MYTH: Most New Businesses Fail in the First Few Years.

January 22, 2019 / Venture Out Business Center

This is one of the most commonly repeated "facts" about small business. While statistics show that within five years, about half of small businesses close, that’s not necessarily due to failure. Let’s keep in mind that businesses discontinue operations for a myriad of reasons. Sometimes owners sell to bigger corporations or simply retire. The owners may have moved locations or made so much money that they bought a jet and are now flying around the globe! If you’re looking to start a business, there’s good news… the statistics are actually in your favor! Nearly 80% of businesses started in 2014 were still in business the following year; half of all businesses are still in business five years later; and about a third of all establishments will still be in business after ten years. These numbers have been remarkably consistent through the years, so much so that even major economic downturns do not seem to affect the survival rates for new businesses. The longer a business lasts, the more likely it is to have lasting success.


What about restaurants?

Restaurants are definitely more of risk, though… right? Another commonly cited “fact” is that most restaurants close in the first year. Here’s how restaurant business survival rates for actually stack up.

About 85% of food service businesses survive their first year in business. 70% survive their second

year in business. 50% survive their fifth year in business, and about 35% of food service businesses

survive their tenth year in business.


Looks like the restaurant industry statistics are pretty similar to other industries. The most interesting

part of this myth is that the reason why many restaurants do end up failing is because they lack access

to startup capital, but banks often refuse to lend to restaurants because their business is too risky. Interesting. Solutions for this situation would be for restaurant owners or small business owners in any industry deemed “risky” look to alternative sources of financing. Term loans, business lines of credit from online lenders, or business credit cards which are all great funding sources, and they are generally easier

to qualify for than traditional loans from banks.


Why Do Small Businesses Fail?

According to Investopedia, the four most common reasons why small businesses fail are a lack of sufficient capital; poor management; inadequate business planning; over-blowing their marketing budgets and cash flow problems. But there are many more than four reasons why early-stage businesses in this country

don’t survive.


According to CBInsights analysis of 101 startups, 42% of small businesses polled failed because there’s

no market need for their services or products. 29% failed because they ran out of cash and 23% failed because they didn’t have the right team running the business.


If you’re looking at the percentage of small businesses that fail, it might seem completely doom-and-gloom. However, many more statistics show that small business in the United States is alive and well. So, if you’re feeling down on the prospects of starting a small business, keep these statistics in mind:


1. Women-owned small businesses are growing and surviving.

Results from an American Express study show that female entrepreneurship grew by 114% between 1997 and 2017. Women own more than 11.6 million firms in the US. These firms employ nearly 9 million people and, as of 2017, generated $1.7 trillion. Go girls!


2. Minority-owned small businesses are on the rise.

According to a study by the Minority Business Development Agency, the number of minority-owned firms in the US increased by 38% between 2007 and 2016. Additionally, the US saw a 34% increase in the number of African-American owned firms between 2007 and 2012. During those same years, the number of Hispanic-owned businesses in the US grew by 46%. There is a lot of room for these numbers to grow, but it’s encouraging to see increased diversity among small business owners in the United States.


3. Small businesses make up a lot of the economy.

As a small business owner, you can be proud that you and your fellow entrepreneurs make up most of the economy. Check out these small business statistics for the United States! In the United States, small businesses comprise:


• 99.9% of all the country’s firms

• 99.7% of all firms with paid employees

• 97.7% of all exporting firms

• 48% of private sector employees

• 41.2% of private sector payroll

• 33.6% of known export value


4. More small businesses are opening than closing

Finally, statistics show a bright future in the small business market: For the first time since the recession, small businesses are opening at a faster rate than they’re closing. That’s means even more good news for job creation in the U.S. Recent data shows that, of 16,000 small firms polled, one-third of small businesses increased their workforce in 2016, and a full 60% of all firms expected an increase in revenue that year.


Keep your head up, small business owner! Running a small business is hard work, but success is

definitely achievable!