For example, in the United States roughly 9% of businesses both new and old close each year. On the flip side, only 8% are opened. We’re losing more than we’re gaining for the first time since those statistics have been tracked, and the crossover coincided with the recession of 2007-2009.
According to the U.S. Census Bureau, the overall number of business applications began to recover in late 2009 and has been trending up for the past ten years. That’s good.
But, the census data shows the number of planned wages (WBA) and high-propensity (HBA) business applications have not shown the same level of bounce-back. That’s not so good.
The failure rate for new businesses is somewhere around half, with about 50% calling it quits after the first five years.
Not a great stat, but it does mean that 50% are surviving past the five-year mark. The outlook depends on how you view the proverbial glass.
The Small Business Administration says that almost 80% of new businesses make it through their first 12 months. Although that might surprise you, it’s definitely a much better statistic to focus on.
The specific number changes depending on the industry. Some, like healthcare and social assistance, have a much higher-than-average survival rate. Others, like construction and transportation, have rates that are lower.
Why Businesses Fail
There are, of course, a myriad of reasons why a business might fail. According to research, though, there are a few that are more common than others:
- No need: A great service or product will get you nowhere if there’s zero need for it. Due diligence and market research are essential in the early stages.
- No money: Launching and building a business is expensive. You need capital, investments, loans, and/or revenue to get you through the lean times.
- The wrong people: The most successful business owners and entrepreneurs know to surround themselves with people smarter than them. You need a strong team.
- Too much competition: If the market is already saturated, and there are already plenty of established providers, you’re fighting an uphill battle.
- Pricing: If your prices are too high and you limit your customer base. If they’re too low and you’re not pulling in enough revenue to stay afloat. It’s a very, very fine line.