How Many Startups Fail and Why? (2024)

Starting a business is a lot harder than most people think. Rarely is a business so in tune with its niche that it can float along with minimal effort.But why do so many businesses fail?For that matter, how many of them actually do fail?The reasons run deep, but here is what you should know before starting your own business.

Key Takeaways

  • The Small Business Administration (SBA) defines a "small" business as one with 500 employees or less.
  • As of March 2021, only 80% of startups survived after one year.
  • 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.

How Many New Businesses Fail?

The Small Business Administration (SBA) defines a small business as an operation with fewer than 500 employees.That means there are a lot of businesses out there that are technically “small” even though they seem very large. These small businesses, as per the definition, make up 47.1% (latest information as of 2017) of the working population in the U.S., so their growth and success are vital to the U.S. economy.

There are currently 31.7 million small businesses in the United States, which make up 99.9% of all U.S. businesses. Many small businesses start up every month but the failure rate is high. As of 2021, 20% failed in the first year, 50% within five years, and 65% within 10 years.

Given the number of businesses that start up, why do such a high percentage of them fail?

Reasons for Failing

If you poll former business owners, you will get a wide variety of reasons as to why their businesses failed.

Money Ran Out: This widely given reason doesn’t really explain why a business failed. The money ran out because it stopped coming in, so why did the cash flow dry up?Was it due to poorly managed costs or because sales weren't high enough? Money running out also relates to an inability to obtain financing or further financing needed to sustain a business, especially in the early days, until a business can start generating profits.

Wrong Market: Too many people try to start a business targeting everyone as their demographic. This doesn’t work out well. Next, they try to target everyone in their town. Again, too broad. The more narrowly defined your niche is, the easier it will be to market to the right audience.

Lack of Research: You have to know what your customers want.Too many would-be entrepreneurs go into the market thinking they have a great service or product to offer, but they fail to realize that nobody wants that service or product.By doing your homework and researching your market, you will know exactly how to meet your potential customers’ needs.

The Small Business Administration considers a business a startup when it hires at least one employee.

Bad Partnership: Often, when starting a business, a partner is needed.One of you is an expert in one area, and the other is an expert in another one.Your ideas for the company will conflict, and without a clear resolution, it starts internal strife. You work harder and your partner works less, but your partner thinks they are working harder than you. Ultimately, the business dissolves because the partnership didn’t work.By having a clear business plan that lays out the duties of each partner, you can avoid most conflicts before they even arise.

Bad Marketing: It could be said that a business boils down to two aspects: marketing and bookkeeping. If you excel at both, it doesn’t matter what you are selling or offering because someone will buy it. The sad truth is that most entrepreneurs know their craft and little else. Instead of fumbling through your marketing campaign, hire out that aspect of your business. It costs money, but if done right, it will bring in much more than what you spent.

Not an Expert: Too many entrepreneurs start their business because they need a job.They have a vague idea of what they are doing, and they think that because they’re better than their peers, they should make a living doing it.The sad truth is that without business skills and real expertise, these entrepreneurs are destined to struggle.

How to Avoid Failing

It seems that most businesses are destined for failure.But there are key points to not becoming one of the 20% that fails right off the bat.

Set Goals: Know exactly where you need to be and where you want to be.Without a goal, you’re just wandering aimlessly.

Research: Know everything about your market.Know what customers want. Know that they will pay $9 but not $10. Know their incomes, their desires, and what makes them tick.The more you know, the more you can pitch to them.

Love Your Work: If you don’t love what you do, it will show.You must be passionate about your business, or it will just be a job.

Don’t Quit: No matter how great of a business you have, you are going to have downtimes.There will be periods when things are dragging along and you question your decision to embark on this path.This is a time to put in extra hours, press harder, and make it work.

The Bottom Line

Many startups fail within the early years, indicating that many things need to go right for a business to succeed. Fortunately, you can be one of the 80% that thrive in the first year.To do this, you need to follow the tips outlined above, and, most importantly, you have to test your idea, do your homework, and make sure it will work before you jump in with both feet.

Correction-May 11, 2022: This article previously misstated the percentage of business failures throughout the years.

How Many Startups Fail and Why? (2024)


How Many Startups Fail and Why? ›

The statistics below provide some insight into the top reasons startups fail. 34% of startup failures are due to a poor product-market fit. 22% of failed businesses didn't implement the correct marketing strategies. 18% of startups fail due to team problems and other human-resource-related issues.

Why do 95% of startups 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.

Is it true that 90% of startups fail? ›

According to a report by Startup Genome, 90% of startups fail. Why? One of the biggest reasons is that just having an idea does not guarantee success and many startups are proof of that.

Why do 80% of startups fail? ›

One of the biggest reasons why startups fail is that founders overestimate their products. Finding the market fit of a new startup takes 2 to 3 times longer than many founders anticipate. Meanwhile, founders often overestimate the value of their intellectual property before product-market fit—by as much as 255%.

How many startups fail on average? ›

Startup Failure Rates

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 many startups survive 5 years? ›

According to the latest data, up to 90% of startups fail. Across almost all industries, the average failure rate for year one is 10% However, in years two through five, a staggering 70% of new businesses will fail.

How many startups actually succeed? ›

On average, 63% of tech startups don't make it, 25% close down during the first year, and only 10% survive in the long run.

What is the most common startup failure? ›

Lack of Product-Market Fit

A study by CB Insights found that 42% of startups fail because of a lack of product-market fit (PMF). Startups need to identify a problem worth solving and then develop a solution that meets the market's needs.

What industry has the highest failure rate? ›

Transportation, construction, and warehousing have the worst failure rates with 30%-40% of these businesses surviving five years, while approximately 50% of all businesses make it to their fifth year.

What percent of startups become unicorns? ›

While it's not impossible, attaining unicorn status can be incredibly difficult. In fact, a business only has a 0.00006% chance of becoming a unicorn, and it takes an average of seven years for nascent startups to grow into unicorns. That being said, there are startups that beat the odds. How do they do it?

What happens to VC money if startup fails? ›

When a venture capitalist's investment fails, the venture capitalist loses all or most of the money that they invested. This is because venture capital is a high-risk investment. VCs invest in early-stage startups, which are more likely to fail than established companies.

How many businesses survive 25 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 percent of Shark Tank companies fail? ›

We could therefore say that Shark Tank's success rate is around 94%. This means that failure for shark tank participants is the exception rather than the rule (as it is for most startups), which makes the cases we discuss below even more interesting.

What percentage of startups get VC funding? ›

Venture capital is absurdly hard to secure.

Stories of startups that raised VC funding seem to dominate financial headlines, but in reality only about five in 10,000 startup businesses receive venture funding — less than 0.05%, according to Fundera.

Which country has the most start ups? ›

The United States maintains its position as the leading country. Despite its population being just a fraction of China and India, the United States solidly maintains its first-place position in the total startup output rankings.

Which 7000 person company became an example of a lean startup by launching Snaptax? ›

In 2009, Intuit launched the startup Snaptax.

Why 90% of small businesses fail? ›

“Some business owners doom their businesses from the start by failing to do the proper research and develop a sensible business plan,” Schulz says. “For example, you have to understand your target customers and your primary competitors and have a sense of how you can make money.

What is the reason most startups fail? ›

A bad business plan is detrimental to raising and running out of money, the most frequently reported reason for failure. Few startups launch with a bulletproof, immutable plan. Rather, successful founders create a plan and improve it continuously as market conditions and customer feedback demand.

Why would 50% of businesses fail within the first five years? ›

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.

Why do most startups fail? ›

A study by CB Insights found that 42% of startups fail because of a lack of product-market fit (PMF). Startups need to identify a problem worth solving and then develop a solution that meets the market's needs. To find PMF, startups should engage in market research, customer discovery, and regular product iteration.

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