The Real Deal About Startup Failure Rates

Starting a business is challenging, but understanding these statistics can help you prepare better and increase your chances of success. Conduct thorough market research, develop a solid business plan, choose the right tools to monitor your key metrics, and remain adaptable to changing circumstances.

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How Many Startups Fail?

You might have heard that up to 90% of startups fail. This number is often quoted but can be a bit misleading. To get a clearer picture, we can look at data from the U.S. Bureau of Labor Statistics:

• First Year: About 20-23% of startups fail within the first year. This means that roughly one in five new businesses don't make it past 12 months.
• Five Years: Around 50% of startups close their doors within five years.
• Ten Years: About 65-70% of businesses have failed by the ten-year mark.

These numbers show that while starting a business is tough, many do manage to survive beyond the critical early years.

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Failure Rates by Industry

Different industries have different failure rates. Here are some examples:

• Blockchain and Cryptocurrency: 95% of these startups fail.
• E-commerce: 80% of e-commerce startups do not succeed.
• Fintech: 75% of venture-backed fintech startups fail.
• Information Technology: 63% of IT startups close down.
• Construction and Retail: 53% of startups in these sectors fail.
• Manufacturing: 51% of manufacturing startups fail.

These statistics show that some industries are harder to succeed in than others.

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Funding Stages and Failure Rates

The stage of funding a startup reaches also affects its chances of survival:

• Before Series A: 60% of startups fail before reaching Series A funding.
• After Series A but Before Series B: 35% fail after Series A but before Series B.
• After Series C: Only 1% of startups fail after reaching Series C funding.

Securing adequate funding and progressing through funding stages can significantly improve a startup's chances of success.

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Why Do Startups Fail?

Understanding the reasons behind startup failures can help new entrepreneurs avoid common mistakes. Here are some key reasons:

• Running Out of Cash: 38% of startups fail because they run out of money. This is often due to poor financial management.
• Lack of Financing or Investors: 47% fail due to not securing enough funding. This can be related to poor financial planning or presentation.
• Cash Flow Problems: 16% fail because of issues with cash flow and other financial problems.
• General Financial Issues: In 2018 for example, 82% of startups closed due to cash flow concerns. This highlights the critical importance of proper financial management.
• Poor Financial Management: 44% of startups run out of cash, directly tied to financial mismanagement.

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Profitability and Financial Challenges

Many startups struggle with profitability and financial management:

• Profitability: Only 40% of startups make a profit. This means that three out of five either break even or operate at a loss, suggesting widespread issues with financial planning and management.
• Venture-Backed Businesses: 75% never return profits to their investors. While not always due to poor management, this statistic indicates significant financial challenges.
• Loss of Investment: In 30-40% of cases, investors lose their entire original investment, often attributed to financial mismanagement.

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Success Rates and Unicorn Status

While the failure rates might seem daunting, there are also some encouraging statistics about startup success:

• First-Time Founders: Have an 18% success rate.
• Founders with Previous Failures: Their success rate increases to 20%.
• Founders with Past Success: Enjoy a 30% success rate in subsequent ventures.

Achieving unicorn status, where a startup is valued at over $1 billion, is incredibly rare. Only about 1% of startups achieve this milestone, with well-known companies like Uber, Airbnb, Slack, Stripe, and Docker leading the way.

*sources:(hbr.org, Statista, Forbes,Cbinsights, tbrc)