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Business Failure Rates Highest in First Two Years

New research from the U.S. Bureau of Labor Statistics [1] suggests that most failures of American startups will occur in the first two years of their existence.

After that, the rate of business failure slows.

“The data show that, across sectors, 66 percent of new establishments were still in existence 2 years after their birth, and 44 percent were still in existence 4 years after. (See chart 1.) It is not surprising that most of the new establishments disappeared within the first 2 years after their birth, and then only a smaller percentage disappeared in the subsequent 2 years. These survival rates do not vary much by industry.”

The following chart shows business survival rates by industry sector. Interestingly, the sector with the highest survival rates is education and health services. The sector with the lowest survival rates is the information industry. Of course, this study tracked new business startups from between March of 1998 and March of 2002 — the height of the dot com boom.

Business Failures [2]
Click to view larger image [2]