{"id":8355,"date":"2019-07-24T18:23:11","date_gmt":"2019-07-24T15:23:11","guid":{"rendered":"https:\/\/www.become.co\/blog\/?p=8355"},"modified":"2025-01-22T16:59:38","modified_gmt":"2025-01-22T14:59:38","slug":"small-business-failure-rate","status":"publish","type":"post","link":"https:\/\/www.become.co\/blog\/small-business-failure-rate\/","title":{"rendered":"Small Business Failure Rate: Why Do Small Businesses Fail?"},"content":{"rendered":"\n

There\u2019s a lot that small business owners can learn from the failures of other businesses, particularly when those businesses were very successful previous to their demise. While statistics aren\u2019t always the final word (or number), they definitely help to paint a clearer picture of how businesses perform. If you\u2019re looking to discover some of the main causes of business failure and how to avoid them, you\u2019ve come to the right place. Keep reading for insights into business failure statistics, and more.<\/span><\/p>\n

Small Business Failure Statistics<\/span><\/h2>\n

When speaking about business failure statistics, there are several angles to look at the topic. Are you interested in business failure statistics according to how long a business has been around? Maybe you\u2019re interested in small business failure rate according to industry. Below, we provide small business success rate statistics according to both of those factors, and then dig into the causes of business failure.<\/span><\/p>\n

Small Business Failure Rate by Age<\/span><\/h3>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
\n

Years Since Establishment<\/b><\/p>\n<\/td>\n

\n

Rate of Survival<\/b><\/p>\n<\/td>\n<\/tr>\n

\n

1<\/span><\/p>\n<\/td>\n

\n

75%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

2<\/span><\/p>\n<\/td>\n

\n

63%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

3<\/span><\/p>\n<\/td>\n

\n

57%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

4<\/span><\/p>\n<\/td>\n

\n

52%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

5<\/span><\/p>\n<\/td>\n

\n

48%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

6<\/span><\/p>\n<\/td>\n

\n

44%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

7<\/span><\/p>\n<\/td>\n

\n

41%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

8<\/span><\/p>\n<\/td>\n

\n

38%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

9<\/span><\/p>\n<\/td>\n

\n

36%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

10<\/span><\/p>\n<\/td>\n

\n

34%<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

*<\/i><\/b>Statistics sourced from <\/span><\/i>Bureau of Labor Statistics<\/span><\/i><\/a>.<\/span><\/i><\/p>\n

Small Business Failure Rate by Industry<\/span><\/h3>\n\n\n\n\n\n\n\n\n\n\n\n
\n

Industry<\/b><\/p>\n<\/td>\n

\n

Rate of Survival (After 5 Years)<\/b><\/p>\n<\/td>\n<\/tr>\n

\n

Mining<\/span><\/p>\n<\/td>\n

\n

51%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

Manufacturing<\/span><\/p>\n<\/td>\n

\n

48%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

Services<\/span><\/p>\n<\/td>\n

\n

47%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

Wholesale & Agriculture<\/span><\/p>\n<\/td>\n

\n

47%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

Retail<\/span><\/p>\n<\/td>\n

\n

41%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

Real Estate & Insurance<\/span><\/p>\n<\/td>\n

\n

39%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

Utilities, Transportation, & Communication<\/span><\/p>\n<\/td>\n

\n

39%<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

Construction<\/span><\/p>\n<\/td>\n

\n

36%<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

*<\/i><\/b>Statistics sourced from <\/span><\/i>Census Bureau\u2019s Business Dynamics Statistics<\/span><\/i><\/a>.<\/span><\/i><\/p>\n

\"\"<\/p>\n

Top 5 reasons why small businesses fail<\/span><\/h2>\n

There are too many reasons for small business failure to list in one place, but there a number of reasons that small business fail which are reported more frequently than others. It should also be noted that business owners almost never attribute a failure to one factor; more often, there are several causes for a small business\u2019s downfall. Here, we\u2019ll touch on a few of the more common causes of small business failure.<\/span><\/p>\n

Top 5 causes of business failure:<\/b><\/p>\n

    \n
  1. No market demand<\/span><\/li>\n
  2. Not enough money<\/span><\/li>\n
  3. Lack of effective marketing<\/span><\/li>\n
  4. Being out of touch with customers<\/li>\n
  5. Poor leadership<\/li>\n<\/ol>\n

    1. No market demand<\/span><\/h3>\n

    It\u2019s all good and dandy to be confident in the usefulness and attraction of your business\u2019s product or service. But if there isn\u2019t a real demand for what you\u2019re selling, your business is bound to fail. In fact, <\/span>42%<\/span><\/a> of failed businesses site this as the reason for their crash. The service may have an objectively positive impact on one part of a market, but if it\u2019s too niche and doesn\u2019t address a more widespread demand in that market, there simply won\u2019t be enough people out there spending their cash on your concept.<\/span><\/p>\n

    What can be done?<\/b><\/p>\n

    Study the state of the market, research where the demand exists, and come up with a plan to fill an existing gap. Is there enough of a customer base? Is your product or service scalable (learn more about scaling up<\/a>)? Is it profitable? The answer should be yes across the board.<\/span><\/p>\n

    2. Not enough money<\/span><\/h3>\n

    In the last year alone, more than <\/span>44%<\/span><\/a> of businesses that have applied for funding did so because they needed help meeting operational expenses. Add to that the fact that 29% of startups reportedly fail because of a lack of cash and it becomes clear that a shortage of money has a serious impact on small business failure rates.<\/span><\/p>\n

    What can be done?<\/b><\/p>\n

    Statistics<\/span><\/a> illustrate just how hard for many small businesses to get approved for business loans. In recent years though, fantastic innovations have been made in the field of fintech. Those developments have opened up financial possibilities that were out of reach for small businesses just a few short years ago.<\/span><\/p>\n

    \n

    One example of the power of fintech is the <\/span>LendingScore\u2122 technology<\/span><\/a> developed by Become. LendingScore\u2122 provides small business owners with a level of transparency that allows them to see how lenders see them.<\/span><\/p>\n

    The advanced algorithms that Become uses also connect business owners with the optimal financing solution tailored to their precise needs and unique profiles. All in all, Become<\/a> makes the entire lending process faster, easier, and more likely to end in funding.<\/span><\/p>\n

    Plus, it\u2019s completely free to use!<\/span><\/p>\n<\/blockquote>\n

    3. Lack of effective marketing<\/span><\/h3>\n

    The days of spinning signs and sticking flyers underneath windshield wipers are gone (or at least one can hope!). While those are effective strategies to market a lemonade stand or a hotdog cart (not to knock either one of those), they\u2019re not effective when it comes to marketing a business that you want to grow into a real money-maker. According to <\/span>CB Insights<\/span><\/a>, a whopping 14% of small businesses fail as a result of a shoddy marketing strategy.<\/span><\/p>\n

    What can be done?<\/b><\/p>\n

    First and foremost, any and every small business will want to incorporate <\/span>social media marketing<\/span><\/a> into their overall marketing strategy. That in-and-of-itself will help business owners avoid becoming part of small business failure rate statistics. The reasons to use SMM are abundantly clear:<\/span><\/p>\n