A startup, by definition, is an innovative business with the potential to grow fast. This makes it more vulnerable to failure than a conventional business, such as a hair salon.
The entrepreneur, one who is driving the startup, is basically testing a hypothesis. In other words, it’s a big risk. And considering that starting even a conventional business has enough risk of its own, launching a startup is almost like a gamble. No wonder most startups fail. Let’s take a closer look at relevant data associated with startup failures.
Startup Failure Rates
According to research, 50% of startups die in the first 4 years of their inception, and 20% in the first year itself.
The most prominent factors causing business failure include lack of demand for the product or service, poor recruiting decisions, and not having enough capital to invest in the company.
An interesting trend worth noting is that the chances of failure start to decline after year 4, but a shutdown can still happen. Overall, for every five new business launches, one will close shop within just a year, and three more after two decades.
The research also reveals several additional insights into startup failure rates and how they change based on the type of industry.
It shows that startups in some industries find it easier to survive than others, with healthcare and social assistance having the lowest failure rates, and the construction industry has the highest.
Of all businesses launched in those two industry categories in 2004, for example, 56.9% of healthcare and social assistance businesses remained five years later compared to just 40.8% of construction businesses.
Furthermore, no discussion on startup trends would be complete without considering the impact of the recent Covid pandemic, which led to a temporary closure of 1.6 million (19%) US establishments, and 4.7 million (56%) struggling with declining demand for their offerings.
Final Thoughts
It’s no secret that getting into a startup is a risky proposition. From market demand and operations to talent management and sales, there are many aspects you can’t possibly be certain about.
However, only great risks lead to the potential for huge rewards. So don’t let this data discourage you. Rather, use it as a roadmap to build contingencies and avoid mistakes. Good luck!