23 Startup Failure Rate Statistics

Want to become an entrepreneur? Understand why many startups fail. And see the proven ways to increase your chances for success.

Entrepreneurship is not something you can afford to take lightly.

Turning your startup into a successful business takes more than a great idea and a fat bankroll. It also means understanding the competition, developing clear goals, and a plan for achieving them.

You need to identify the biggest obstacles that can hinder your success. Your business idea may sink or swim, but that's not the only factor that can affect your new business.

Here is how often startups fail and why.

Failure Rates: The First Ten Years

Making it past the first year is what most startups tend to focus on. But you've got to keep an eye on the bigger picture. As time passes, it gets tougher for new businesses to maintain their longevity.

Here's the scoop on the percentage of startups that failed during the 10-year period between 2011 to 2021.

• 1st Year - Approximately 20.6% of startups that opened in 2011 failed within the first year of doing business.

• 2nd Year - By the end of year two, the overall failure rate increased to roughly 30.7%.

• 3rd Year - In the third year, the number of startups still in business dropped another 7.4%. This brings the total failure rate to 38.1%.

• 4th Year - Year four brought a dip of 5.9%, with around 56% of startups still treading water.

• 5th Year - The five-year mark is a danger zone for many startups. Only 50.9% of the businesses that were founded in 2011 made it this far.

• 6th Year - Beginning in the sixth year, the failure rate slows down dramatically to about 2-4% each year. By now, about 53.4% of startups have disappeared.

• 7th Year - Seven may be a lucky number for some but for startups. However, it signifies the point at which the success rate drops to 43.3%.

• 8th Year - Once year eight rolls around, the failure rate tops 59.6% for the first time. Which leaves just 40.4% of startups still in business.

• 9th Year - The decline continues in the ninth year. Approximately 36.9% of startups continue to forge ahead.

• 10th Year - Reaching the 10-year anniversary is a major accomplishment for small business owners. Especially considering only 34.5% of startups can say they've done it.

Top Reasons Why Startups Fail

There are so many things that can contribute to a startup's failure. Most of the time, there's more than one factor at work.

Poor marketing, a lack of a strong business model, and a shabby product definitely play a role. But some things have a stronger influence than others.

• Lack of funding - Money issues also come into play. 38% of businesses run out of cash before they're fully established.

• No demand - No matter how great your business idea is, it's virtually worthless if there's no one lined up to buy. An estimated 35% of new businesses fall flat due to a lack of demand for the products or services they provide.

• Inability to compete - Scoping out the competition is a must for any startup. Nearly 20% of new businesses tank because they can't keep up with the major players.

• Inapt business model - For a business to be successful, an effective business model is vital. About 19% of startups are unsuccessful because their business models fail to stand out among competitors.

• Legal Complexities - Changes in policies can affect the existence and operations of businesses. 18% of startups close down because of complications with laws and regulations.

• Pricing issues - Customers are always on the hunt for value. For 15% of failed businesses, issues with pricing were a factor in their demise.

• Poor management - A strong leadership core is essential when you're trying to build a small business. But choosing the right people is often challenging. Around 14% of failed startups say support team issues were the barrier to success.

Highest Failure Rates by Industry

The industry has a significant influence on whether your startup can stay put for the long haul.

Take a look at the industries that have the worst failure rates for new businesses (within the first five years).

• Mining, quarrying, and oil and gas extraction - Businesses in this industry have the hardest time succeeding. Only around 42% are still going strong at the five-year mark.

• Information - Info-based startups are a hot commodity but they're also among the most volatile. Just over 49% managed to stay afloat after five years.

• Administrative and waste services - This is another industry where businesses tend to come up short. Only about 51% are able to say they're successful after five years.

• Management of companies and enterprises - If you want to start a business in the management industry, keep in mind that less than 51% make it to their fifth anniversary.

• Professional, scientific and technical services - Businesses in this industry manage to succeed 53% of the time after their fifth year.

Failure Rates VS. Experience

When it comes to turning your startup dreams into a reality, it's all about trying and trying again. Statistically, your success rate increases with each time you're willing to walk down the entrepreneurial path. Persistence and perseverance can go a long way toward helping you reach your goals.

• First-time entrepreneurs - The success rate among first-time entrepreneurs is a low 18%. But you shouldn't give up right away.

• Second-timers - Even if your first attempt fails, there's a silver lining. The odds of succeeding increase to 20% for entrepreneurs who give launching a startup a second try.

• Seasoned pros - Once you've got one win under your belt, the chances of making it the next time are up 30%. If you've got a venture capitalist backing you up.

Bottom Line

Some of these statistics aren't encouraging. But you shouldn't let them deter you from pursuing your entrepreneurial dreams.

Sure, we can't all be Mark Zuckerberg. But with some careful planning, a healthy dose of patience, and a lot of determination, it's possible to join the ranks of successful startups.

References

• U.S. Bureau of Labor Statistics
  
• Harvard Business School
  
• CB Insights
  
• Wall Street Journal
  
• Forbes
  
• Small Business Trends