I may earn money or products from the companies mentioned in this post.
We all know that a lot of new businesses fail, but most of the percentages of failed businesses tossed out are made up.
In this article, we’re going to do a deep dive into the actual data about what percentage of new businesses fail over time. So buckle up, it’s data time.
Data Source For Percentage Of Failed Businesses
Keep in mind that this data comes only from businesses actually reported to the federal government, so there is a 100% chance that it doesn’t include all opening or closing businesses.
There are countless side hustles that never apply for an EIN (Employer Identification Number) and never show up as a line item on a federal tax return.
I’m not going to be so bold as to make up a statistic about what percentage of actual businesses are represented in the BLS data. Instead, let’s just agree that it’s a small fraction of the actual small businesses in America.
Yet, the BLS data is the best data we have so let’s use it as our source.
Percentage Of New Businesses That Fail By Year
I’ve created a table from the U.S. Bureau of Labor Statistics data to help us understand what the failure rate of new business actually is in the United States.
The table below represents the 631,634 new businesses created and reported to the federal government in 2012. Then each successive row shows how many of those new businesses were still in operation in each of the following ten years.
The highest new business failure rate was during the first year of operation when 21% of new businesses closed. By the end of the third year, 31% had failed and by the end of their fifth year, 50% of new businesses had failed.
Table Of New Business Failure Rate By Year
|Number Of Businesses
Here is a visual presentation of the survival rate of new businesses from 2012 to 2022.
Why New Businesses Fail
Looking at the data above, we see that 1 in 5 businesses close in the first year of business. While the data doesn’t tell us why they failed, I have some ideas based on 30 years of self-employment experience and helping countless others start their first business.
If a business fails in the first year, it’s most often because of one of the following reasons.
#1 – The Owners Were Not Business Ready
It takes more than just desire to successfully plan, launch, and operate a business.
Being a business owner takes knowledge, skill, determination, and a commitment to do the work that has to be done. Before you start your first business, you really should complete an honest self-audit to know if you are business ready.
If you discover that you have some areas that could be strengthened, then it’s time to start reskilling yourself to become qualified for your dream job…being self-employed.
Here is a link to an article about my Business Ready Self Audit Tool. Do yourself a favor and read it before you start your first business.Stacey
#2 – Startup Mistakes
Starting a new business, no matter how small, is more complex than business virgins think.
You have to consider and plan a vast array of aspects of your new business and messing up any one of those aspects can be expensive or even fatal business mistakes.
I’m 100% confident that a lot of the 1 in 5 businesses that closed in the first year failed because their startup was done poorly. I’m even more confident that most of the 50% of businesses that fail by the end of their fifth year were driven out of businesses by startup mistakes.
Those startup mistakes might have included:
- Messing up the customer identification
- Poor product or service design
- Sloppy budgeting
- Confusing messaging
- Wasted resources (time or money) on auxiliary tasks
- Regulatory or licensing mistakes (an often deadly mistake)
And these are just a few of the startup blunders that doom businesses to failure.
You need to find a mentor or business startup plan before you actually begin the process of launching a new business.
As the old saying goes, “You don’t know what you don’t know” and without someone with experience in your corner, you run the very real risk of discovering something you just didn’t know when it’s too late to save your business.
Here is a link to the Business Startup Plan that I offer to new entruprenus. I’m confident it will save you time, money, and help you avoid potentially deadly mistakes that could make your new business just another statistic.Stacey
#3 – Burnout
Launching a new business at any scale is hard. And unless you have a pile of money to throw at your new business you’re going to be investing your time in this startup. P.S. You can learn more about Money vs Time by learning about the Business Startup Pyramid.
When starting a business, embrace the absolute fact that it’s going to be hard work and prepare yourself for that hard work.
Before you even consider starting your business, get your life in order by striving to be the best possible version of yourself.
Work on eliminating your bad habits, reducing your unproductive habits, and getting healthy and energized.
If you need help becoming the best version of yourself, I highly recommend The Fit Father Project. I’m a member.
How To Avoid New Business Failure
To succeed when starting your first business, you need to plan ahead. Sure, going into a new business with no plan works for some people, but from the data, we know it works for only about 50% of people.
Prepare yourself with the knowledge and skills necessary to launch and run a business before you start that business. Sure, you can and should be adding knowledge and skill while actually running your business, but the stronger foundation you start with the more stable your new business will be from day one.
Then get yourself a business mentor. Having a self-employed friend is one of the greatest predictors of new business success. If you don’t know anyone, I’m happy to be your self-employed friend. Just signup for my Business Tips, Tricks, and Truths Emails so we can chat more.
Finally, get yourself physically and mentally right. Be the best version of yourself and you’ll have the best chance of being a business success story and not a business failure statistic.
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