratulations to your business success, Simon. What kind of business are you in? What are your biggest business challenges right now?

      • Simon Goodall

        We are a dog training company. Our biggest challenge now is keeping the culture that I have spent years building. With 120 staff I don’t know most of my staff as becomes too difficult so ensuring our managers have the skills necessary to feed down the info.

  • Marsha Kelly

    Good news for Business startups. Your point about businesses failing that are unable to attract enough paying customers in a cost-efficient manner is probably the number 1 reason I see small businesses fail. You’ve done a service to entrepreneurs, giving them the facts and the spelling of myths that are preventing many people from the entrepreneurial lifestyle.

  • Kelly

    What is the title of the article that you reference? “There is a recent Harvard University study done by Shikhar Ghosh that claims that three out of every four venture-backed firms fail.”

    I am very interested in the topic and would like to be able to read further. Thank you!