Start-up Odds of Survival Depend on Industry

You’ve probably heard the oft quoted statistic that half of all businesses are gone within five years. While the number is true, it’s an average of what happens to start-ups in all industries, from biotechnology firms to dental offices to taxi services. And new business survival rates differ pretty substantially across sectors of the economy.

To show you how much difference industry sector makes, I have plotted the five year survival curves for the 2000 cohort (the most recent available) of start-up establishments using data from the Longitudinal Business Database of the U.S. Census.

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As you can see from the figure, 13.2 percentage points of difference separate the five year survival rate of businesses in the finance, insurance and real estate sector (57.4 percent) from those in transportation, communication, and utilities (44.4 percent). That’s a pretty sizeable gap. Clearly a new business’s odds of survival are much higher in some industry sectors than in others.

Of course, survival rates aren’t necessarily the same for all sectors over time. Given what’s happened in the economy in the past couple of years, the odds that finance, insurance and real estate businesses started in 2008 and 2009 make it to their fifth birthday might be very different from the numbers shown in the figure.

Nevertheless, the data make an important point to would-be entrepreneurs. Your chances of creating a long-lived business are greater in some industries than in others.

You might want to factor this information into your decision to start a business. Many lenders and investors do.

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.