Smart business owners seek out as much information and as many resources as they can to start and establish their company. Often, one of the pieces of information that these owners come across is the number of businesses that fail within a certain timeframe. Beware of putting too much stock in these figures. As you’ll see, they are wildly inconsistent and there’s no standard for defining a new start-up business in this context. Let us help you put these statistics into perspective for you and your company.
What Statistics are Out There
The most common one we’ve heard and the one we put the most confidence in is that half of new businesses fail in the first five years. But even this is in serious doubt with more current sources suggesting half of new businesses fain in three years. Still, what counts as a new business? Does a person who spends a couple years trying to get a blog off the ground but never registers the website name as a business with federal and state authorities?
For these reasons, you can find statistics all over the place. Here’s one source that says 80% of businesses fail in 18 months, or here’s another one that says 70% of businesses fail in 10 years. Still, some of these statistics and sources are more credible than others. It’s one thing to make an outlandish claim like 96 percent of all businesses fail within 10 years, but this claim becomes truly dubious when it’s followed up with eyeball and click-bait hooks like “there is only one reason businesses fail.” Then, when you read through the article, you find the great piece of advice is that businesses fail “because they can’t pay their bills.” This is no great wisdom or help to the new business owner.
Perspective and Takeaways from these Statistics
Yet, if you take a step back, there is a lesson buried in these statistics and their proselytizing authors. And it’s this: No small business is ever safe from failing. There is no magic line to cross in which your business suddenly has a much higher chance of success. Free market capitalism is itself a system of moving goalposts, the distance measured by the rate of inflation. But the real killer is when these business owners start to make decisions based on the idea that if they can just survive for a few years, their brand will take hold and their business will be relatively safe.
Even if there were a standard for defining a business and its failure rate, this would still only be an average. No matter how big or how well-established, no business is ever truly safe. Even iconic brands like Sears can falter and fail. The best way to keep your business going is to make the best decisions you can for the long-run every step of the way.