80% Of Small Businesses Fail In 18 Months? Fact Check
Bloomberg has reported 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. A whopping 80% crash and burn. There is one problem with this statistic. It is not true.
Writers love to put fear into the hearts of people that are looking to start their own businesses. They do this so that they can then sell them a book or magazine to help them have better odds of success. How effective these books and articles are is unknown. What is know is the actual statistics of how many businesses fail over the years. The number of new businesses failing in the first two years is much lower than the Bloomberg number reported.
Here is a look into the statistics from multiple sources:
Here are just a few of the many reports that show that the Bloomberg statistic is not even close to reality.
25-30% of venture-backed start-ups fail completely. The National Venture Capital Association
36% of new businesses fail in two years. – Statisticbrain.com
38.8 – 45.1% new businesses fail in 4 years. – U.S. Bureau of Labor Statistics
51.2% new businesses fail in 5 years – U.S. Census Data
* Headd, B. Redefining Business Success: Distinguishing Between Closure and Failure, 2002 # Shane, S. Startup Failure Rates – The Real Numbers, 2008 Phillips & Kirchhoff. Small Business: Critical Perspectives 1989
Survival rates improve for a given business as it ages.
About two-thirds of businesses with employees survive at least 2 years and about half survive at least 5 years. As one would expect, after the first few relatively volatile years, survival rates flatten out. (Source: Bureau of Labor Statistics, Business Employment Dynamics.)
Survival paths have not changed much over the years.
A negative economy has little effect on a given business’s survival. Businesses started in expanding economies in 1995 and 2005, those started just before the downturn in 2000, and those started just after the downturn had almost identical survival paths. Although the economy is not seen as an obvious factor in business survival, it may be that businesses able to weather a downturn nevertheless feel the crippling effects down the road. (Source: BLS, Business Employment Dynamics.)
Survival rates are similar across industries.
For employer businesses, survival rates as businesses age followed similar patterns for manufacturing, retail trade, food services & hotels, and construction. The fact that the food services industry shows no greater propensity to fail runs counter to the myth that restaurants are a relatively risky business. It is also surprising that the real estate crash seems not to have affected the construction industry at about year five or six. (Source: BLS, Business Employment Dynamics.)
– Source Small Business Administration
Here is what the Washington Post has to say about the fake statistic that 9 out of 10 businesses fail.
“As far as we can tell, there is no statistical basis for the assertion that nine out of 10 businesses fail. It appears to be one of those nonsense facts that people repeat without thinking too clearly about it. ” – Washingtonpost.com