October 24, 2014

Small Business Failure Rates by Industry: The Real Numbers

“Mamas don’t let your babies grow up to start construction companies,” could be the first line of a country song about new small business failure rates. Five years after starting, the share of mining companies remaining alive is nearly 15 percentage points higher than the fraction of construction businesses still in operation (52.3 percent versus 36.4 percent).

Five Year Survival Rates for Startups by Industry Sector

Small Business Failure Rates by Industry Sector
Source: Created from data from the Census Bureau’s Business Dynamics Statistics

In the figure above, I have plotted the five year survival rates for new companies founded in 2005 using data from the Census Bureau’s Business Dynamics Statistics.

While there are many sources of data on start-up failure rates, these are probably the best. They come from a longitudinal database of businesses that government economists and statisticians created by linking together annual administrative records, such as unemployment insurance filings. (The use of administrative records eliminates errors that emerge from efforts to survey company owners.)

Because the database was designed for researchers, the data are not presented in the most user friendly way. Therefore, I have reorganized them into a chart which shows small business survival rates by industry sector.

As you can see, the odds that a new business survives its early years vary a lot by sector. In order from highest to lowest five year survival rates, the sectors are:

  • mining (51.3 percent)
  • manufacturing (48.4 percent)
  • services (47.6 percent)
  • wholesaling and agriculture (47.4 percent)
  • retailing (41.1 percent)
  • finance, insurance, and real estate (39.6 percent)
  • transportation, communications and utilities (39.4 percent)
  • construction (36.4 percent)

Therefore, if you want to know about small business failure rates, it pays to understand them by industry sector.

31 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.

31 Reactions

  1. It’s good to see that half the sectors are pretty much at 50%. That’s much better than the rates we often hear thrown around.

  2. Thanks for that interesting data, Scott.

    Please tell Anita and the rest of the gang at Small Business Trends that I’m going to be out of a pocket for a few days.

    I’m going on a hunt…for a mining company.

    The Franchise King®

  3. Joel: I could give you some tips on mining companies… Think precious metals. Did you know that 3M (with products like Post-It and Scotch Tape started as a mining company? ;)

    I recommend you to check out the book, “The Collapse of the Dollar and How to Profit From It”, for more information about the commodity industry.

  4. Thanks for that 3M reminder, Martin. And thanks for that book recommendation, too. The Franchise King®

  5. Scott, your findings are very interesting, but do not tell the whole story. The data points and timeline uses a period when the real estate market went from boom to bust.

    If you you drill down, your data shows that finance, insurance and real estate suffered almost a much. Two things occur during a period of boom and bust. New businesses form to fill the demand, in this case, new homes. This caused a surge in real estate development companies, builders, General contractors who hired primarily sub-contractors (workers who operated as sole-proprietors, and individuals who formed Sub-S corporations).
    Add to that all the construction related service businesses.

    Everyone and his mother became real estate agents and brokers, once again many were independent contractors. How many mortgage brokers and insurance brokers, once again, primarily self employed independent contractors, would you meet at a networking event in 2007?

    When the bust finally arrived in 2008, all of these industries suffered. The results are skewed by both the time frame used, and the number of self employed business formations.

    Looking ahead to a 5 year period starting from 2010, your results will be significantly different. I dare predict that retail will probably be the biggest loser, and real estate and financial services could be among the leaders.

    Thanks for letting me add my 2 sense.

    Bruce Silver
    Employers Rx LLC
    The CURE for your employee management headaches

  6. Scott, this is excellent information. If you look through your trackbacks you’ll see that we reference these numbers again and again on our blog, which focuses on credit management and getting paid in the construction industry.

    You say “Mamas don’t let your babies grow up to start construction companies,” and you couldn’t be more right. The construction industry is saddled with payment problems and financial risk. Fortunately, there is a lot of legal tools and options out there to help contractors offset this risk, but it takes a savvy business person to know this stuff and to keep up with it.

    Unfortunately, I think the failure numbers in this industry will remain pretty consistently high.

  1. Pingback: Why Small Businesses Don't Control Anything, And How To Change It | Gregg Zban

  2. Pingback: Mechanics Lien Importance Highlighted By Contractor Failure Rates

  3. Pingback: Failure Rates by Sector: The Real Numbers - Small Business Trends | Strategy and Execution | Scoop.it

  4. Pingback: Credit Management: How Did Your Books Look Last Year? This Year?

  5. Pingback: DO YOU or CAN YOU make a living from gold prospecting with a sluice/dredge/detector? - Page 3

  6. Pingback: Forget About Corporations, Work In Startups « iWrite

  7. Pingback: Work In Startups Blog

  8. Pingback: Jobscience 3 Must Read Tips for Recruiting for Start Up Businesses - Jobscience

  9. Pingback: 3 Must Read Tips for Recruiting for Start Up Businesses - PlusRated Live

  10. Pingback: How to Get the Product

  11. Pingback: Profitable Growth Strategies: Why I Recommend This Business Growth Training

  12. Pingback: Getting Paid In The Construction Industry: Policy, Contract & Tempers

  13. Pingback: Small Business is Missing the Digital/Mobile Revolution - Forbes

  14. Pingback: 3 Things You Should Know As A Startup Founder | RIC Centre

  15. Pingback: Small Business is Missing the Digital/Mobile Revolution

  16. Pingback: Retainage: What Rules Apply And How To Get Your Hands On The Money?

  17. Pingback: Mechanics Lien: Getting Paid Faster Means Protecting Lien Rights

  18. Pingback: The Marketplace Fairness Act and Ecommerce – What Effects to Expect | The Intechnically Savvy Blog

  19. Pingback: 6 Week Course To Success As A Credit ProfessionalLIEN

  20. Pingback: LEGACY BUYER ADVANTAGE

  21. Pingback: Pittsburgh Local Business Marketing | Pittsburgh Internet Consulting

  22. Pingback: Forbes to Small Business:You're Missing The Mobile Revolution - Intelligent Head Quarters

  23. Pingback: Jobscience Webtest – 3 Must Read Tips for Recruiting for Start Up Businesses

  24. Pingback: Are Entrepreneurs Doing Their Homework? - Business on Market St.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>



Compare your business to the industry - Try our new tool