If you are running a small business and have been around for any length of time, give yourself a pat on the back. I’ve been running my small business for 16 years now and believe me, I’m thankful each and every day. I especially feel that way after coming across this small business infographic on some of the most tried and failed small businesses.
Did you know that recent studies have shown that 50 percent of small businesses will fail within the first year? How about the fact that a staggering 95 percent will close their doors before they hit their fifth year of operation? That one seems a bit hard to believe but in today’s economy, it could be true. Here are some additional stats that may surprise you:
- 40% of small businesses are profitable.
- 30% break even.
- 30% are continually losing money.
- 9% have a chance of surviving 10 years.
Now before you get discouraged, keep in mind that many factors go into the success or failure of any small business. A good business plan and strategic marketing and customer service can go a long way toward obtaining success. This infographic by Top Business Degrees seeks to explain why some businesses fail and others flourish.
[Click Image for Full Size Version]
The data on small business survival rates is not correct. Close to 50% of small businesses make it 5 years and about 80% make it through the first year.
Check out these two posts from Scott Shane for better data: https://smallbiztrends.com/2012/09/failure-rates-by-sector-the-real-numbers.html
Hi Steve, you’re absolutely right — the numbers in the infographic above about business failure rates are incorrect.
Specifically, the failure rates for small businesses after the first year are around 20% – NoT 50%. After five years the failure rates are roughly 50%, NOT 95%.
I am actually going to ask the creator of this infographic to update the failure rates to reflect the correct ones.
>> After five years the failure rates are roughly 50%, NOT 95%.
That’s good to know. Yeah, some of the figures here do not match up. I’m glad to know that the 95% rate is incorrect as that was a pretty depressing stat!
I’m working on a study on this particular topic and those numbers are based on the SBA and other government statistics and are pretty accurate. Anita, I am curious as to where you got your statistics from? Most small businesses do not survive the first two years. Let along make it to 5 or beyond.
Actually, Profeassor Scott Shane has written about these numbers several times. His conclusion based on government published statistics is that after 5 years, roughly 50% have survived: https://smallbiztrends.com/2008/04/startup-failure-rates.html
He updated those numbers a few years later (you can find it from searching this site) and the conclusion was pretty much the same.
I would say any conclusion that most small businesses fail in 2 years is terribly lacking in confidence. Give us business owners some credit!!!!! As this infographic illustrates, lots of people repeat incorrect statistics.
But I’d say Professor Shane knows what he is talking about.
Very helpful Steve. Thank you. Off hand do you have any such stats for other areas besides the US?
Actually I’m working a study on this particular topic and those numbers are based on the SBA and other government statistics and are pretty accurate. I am curious as to where you got your statistics from? Most small businesses do not survive the first two years. Let along make it to 5 or beyond.
Is this data based on the US or is world wide? Just curious. Thanks
David, a great article. It’s kind of a wake up call for entrepreneurs. One of today’s small business challenges is the competition for our products and for money. We are competing with every company for a piece of the consumers dollar. Not easy for the little guy. Thanks so much.
Great infographic and post. Lots of good info shared. Thanks.
Great Post. Wake up call for small b iz owners indeed.
This article tells me one thing, the push to get people to start businesses to grow our economy is on par with the Bush effort to prop the consumer driven economy, by making too much easy credit available to enable unqualified people to buy homes they could never afford. The result, a global financial crisis, and a lot of foreclosed real estate.
Let’s stop pushing people who are not really qualified to start companies. It will just lead to economic losses and lots of hard feelings.
Why blame President Bush? Failure stats have stayed pretty constant for decades, long before George Bush entered office. And they’ll continue to be roughly the same, long after President Obama leaves office.
Entrepreneurs take responsibility for their own actions. Many entrepreneurs have failures along with the successes — it’s the nature of the beast. Some entrepreneurs overcome the failures by starting other businesses that may become successful. HJ Heinz, Henry Ford and Walt Disney all had companies go bankrupt, but went on to be incredibly successful with enduring brands. Some entrepreneurs prefer to get a job instead.
Each person must decide what is right for him or her.
Most entrepreneurs I know would bristle at the idea that they are somehow being “pushed” and not making their own decisions, however. 🙂
Anita, thanks for challenging Ari. Blaming George W. is becoming old school, and mostly incorrect.
I think this is an important message to all would to be a new business. The concept of being your own boss is flawed because suddenly you have too many bosses – your vendors, customers, financial backers etc., I wonder if the banks financing the business should really look into the feasibility of the business model and track record of the borrower and require them to put more of their own money on line. This may be bad for many of them who may not qualify for the loan but it may be a blessing so that they would not lose their capital and peace of mind for few years as statistics would suggest.
So we get the failure rates. What are the most successful businesses?
I’ve been hearing the 95% stat for decades. Along with the “small business is the backbone of the American economy” for an awful long time as well. Both can’t be true even with a lackluster economy.
I just located this article and even though it’s a few years old and some of the information might be inaccurate, I think it generally tells the truth. From my standpoint, considering my own business and the businesses of my clients, every year we can stay in business and at least cover our costs is a great year. And we learn from our mistakes, target our messages, products and services in the hopes of a brighter next year.
The longer we can build a self-sustaining entity, the better our chances of doing better in the future.
Here’s to a great 2016!
Nice to know. I guess there are so many people trying to get into retail or the food business. I guess it is because it has a lot of demand – but the competition can be tough as well.
You’ll find a lot of varying statistics based on the source and the year that the study was done. Avoiding pitfalls is great, but I’d like to see more focus on the ways to be successful in an infographic. I may have to commission my own based on client work and further research.
How can I escape the mortgage now that my business failed? I need help!!!!!!!