What Percentage of Businesses Fail – Why They Don’t Succeed – Business Tips & Advice (2023)

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Percentage business failures and their causes

If you believe the Bureau of Labor Statistics (BLS), about 20% of new businesses fail during their first year of trading. Less than 50% of businesses succeed past the first five years of operation, and by the tenth year in business, about 65% have failed.

But not all businesses fail at the same rate. In fact, some businesses succeed at a much higher rate than others. For example, health care companies have the highest survival rate. If you want to start a construction business, think again. Their failure rate is the lowest of all.

What percentage of businesses fail?

It’s a simple fact that most businesses fail. If you are thinking about starting a business, it is reasonable to feel nervous. Starting a business is a huge risk, especially if you are a first-time entrepreneur. People quote failed business statistics left and right, but the numbers are all over the place.

Do most small businesses fail?

About 20 percent of small businesses fail in the first year. By the fifth year in business, about 50 percent fail. Looking at the failure rate of companies, starting a business can be scary.

First of all, let’s consider a few questions about failing businesses:

Are new businesses more likely to fail than more established companies?

What time frame are we talking about? Are we referring to businesses failing within the first year or the first two years, or 5 or 10 years? The failure rate among companies is very different, depending on how long they have been in business. According to the Bureau of Labor Statistics, about 20 percent of small businesses fail in their first year, about 50 percent in their fifth year. About 80 percent of companies with employees survive their first year, and about 70 percent will survive in their second year in business. Data shows that about 50 percent of businesses with employees survive their fifth year in business.

What qualifies as a failed business?

Does failure mean the business no longer exists or that it exists in a different form? For example, how do we count a company that was merged with another business? Is that business a failed business? What if the business owner retires and closes the shop down. Does that count as a failed business?

What types of businesses have the highest failure rate?

Are we looking at failure rates based on the industry? Do we get an accurate number if we lump all businesses under one umbrella? Different industries have different failure rates. For example, 75 percent of construction companies survive their first year in business, 65 percent survive the second year, but only about 35 percent make it through their fifth year in business.

Nearly 20 percent of scientific, professional, and technical service businesses fail in their first year. Finance and insurance businesses have a high first-year failure rate, too, at about 16 percent.

Is it true that most restaurants fail?

Many people are asking: What is the percentage of restaurants that fail?” Although it’s true that only about 35 percent of foodservice businesses survive their tenth year in business, about 50 percent survive their fifth year, and about 70 percent survive their second year. Contrary to popular belief, restaurants don’t fail at an alarmingly high rate.

Why do restaurants fail in the United States?

Before you start a restaurant, you should ask yourself, “why do restaurants fail so often?” The restaurant business is one of the most demanding types of businesses you could start. Restaurants are challenging even in perfect economic conditions. Imagine starting a restaurant during a recession or a global health crisis.

(Video) Mark Cuban - The #1 Reason Why Most People Fail In Business

According to one study published in Cornell Hotel and Restaurant Administration Quarterly, about 60% of restaurants fail during their first year in business, and 80% are forced to close within five years of their opening.

Starting a restaurant requires lots of capital, creativity, a great location and exceptional leadership. Succeeding in the restaurant business demands world-class staff, a delicious menu and a lot of blood, sweat and tears.

But why do restaurants fail? Restaurants fail for many reasons, including lack of cash, bad management, and unforeseen crisis like the Covid-19 global pandemic. Fortunately, almost everything that may cause a restaurant to fail is preventable if the right management is in place.

Are businesses really failing in such high numbers?

I have read an article in Fortune Magazine that stated that 9 out of 10 startups fail, but where do they get their numbers from? There is no source for this claim, so can you believe it?

The U.S. Census Bureau reports that 400,000 new businesses are started every year in the USA, but 470,000 are dying.

Does this mean that more businesses are dying than businesses are starting?

Wow. That is a scary number. It is also a bit strange to have more businesses fail than businesses started.

Does that mean that all businesses thatever started fail?

I hope not.

“More than one-third of businesses today will not survive the next 10 years”. John Chambers Cisco’s CEO of 20 years

There is a recent Harvard University study done by Shikhar Ghosh that claims that three out of every four venture-backed firms fail.

According to the U.S. Bureau of Labor Statistics, about 60% of all new businesses survive five years or more, and about one-third survive 10-years or more.

This is an interesting statistic because it shows you that a more mature business has a better chance of surviving.

According to the Small Business Administration – The SBA – close to 66% of small businesses will survive their first two years. What that means is that only about one-third of total companies will fail during the first two years. The SBA also tells you that about 50% of businesses fail during the first year in business.

(Video) The single biggest reason why start-ups succeed | Bill Gross

This is a much better number than the 9 out of 10 failures that some claim.

Another crucial thing to consider about business failures is that a closed business doesn’t mean that the company has failed. For example, the business owner might retire one day and shut down the business. Or, an entrepreneur could get sick or die.

I don’t think we should treat closing business with a failing business.

Regardless of who you believe when you start a business, there is a good chance that you will fail. Your job as an entrepreneur is to maximize your chances of succeeding in business.

While you get inconsistent numbers on what percentage of businesses fail, you can do a lot to prevent your own business from failing.

What are the causes of business failure?

Businesses that fail to plan will fail.

Many failed businesses never took the time for a business plan. A business plan is an excellent tool because it helps you look at your business objectively. Proper business planning looks at business funding, pricing, competition, sales and marketing strategy, and other critical elements required to avoid business failure.

Business planning for success

Does a business plan really help you succeed in business? With every business, there will be challenges along the way. Having a business plan doesn’t guarantee success, but it may help you deal with foreseen and unforeseen challenges.

A business plan isn’t a must-have in business like revenue, customers, and profit. Your business may survive without one, but there is evidence that a solid business plan can help avoid failure.

Having a business plan helps you set priorities. With a plan, your business will be able to focus on the tasks required for success.

Businesses that can’t pay their bills fail.

You can’t stay in business long if you are unable to pay your bills. When you run out of cash, your business has failed. You can make profit predictions all day long, but the only thing that helps you pay your bills is cash on hand. If you ever do business with large companies, you will find that many of them are slow to pay. I mean, it’s not unusual for a large company to take 4-6 months to pay. They are masters at controlling their cash flow. Learn from them. If you’re too tight on money, you should consider taking a drastic measure, such as taking out the best payday loans available.

Why is cash flow management important to business success?

You cannot succeed in business without effective cash flow management. Yet, even though cash is the lifeblood of business, many business owners underestimate its significance.

In fact, cash flow is more important than having the best product in the market. It can hurt your business more than less than perfect customer service. Healthy cash flow is so vital to your business that it cannot succeed without it.

Think about it. Your business might have a less than stellar product launch. You might have had to explain delays and bugs in your software. But you can always improve mediocre internal processes to make the next release more successful. If you run out of cash, your business fails. You won’t have the funds to pay your staff, partners and creditors. When you run out of cash, there are no second chances. You are out of business.

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Businesses with poor product offerings fail.

Your business will fail if you are offering something people are not willing to pay for. This is so easy, but so many companies miss entirely this critical aspect of a business. Especially, those who end up creating a product or build software without confirming with the market that there is a demand. If you develop your product without constant feedback from your prospective customers, your business will fail.

Businesses that can’t change fail.

Successful businesses have learned the importance of change. Businesses that fail refuse to change. They blame the economy, the competition, the customer, or their employees. The fact is that only a company that is willing and ready to change can succeed. If you want to succeed in business, look at change as an opportunity, not as a threat.

Businesses that can’t sell fail.

No amount of enthusiasm and goodwill can substitute for insufficient sales. A business that fails to attract paying customers in a cost-effective way is going to fail. You might have a product people are willing to pay for, but you can’t figure out a way to market it cost-effectively. If it costs you more money to get a new customer than you can afford, you don’t have a viable business.

Businesses with bad management fail.

Anyone can start a business, but if you don’t have the skills to manage your business, it will fail. No one is a born entrepreneur. Even if you don’t have the necessary management skills, you can learn. Entrepreneurs who succeed are fast learners. Learn, or your business will fail.

Here are the most important areas of business management:

  • Strategy
  • Sales and Marketing
  • Finance
  • Inventory
  • Operations
  • Human Resources

Businesses that can’t manage growth fail.

Many growing businesses fail. Many people think that only a company without revenue fails. That’s incorrect. Many growing businesses, some of them with record revenues, fail. Why? These businesses fail because they were unable to manage growth.

Here are the reasons businesses fail to manage growth:

  • They grow too quickly. They cannot hire people fast enough to fulfill orders.
  • They fail to train people fast enough.
  • They run out of cash. Many times companies don’t have the necessary cash to maintain inventory.
  • They are unable to obtain the required credit to grow their business.

Businesses with the wrong team fail.

Hiring is an art and a science. If you are unable to build a winning team, your business will fail. When you start out, there is a good chance that you have to do everything, but you will only build a business if you can build a team around you.

Businesses without systems fail.

The most successful businesses have systems for everything. Systems are required to effectively scale and manage a business. Employees need systems to perform at their potential. If you look at a successful business, it runs on systems. It doesn’t rely on an all-knowing business founder. There are systems within the enterprise that enable the company to scale and grow.

Of course, there are many more reasons a company can fail, but I wanted to list just a few.

In the comments section below, share what you think is the reason so many businesses fail.

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George Meszaros

George Meszaros is the editor and co-founder of Success Harbor where entrepreneurs learn about building successful companies. Success Harbor is dedicated to document the entrepreneurial journey through interviews, original research, and unique content. George Meszaros is also co-founder of Webene, a web design and digital marketing agency.

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Is it true that 90% of businesses fail? ›

The reality is that 90% of startups fail. From budgeting apps to legal matchmaking services, businesses across every industry see more closures than billion-dollar success stories. And a whopping 10% of startups fail before they reach their second year.

What percentage of businesses fail? ›

Data from the BLS shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.

Do 99% of businesses fail? ›

99% of people who venture into entrepreneurship inevitably fail within their first 5 years. Although there are new technological advancements every day, breeding new waves of opportunity, these statistics never seems to decrease.

Why do 90 percent of businesses fail? ›

According to business owners, reasons for failure include money running out, being in the wrong market, a lack of research, bad partnerships, ineffective marketing, and not being an expert in the industry. Ways to avoid failing include setting goals, accurate research, loving the work, and not quitting.

Why only 1 percent succeed? ›

The 1 percent know people like to buy the best products and services possible. So they make it their goal to be the best and produce the best. You are going to have a hard time producing the best products and services if you, personally, are not the best. So if you're not the best, don't focus so much on your work.

How quickly do most businesses fail? ›

Key findings. 18.4% of private sector businesses in the U.S. fail within the first year. After five years, 49.7% have faltered, while after 10 years, 65.5% of businesses have failed.

Do 95% of businesses fail? ›

According to the U.S. Small Business Administration, over 50% of small businesses fail in the first year and 95% fail within the first five years.

Why most of the business are fail? ›

The most common reasons small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.

Do more businesses fail than succeed? ›

By the end of the second year, 30 percent of businesses will have failed. By the end of the fifth year, about half will have failed. And by the end of the decade, only 30 percent of businesses will remain — a 70 percent failure rate. Of course, we have to accept several caveats in these data.

How often do big businesses fail? ›

The percentage of businesses that fail increased to 31.4% in the second year (2019) and 39.3% in the third year (2020). In their fourth year (2021), 44.5% had shuttered and by the fifth year in 2022, the new business failure rate reached 48.4%.

Is it OK to fail in business? ›

Failure is Inevitable

If you want to be successful in business, you have to accept that failure is inevitable. The key is to pick yourself up after each failure and keep going. Remember, every successful entrepreneur has failed multiple times before finally achieving success. So if they can do it, you can too.

Do big companies fail? ›

Many large companies have failed. Some have gone bankrupt; others have substantially reduced in size and fallen from an industry leadership position.

How many businesses fail before success? ›

1 in 4 entrepreneurs fail at least once before succeeding. It takes entrepreneurs an average of three years for their business to begin supporting them financially.

What percentage of businesses fail in the first? ›

20% don't make it past their first year, and a staggering 60% go bust within their first three years.

What are the 9 reasons businesses fail? ›

  • Not having an effective business plan. ...
  • Not putting the customer first. ...
  • Not hiring the right people. ...
  • Lack of flexibility. ...
  • Lack of innovation. ...
  • Not understanding your industry. ...
  • The wrong mindset. ...
  • Ineffective marketing strategies.

Why is only 2% successful? ›

There is no such thing as failure, it's only temporary defeat. Real failure is when you give up on your purpose. According to various sources and research, 98% of people die without fulfilling their goals and dreams, meaning only 2% of people become successful in life.

What is the success rate? ›

Success rate is the fraction or percentage of success among a number of attempts to perform a procedure or task.

What percent of people are successful? ›

The Standard Success Rate is 10 Percent.

What business makes the most money? ›

Most Profitable Business Ideas
  • Business Consulting. If you're an expert in your industry and have been working at it for years, you should consider consulting. ...
  • IT Support, Technology Consulting, and Repair. ...
  • Cleaning Services. ...
  • Accounting and Tax Preparation. ...
  • Auto Repair. ...
  • Real Estate. ...
  • Online courses. ...
  • Marketing and PR Services.

What percentage of businesses lose money? ›

Unfortunately, 18 percent of businesses fail within their first year, 50 percent after five years and 65 percent by year 10, according to the Bureau of Labor Statistics. Geographic location may also play a factor in this failure.

How long does it take the average business just to break even? ›

Two to three years is the standard estimation for how long it takes a business to be profitable. That said, each startup has different initial costs and ways of measuring profit. A business could become profitable immediately or take three years or longer to make money.

What is the most common business to fail? ›

What Industry Has the Highest Failure Rate? The Information industry has the highest failure rate nationally, with 25% of these businesses failing within the first year. 40% of Information industry businesses fail within the first three years, and 53% fail within the first five years.

Why 96 percent of businesses fail within 10 years? ›

The most common reasons you so often read about as to why small businesses fail are things like: poor management, the wrong products or services, cash flow issues, no business plan, a flawed business model or bad leadership skills, etc.

What makes a business successful? ›

“One thing successful businesses have in common is … a strong customer focus,” said John Stevenson, marketing specialist at My GRE Exam Preparation. “They create a culture that is centered around their customers and focus their processes, products and services around their services needs.

What are the three major causes of business failure? ›

Five Common Causes of Business Failure
  • Poor cash flow management. ...
  • Losing control of the finances. ...
  • Bad planning and a lack of strategy. ...
  • Weak leadership. ...
  • Overdependence on a few big customers.

What are the top 10 reasons why businesses fail? ›

Top 10 Reasons Small Businesses Fail
  • Procrastination. ...
  • Inadequate knowledge of regulations. ...
  • Ignoring the competition. ...
  • Ineffective marketing and ignoring customers' needs. ...
  • Incompetent employees and management. ...
  • Lack of versatility. ...
  • Poor location. ...
  • Cash flow problems.

What are 3 reasons for business success? ›

Here are 11 reasons why businesses succeed.
  • Passionate leadership and a strong “why” ...
  • Good management team. ...
  • Company mission and vision statement. ...
  • Unique value. ...
  • Good market fit. ...
  • Sound strategy. ...
  • Marketing budget. ...
  • Strong financial planning and good financial health.
Jul 29, 2022

Why do most people fail to succeed? ›

Lack of persistence

More people fail not because they lack knowledge or talent but because they just quit. It's important to remember two words: persistence and resistance. Persist in what must be done and resist what ought not to be done. Try new approaches.

Do most entrepreneurs fail or succeed? ›

“At some level, almost all entrepreneurs fail,” Demas told Business News Daily. “But at the same time, there is a notion that an entrepreneur can't fail because failure is part of the learning experience, and from those experiences, the entrepreneur builds a business with a higher likelihood of success.”

What determines a business success or failure? ›

A company's management and leadership are two of the most important factors that determine its success or failure.

What is the success rate of start up business? ›

About 90% of startups fail. 10% of startups fail within the first year. Across all industries, startup failure rates seem to be close to the same. Failure is most common for startups during years two through five, with 70% falling into this category.

How long do most businesses last? ›

51 percent of small businesses are 10 years old or less, and 32 percent of small businesses are 5 years old or less.
New businesses that exit within...
1 year21.4%
2 years31.4%
3 years38.4%
4 years44.0%
5 years48.9%

What percentage of businesses fail due to poor management? ›

And don't forget to explore every possible avenue for free (or nearly free) funding, like these top small business grants. According to a U.S. Bank study, 82 percent of business failures are due to poor cash flow management, or poor understanding of how cash flow contributes to business.

How do you survive a failing business? ›

But here are a few things to consider when saving a failing business.
Reevaluating business management
  1. Reevaluate business plans. ...
  2. Focus and invest in workforce and customers. ...
  3. Change sales and marketing strategies. ...
  4. Look for alternatives.
Jan 16, 2023

How do you stop a business from failing? ›

10 great tips to avoid business failure
  1. DIY market research. Worried that no one wants to buy your product? ...
  2. Share your ideas. ...
  3. Set realistic goals. ...
  4. Be patient with success. ...
  5. Don't be intimidated by getting online. ...
  6. Delegate, don't micro-manage. ...
  7. Reflect your customers' values. ...
  8. Don't go it alone.
Mar 22, 2022

What companies almost failed? ›

Successful Companies That Were Almost Failed Startups
  • Reddit. Entertainment, social networking, and news website Reddit have 430 million unique users. ...
  • The Muse. ...
  • Airbnb. ...
  • Instacart. ...
  • GoDaddy. ...
  • Marie Forleo. ...
  • Uber.
Jul 1, 2022

How many businesses survive 20 years? ›

Or to put it another way, there seems to be an 80/20 rule at play here: 80% of businesses survive their first year, 20% don't. 20% of businesses sustain themselves for over 20 years, 80% do not (they are closed or sold before then).

What are the statistics on small business failure? ›

According to statistics: 22% of business startups fail in the first year. 50% of new businesses fail within the first five years.

How many business make a loss in the first year? ›

So allow me to quickly say it's very common to make a loss in year one as a new startup business and it's actually a good thing. So let's elaborate on those two points slightly: 99% of startup businesses I work with make a loss in year one (usually up until year 3 in all honesty!)

How hard is it to start a business? ›

It's hard to build a business as the Lone Ranger. You need to assemble, motivate, and manage a team – development, sales, partners, and customers. Startups are tough on even the most dedicated and passionate founders – others will likely fail, and definitely be unhappy.

What percentage of restaurants fail? ›

The restaurant failure rate is difficult to track nationwide, but the National Restaurant Association estimates a 30% failure rate in the restaurant industry. In other words, one in three restaurants won't survive their first year.

What is the biggest mistake small businesses make? ›

One of the biggest common mistakes new business owners make is losing focus. Whether it's getting comfortable and coasting or losing interest in their company, it's critical for you to focus on running your small business to help it grow and succeed. A good way to keep you focused is to set goals for your startup.

What causes failure? ›

Ill-discipline, lack of trust or negligence

The root causes vary and might be about organisational problems, individual relationships with supervisors or lack of motivation as a whole. Thus, offering a turnkey solution is impossible but being aware of these issues is always the beginning.

Why do more than 90% of the startups fail globally? ›

Marketing mistakes were the biggest killers, and the biggest problem by far is lack of product-market fit. Don't invest a lot of time and resources before you are confident people want what you are offering.

Why 85% of businesses are failing during the first years list four reasons? ›

Other reasons why businesses fail in their early years include: poor business location, poor customer service, unqualified/untrained employees, fraud, lack of a proper business plan, and failure to seek outside professional advice.

Why are so many businesses failing? ›

The most common reasons small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.

What are the top 5 reasons businesses fail? ›

Five Common Causes of Business Failure
  • Poor cash flow management. ...
  • Losing control of the finances. ...
  • Bad planning and a lack of strategy. ...
  • Weak leadership. ...
  • Overdependence on a few big customers.

What is the #1 reason why startups fail? ›

Lack of financing or investors. The study notes that 47% of startup failures in 2022 were due to a lack of financing, nearly double the percentage that failed for the same reason in 2021, based on CB Insight's data. Running out of cash was behind 44% of failures.

What is the main reason for failure? ›

Ill-discipline, lack of trust or negligence

The root causes vary and might be about organisational problems, individual relationships with supervisors or lack of motivation as a whole. Thus, offering a turnkey solution is impossible but being aware of these issues is always the beginning.

Why do most new businesses fail early? ›

One of the main reasons that businesses fail is that they have insufficient start-up capital. Would-be entrepreneurs frequently underestimate the cost of not only starting a business but of maintaining one. Another problem is an unrealistic expectation of income in the early years of start-ups.

Why do businesses go broke? ›

There are many theories about the root causes of insolvency, business failure, and business bankruptcy, but most theories boil down to three: poor management, poor marketing, and poor financial practices.


1. Don't be a failure statistic! How to succeed in your handmade product business
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3. Simon Sinek: The Number One Reason Why You’re Not Succeeding | E145
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4. The Most Successful People Explain Why a College Degree is USELESS
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