Business Failure & Survival Rates, Tips For Business Longevity

by Silicon Valley Blogger on 2011-10-174

How adaptable, agile and flexible are you, as an entrepreneur?

I first thought about seriously entertaining and pursuing business ideas many years ago, when my spouse ditched his job to do his own projects. There was something about that clean break from the employment world that inspired me to try doing the same thing. Of course, in retrospect, it seemed like a rather foolish and capricious thing to do: to have the earners in the family suddenly veer away from their designated career paths to chase after “dreams”.

Well, at that time, I was still testing the waters and was still holding on to a day job while experimenting with ideas. But those early months spent contemplating what to do next were pretty tumultuous. Trying to figure out how to set up a home based small business and doing enough to build faith in an idea is nothing short of scary…and maybe mildly exhilarating.

Before I got started in online web publishing, I was actually working on an independent software application project. It was a great concept, but sadly, it did not live long. After pouring in some capital from our personal coffers plus several months of time into it, my spouse and I ended up shelving the idea once we discovered that a startup with the exact same idea had received venture capital funding and was gaining traction. We thought that there was no way that our small home based venture was ever going to compete with a VC backed project. Ironically, the online tech publisher was responsible for breaking the news. Here’s what I said about it back then (when I wrote about my heartache of killing a promising business idea):

I have decided to rethink these goals a little bit as TechCrunch just announced the existence of a well funded software startup with the same objectives and concept as I have been formulating. With this new development and given my limited resources and funding, I may just have to rework my entrepreneurial priorities and figure out how to repackage and refocus my ideas in order to steer my business towards an alternative and more suitable direction. Yes, I’m shifting gears. And there goes my wondrous vision!

Business Survival & Failure Rates: A Few Studies

This goes to show you that life on the business lane is ultra dynamic and unpredictable. This leads me to present a few interesting facts about business startup failure and survival rates. I’ve often heard certain statistics tossed around claiming that 90% of startups fail in the first 5 years. Some numbers are even crazier — that 90% of new businesses fail in the first year! But I decided to get some real numbers to either confirm or debunk the rumored figures, by doing a little bit of research. Thanks to information I gathered from, I discovered a few eye openers.

Here’s a 10 year graph showing the percentage of enterprises that live and die over a decade:

Business Failure Rates
Scott Shane: Startup Failure Rates — The Real Numbers

This table shows the time period vs the % (percentage) of new firms that survive over that time. It’s a tabular depiction of the chart above.

Year Survival % Year Survival %
Year 0 100% Year 5 45%
Year 1 75% Year 6 40%
Year 2 64% Year 7 37%
Year 3 56% Year 8 34%
Year 4 50% Year 9 31%
    Year 10 29%

This article (upon which these numbers are based) tells us that around 30% of businesses are still around after 10 years. There are actually a few studies in existence that have shown varying results on this subject, as follows:

Headd, Brian. Redefining Business Success: Distinguishing Between Closure and Failure, 2002
Shane, Scott. Startup Failure Rates – The Real Numbers, 2008
Phillips & Kirchhoff. Small Business: Critical Perspectives 1989

If you’re interested in a discussion of the numbers, check out this article.

But what about true business longevity? Let’s check out this chart that depicts how well businesses span generations.

Business Survival Across Generations
Business survival across generations

What To Do When Your Business Gets Derailed

After facing my first setback, I reflected upon my plight as an entrepreneur and asked myself some questions. Here were some points I mulled over while thinking about the question: if you find yourself at a crossroads with your venture, what should you do?

Here are some of the things I’ve considered:

1. Reflect. Take a step back and determine if your idea is still worth pursuing or contains a well founded premise.

2. Consider The Competition. Evaluate if there is room enough for more than one company in the same market space and if your company can share this space with competitors.

3. Evaluate Your Offerings. Answer the question — are you first, better or unique in the space? If you can answer yes to any of these questions, then your idea may have a shot.

4. Salvage Your Idea. Look for alternative business angles for your idea and determine if you can address needs that your competitor does not offer: repackaging the idea may still make it work.

5. Shift Gears Completely. Do you have more ideas where they came from? If so, and you’re still early in the process, you may want to regroup and consider alternative endeavors altogether.

With the loss of the software project, I tried to put things in perspective: the online software space is very competitive, and is tough enough to make money from; after all, barriers to entry are quite low and starting up is relatively inexpensive, so sharing the market may be more challenging than with more traditional businesses. This is where business risk enters the picture and may cause many a budding venture to pull the plug early in the game.

So what did I do next? Since back then, I had several fingers in various pies to test out different ideas, I decided to retire one idea in favor of other activities that may reap higher rewards. It’s a difficult call, but one that many an entrepreneur may have to face when business conditions dictate.

Should you cut your losses or go full steam ahead? Ultimately, it would depend on how far ahead you are, how much money you’ve invested and how optimistic you are about your chances in the marketplace. Some may say I wimped out and become intimidated by the competition, but I’d like to think that I was being realistic, taking stock of my situation by deciding that I’d channel my energies somewhere else where I think I’ll have a more improved chance of success and where I’ll be most productive.

My only regret? My experimental venture took me $5,000 in the hole. But I also picked up a few lessons learned.

Created December 6, 2006. Updated October 17, 2011. Copyright © 2011 The Digerati Life. All Rights Reserved.

{ 4 comments… read them below or add one }

Robert December 13, 2006 at 9:45 am

If possible I would take a close look at what your potential competitor is doing. Just because they are well funded doesn’t mean they will execute well or provide the quality of service that users desire.

Something else to consider is if they are your only competitor. Naturally having a competitor means that there is some validation to your idea so maybe you can carve out a niche or just beat them on user experience, features or whatever without a lot of cost. Depending on how they are funded they may be pressured to do too much too quickly and therefore sacrifice some things, everything that you could capitalize on.

For inspiration look at the Q and A that Ben did with the founders of StikiPad. Talk about competition, these guys definitely have it!

Then again, if your idea is going to compete with mine then by all means hang it up (JUST KIDDING!!)

Silicon Valley Blogger December 13, 2006 at 1:50 pm

Thanks Robert! I will check out Ben’s Q & A. Yes I’ll need to review what we’re doing and see how we can reposition things.

PKamp October 18, 2011 at 7:23 am

Nice summary! Wondering if you saw the BLS’s summary about start-ups where we live that started in 2000 (and their survival rates):

Interesting stuff.

Silicon Valley Blogger October 18, 2011 at 8:02 am

Great data PKamp! It seems like it’s harder to survive around here (Silicon Valley) but if you do, you do pretty well. Count me in as one of those people who worked at a failed startup in 2000. It was a blast, but things were outrageous back then, and you could see the writing on the wall fairly early in the life of a startup that was built on a compelling tech story and was existing on fumes.

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