The Typical Entrepreneur’s Sales Are Below Average

Unless you answered zero, you overestimated.

Most people forget that the majority of businesses fail within six years, leaving them with zero revenues.

Moreover, the start-ups that survive have very skewed performance. A few surviving companies reach substantial sales – three one hundredths of one percent hit over $100 million in sales in six years, according to U.S. Census data – but most don’t grow at all.

The result of this pattern is that they typical (median) performance of start-ups is far below the average (mean).

This pattern exists in all sectors of the economy. Below are data from the U.S. Census on the average and typical level of sales at age six of the most recent cohort of start-ups available, separated by industry sector.

Take a look at the wholesale sector, which provides the most extreme example of this pattern. The average new company had a none-too-shabby $2.1 million in sales at age six. However, the typical start-up had no sales at that age.

Sales of U.S. startups by industry

This statistical pattern is not just trivia. It has important implications for entrepreneurs, investors, and policy makers. If, by age six, the average and typical start-up’s sales were similar and both numbers were substantial, then a lot of entrepreneurs would be doing a good job of building businesses. This, of course, is the world that a lot of people would like to think exists.

But, if average sales are high, while typical sales are zero, then a few entrepreneurs are very successful, but most are not. Unfortunately, this is the pattern that we tend to see.

Here’s the rub. Starting a business takes time and money. The performance pattern that we see means that the typical entrepreneur is spending a lot to get relatively little.

Before policy makers tell everyone that it’s a good idea to be an entrepreneur, they should keep these numbers in mind. The people they encourage are more likely to have the typical outcome than the average one.

8 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

8 Reactions

  1. Shane,

    Thank you for sharing these uplifting numbers.

    Data is important, and it’s really important that future small business owners are aware of the negative possibilities, too.

    I feel that technology will move these numbers up in the next few years, as the cost of doing some types of business go down, thus increasing owners profits, even if their sales remain about the same.

    The Franchise King

  2. While some may think this is depressing, it goes to show that being typical won’t make you successful. You have to be unique and different to truly stand out and succeed.

  3. Scott,
    Just a comment on the premise of your article, that “revenues” [for startups]are below average. What a business has for revenue in and of itself is almost irrelevant! It’s what you get to keep that’s important.

    More specifically the real problem for startups is a lack of understanding of “Cash Flow.” Accurately projecting Cash Flow is at least half the battle to growing a successful business.

  4. Scott,

    What do you think is the real problem with these statistics and how do you think you could solve this problem in the future?

  5. I hate to break the bubble of my Republican friends, but I’m willing to bet that the number of “small businesses” that net one million dollars is miniscule.

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