The majority of start-ups go out of business within five years, and two-thirds are no longer operating ten years after being formed. Most failures are attributable to the following six reasons.
Some start-ups fail because of factors beyond their control. But responsibility for much of the high failure rate of startups lies mostly with the entrepreneurs themselves.
For example, research shows that writing a business plan, having sufficient initial capital, putting in place careful financial controls, and establishing marketing plans will significantly increase your odds of survival. Yet too many startups fail to do these basic things before they launch their new enterprise. Even poorly run companies can survive for a time if there sales are greater than their cost. This is basic math, but many startups misjudge their market, fail to get their products to market soon enough or cannot sell their product or service at a high enough markups to support their operation.
Below is a chart that reflects this unpleasant start-up failure rates based upon years in operation.
Source: U.S. business statistics
The reality is that almost 1 out of every 4 startups fails during the first year. However, as the chart reflects, the survival rates increase significantly over the years. This is an indication that the most critical period of any company’s life is its first year (or two) of operation.
This data should cause you concern, but should not deter you. Starting a business is not rocket science. However, failure to do the basics will greatly increase your likelihood of failure. So, my advice is to do your homework (plan appropriately), have discipline (follow the plan), watch your spending and stay focused on your objective. Following these simple recommendations will greatly enhance the likelihood of success.