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You’ve probably heard the classic story about small business failure rates. Business can be moving along well one moment, and an epic business disaster could happen to anyone out of nowhere.
While it’s true every business venture carries some level of risk, failure statistics shouldn’t scare you away from your startup dreams. Instead, it’s best to use these numbers as a guide, and find new ways to ensure your startup mistakes don’t lead to the same fate.
An astonishing 6.5 million businesses launch every year, but only a handful enjoy long-term success.
Like they have in the past, startup failure rates continue to hover around 90%. This presents some fundamental problems in the way many entrepreneurs approach their ventures.
Here’s what failure rates look like broken down by year:
It’s an eye-opening list when you consider the potential implications. The first few years of a startup tend to be uncertain, especially with changing market conditions and consumer preferences.
But you expect things to level out and the risk of failure to disappear once your business is established, right?
Not all startups are created equal. Part of the risk level depends on the industry in which you launch your startup.
Although business failure rates by industry are fairly similar, some niches have stronger staying power than others. The businesses that were most likely to fail in 2019 included:
However, not all companies are likely to fail. Among other industries, information companies had the highest failure rate at 63%, followed closely by:
What about foodservice businesses? A search for restaurant failure rates may lead you to believe an unusually high number of eateries meet sticky ends.
In reality, though, the median lifespan of most restaurants is 4.5 years. Only 17% of foodservice companies close during the first year of operation, and about 50% make it to year five.
Healthcare and social services businesses saw the biggest growth and highest survival rates in 2019.
Only 19.2% didn’t make it through the first year, and 60% were still going strong after five years of operation. On the other end of the spectrum, just 35% to 40% of businesses in construction, transportation and warehousing survived for five years.
With one in 12 businesses closing every year, no business completely escapes the possibility of going under.
However, there is a silver lining here. Founders whose startups fail have a 20% higher chance of succeeding in future ventures.
How do they do it? By learning from the experience.
Fortunately, failing isn’t the only way to learn how to get your startup off the ground and keep it running.
Business success depends largely on smart planning and decision making. Start with a strong foundation and a blueprint to follow as your company begins to grow. You’ll be miles ahead of the entrepreneurs who try to rely solely on their initial visions.
Your first step toward beating small business failure statistics is to recognize the mistakes these entrepreneurs tend to make, including:
To avoid these same pitfalls, create a detailed business plan. A plan gives you a realistic look at what you need to do to get your business off the ground and a timeline for making it happen. It also offers the chance to examine your motives for starting a business.
If you’re getting into an endeavor for the wrong reasons, you won’t have the persistence necessary to sustain your company in the long term. Your startup should be guided by differentiating yourself from competitors through disruptive innovation. If you’re giving into pressure from friends or family, or simply looking to escape the corporate life, you won’t have the competitive edge.
Successfully executing your plan is easier with a mentor. Entrepreneurs who take advantage of third-party expertise see their startups grow 3.5 times faster than those who don’t.
Other entrepreneurs with prosperous businesses in your industry make great guides. Their input may be particularly useful if you want to launch a startup before turning 30.
Businesses run by young entrepreneurs have higher failure rates, but guidance from a knowledgeable mentor can prevent you from becoming another statistic.
A reliable source of capital is essential for turning the information from your plan and your mentor into a reality. 33% of business owners say funding is their top challenge. So, a lack of capital is one of the biggest reasons for the high failure rate of small businesses.
National offers startup loans to businesses with at least 6 months in business and $120K in annual sales to help take your business off the ground. Or, if you’ve been around for a year, financing from National Business Capital may be all you need to reach the next level. Whether you need a small amount to support your small company, or a larger one to kickstart your progress, National can help.
Get started by applying now, and speak to a Business Financing Advisor about your options right away!
National Business Capital is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.
Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.
We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!
Joseph Camberato, CEO at National Business Capital & Services, developed a passion for business at a young age. Joseph has a true respect for anyone who owns a business and enjoys engaging them in discussions of how they “made it happen.”