99% Failure Rate in 10 Years—I Don’t Buy It!

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SBA Failure RateEvery once in a while, I come across an article that makes me wonder, “Where’d they get that?” 

For instance, consider this proffered ‘fact’ that, “It is no longer news that 99% of all new  small business venture started all over the world fail in the first ten years.” (http://bit.ly/dRSaWa) If the claim is true, maybe there’s something else worth considering…

Really? 99% of all businesses fail in 10 years?

The article suggests reasons businesses fail.  I agree with the article’s first point, managerial decision making. It’s something I touched on myself in Tuesday’s post (http://bit.ly/fVHgb6).

But I might add one more major point: Decisions made based on a lack of accurate (or ‘correct’) information.

Success demands we live with ambiguity. Yet comments like, ‘It is no longer news that 99% of all new small business venture started all over the world fail in the first ten years,’ are inflammatory, potentially paralyzing for some.  If you are a new entrepreneur, I’d like to take a moment to short-circuit this particular claim.

Earlier in my career I had routinely heard a ‘general rule’ that 95% of all businesses failed in 5 years.  Preparing for a presentation to new entrepreneurs a couple months ago, I wanted to speak to Fear, and this ‘rule’ popped to mind.  But I had no clue where this rule came from nor how current it may be.  So, rather than unwittingly present false data as fact, I did some digging.

Here’s what I found:

According to the US Small Business Administration: “Seven out of 10 new employer firms survive at least 2 years, half at least 5 years, a third at least 10 years, and a quarter stay in business 15 years or more.” (http://web.sba.gov/faqs/faqindex.cfm?areaID=24 #7)

Of course, this is US-specific.  Given that the US does far better at this type of reporting than most other nations globally, I suspect it may be impossible to find an equivalent ‘global’ number with any basis in fact.  (IF you do know of a global number, and can cite a source, please share.)

So, if you’re considering launching a new enterprise, let me be among the first to say, “Yes, it’ll be among the scariest things you might do, but the failure rate isn’t quite as bad as others may have you believe.”