“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
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.