What Percentage of New Businesses Fail in the US? 2024 Small Business Survival Rates & Insights from U.S. Bureau of Labor Statistics
“Seven out of ten small businesses in the U.S. fail within the first ten years.”
What!?
Last week that one sentence was enough to stop me dead in my tracks and change the entire course of the conversation I was having with my friend Victor.
I was talking to Victor about small business marketing and how I could help his start-up get off the ground through various low-budget marketing ideas.
Victor is starting a telehealth company to help people lose weight and be healthier. But his new start-up faces heavy competition, and his budget made it interesting.
As I specialize in working with new and small businesses, I’m used to working out marketing strategies that fit a tight budget, so I was happy to help and work out the best marketing strategy to get his new company get off the ground.
But our conversation took a turn when I heard the above statistic come out of his mouth.
At first, it sounded like a lot. And, as a marketer and a small business owner, it’s hard to believe it.
So… I did some research and decided to write this article.
The purpose of this article isn’t to discourage you from starting a new business or give you a bunch of boring statistics. Rather, I’d like to
A) Give you the raw data reported by various valid data sources and
B) Give you some key marketing strategies to help your small business improve and have a better rate of survival!
Before I start, I also wanted to take a minute to let you know that I offer marketing consulting services for any small business or new business looking to come up with a cost-effective and efficient marketing plan to help market their business online.
Alright, with all that said, let’s dive into some statistics:
Table of contents
What Percentage of New Businesses Fail in the US?
Why Do Most Businesses Fail?
The Role of Marketing in Business Success
Focus on Success, Not Failure
Important Business Tips for Entrepreneurs
How to Avoid the Pitfalls of High Competition
Failure Rate of Common Businesses & What Business Type is Most Successful
Unfortunately, what Victor said was pretty much right. 6.5 out of 10 businesses fail within their first ten years.
Keep in mind that the industry, service, or product you choose will also have an impact on your survival rate, as you will read later on in this article.
Let’s take Victor’s telehealth start-up, for example.
Since the pandemic, telehealth has seen quite some growth and according to the AMA, 25% of patients used telehealth in 2023, compared to 5% prior to the pandemic.
The idea to ride the wave and capture some of the market through a new telehealth company isn’t a bad idea. However, while more and more people are using telehealth services, meaning demand is increasing, Victor is also up against stiff competition – big companies with multi-million-dollar marketing budgets.
Take the popular telehealth company HIMS. Hims & Hers spent $446.4 million in marketing in 2023 alone, 51% of the year’s revenues, to attract customers and to drive the brand’s recognition.
I’m not saying Victor’s company will fail. On the contrary, I’m going to do my best to help him succeed, and I am sure we can do it. However, Victor’s company is a good example to show that the industry, service, and products you choose will have an impact on your overall success.
This is why market research is key in forming your business plan and developing your services and products as you will read later in this article.
Knowing the market can be super helpful for new entrepreneurs and current business owners. It helps them make smarter choices and plan better for the long haul.
Other things like where the business is located, the state of the economy in your target area, and how the business is run all play big roles in whether it will last or not.
By considering these factors and planning, businesses can boost their chances of sticking around and thriving.
Important Business Tip for Entrepreneurs
I’ve seen too many business owners spend months, and sometimes even years, stuck in the planning phase, trying to find the perfect business idea, product, or service that will guarantee success.
In trying to find the “perfect business,” you can often get bogged down by endless options and, trying to prevent failure, end up never starting at all.
I know, its harsh of me to say, but I’ve seen it happen too many times and so I have to at least tell you my experience and my observation with regards to this.
I’ve interviewed many successful entrepreneurs who swear by the “get in and swim” approach. They believe in trying, failing, learning, and trying again.
In fact, a few years ago, I spoke with one of the richest men in the world, a man who sold his medical business for billions and made it onto the Forbes “Richest Men in The World” list.
I was surprised to hear that his first three businesses went completely under, and it wasn’t until his tenth business attempt that he found success.
So, if you’re starting a new business or trying to decide which one to start, remember that while the business, service, and product you choose can have an impact on your success, and yes, market research is important, don’t let the fear of failure paralyze you.
Trust your gut and take the plunge.
Smart planning and effective marketing are of course crucial, no matter what business you choose to start, but the key is to dive in and make it happen.
Don’t worry about failing—focus on succeeding. And if you do fail, learn from it and start again. People with this mindset eventually succeed because they’re actively doing it, learning, and improving.
I have seen silly business idea take off, and brilliant ideas go nowhere. I personally know people who started one business and found success, and I have friends who found success on their fifth, tenth, and even fourteenth business.
So, my tip is, just go for it!
Understanding why small businesses fail can be a bit more complicated because the statistics define “failure” as simply the business no longer existing.
To uncover more detailed reasons, we have to rely on self-reported data from business owners.
However, research and data provided by CB Insights, based on over 100 startup that did not succeed, has identified the most frequently cited reasons founders believe their businesses failed. According to their report:
Reasons Why Most Businesses Fail
38%
35%
for their products or services.
20%
19%
18%
15%
14%
10%
8%
7%
on the same page.
6%
5%
A Deeper Look Into The Reasons Why Most Businesses Fail
In this section, I want to take up three top points from the above.
In addition, as I am a marketer at heart, I will do a deep dive into most of the above points and explore how a strong marketing strategy can address and in some cases even eliminate some of these challenges.
Meaning, I think with a good marketing strategy or plan and good execution of that plan, a lot of business would succeed instead of fail.
Let’s start by discussing the three main reasons businesses fail, according to the above research:
#01
Ran Out of Cash
Whether it’s due to underestimating the capital needed to start, failing to secure enough funding, or simply poor financial management, running out of money can quickly bring even the most promising business to a grinding halt.
While not selling enough is an obvious factor, another significant issue is bad forecasting—failing to accurately predict future sales and expenses. Without a clear financial roadmap, it’s easy to overspend, miss revenue targets, and eventually run out of funds.
Forecasting might not be the most glamorous part of running a business, but it’s absolutely essential. It involves making educated guesses about your future sales, costs, and cash flow based on historical data.
Even if you’re just starting out and don’t have much data to go on, you can still create forecasts based on industry standards and adjust them as real numbers come in.
This kind of financial planning is within your control and can make the difference between staying afloat or going under.
5 Tips to Prevent Running Out of Cash
2. Quickly Build a Cash Reserve: Always aim to have a cash reserve that can cover at least three to six months of operating expenses. This safety net can help you weather unexpected costs, slow sales periods, or delays in receiving payments from customers. A cash reserve provides a financial cushion that can prevent you from running out of money during tough times.
3. Monitor Cash Flow Regularly: Cash flow is the lifeblood of your business, so it’s crucial to keep a close eye on it. Regularly review your income and expenses to ensure you have enough cash on hand to cover your bills. Tools like cash flow statements can help you track how money moves in and out of your business, giving you a clearer picture of your financial health. If you notice any cash flow issues, address them immediately before they become bigger problems.
4. Control Your Spending: It’s easy to get carried away with spending, especially when you’re excited about growing your business. However, it’s important to be disciplined about your expenses. Prioritize spending on essentials that directly contribute to your business’s growth and avoid unnecessary purchases. Regularly review your budget and cut back on any expenses that aren’t delivering a good return on investment.
5. Plan for Growth, but Stay Grounded: While it’s important to plan for future growth, be cautious about expanding too quickly. Rapid growth can strain your finances, especially if it requires significant upfront investments in inventory, staff, or facilities. Make sure your business can support growth financially and operationally before taking big steps. Scaling up too fast without the necessary funds can quickly lead to cash flow problems and put your business at risk.
By starting with a realistic budget, building a cash reserve, monitoring your cash flow, controlling spending, and planning for growth wisely, you can avoid the financial pitfalls that trip up many entrepreneurs. Good financial management is the foundation of a successful business, and taking the time to get it right will increase your chances of long-term success.
#02
No Market Need
The number one reason new businesses fail is that they don’t find the right product/market fit. Basically, this means you need to create something that’s faster, cheaper, or easier to use than what’s already out there, or you need to cater to a group of customers who aren’t being served well.
Another thing to think about is whether your product category is growing or shrinking. Here’s a quick rundown:
Trend: A trend sticks around longer than a fad, growing steadily over time and not disappearing as fast.
Stable: A stable market doesn’t really grow or shrink—it just keeps going without too many surprises.
Growing: A growing market is one that’s consistently getting bigger and shows signs of sticking around for the long haul.
Competition Too High
In today’s market, competition is fierce in almost every industry. When multiple businesses are vying for the same customers, it can be incredibly difficult to stand out, especially for small businesses with limited resources.
High competition can drive down prices, squeeze profit margins, and make it hard to gain and retain customers. If a business doesn’t have a clear strategy to differentiate itself from the competition, it may struggle to survive.
How to Avoid the Pitfalls of High Competition
2. Niche Down: Instead of trying to compete in a broad market, consider focusing on a specific niche. By narrowing your target market, you can become the go-to expert for a particular segment of customers. This approach not only reduces competition but also allows you to tailor your products, services, and marketing efforts to better meet the needs of a specific group, thereby increasing customer loyalty and reducing the risk of being outcompeted.
3. Build Strong Customer Relationships: One of the most effective ways to outshine your competitors is by building strong, lasting relationships with your customers. Provide exceptional customer service, engage with your customers regularly, and create a community around your brand. Happy customers are more likely to become repeat buyers and advocates for your business, giving you a competitive edge.
4. Innovate Constantly: In highly competitive markets, standing still is not an option. Constantly look for ways to innovate, whether it’s by improving your products, introducing new services, or finding more efficient ways to serve your customers. Innovation keeps your business fresh and relevant, helping you stay ahead of the competition.
5. Leverage Digital Marketing: Digital marketing can be a powerful tool for small businesses to compete with larger competitors. Utilize social media, content marketing, and SEO to increase your online presence and reach your target audience more effectively. By building a strong digital footprint, you can attract more customers and level the playing field, even in a crowded market.
6. Monitor the Competition: Keep a close eye on what your competitors are doing, but don’t just copy them—learn from them. Understand their strengths and weaknesses, and use this information to refine your own strategy. By staying informed about the competitive landscape, you can adapt quickly and stay one step ahead.
By identifying your unique strengths, focusing on a niche market, building strong customer relationships, and continually innovating, you can carve out a space for your business to thrive, even in the most competitive environments.
1- Ran Out of Money or Failed to Raise Sufficient Capital
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
2- No Market Need for Their Products or Services
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
3- Competition is Too High
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
4- Poor Business Model
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
5- Regulatory or Legal Challenges
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
6- Pricing or Cost Issues
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
7- Didn’t Have the Right Team
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
8- Product Mistimed
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
9- Poor Quality Product
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
10- Investors and Teams Were Not on the Same Page
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
11- Failed to Execute the Plan or Adapt to Market Changes
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
12- Burned Out or Lack of Passion
Running out of money is a major reason why businesses fail. It’s one thing to start without enough capital, but it’s another to run out of funds because sales didn’t catch up quickly enough to sustain the business. This is where a solid marketing strategy comes in. A good marketing plan not only helps generate awareness but also drives sales and brings in customers at a steady pace. By effectively promoting your product or service, you can increase revenue streams and ensure that the initial capital you raised can keep the business running until it becomes self-sustaining. Consistent marketing efforts are key to maintaining cash flow and avoiding the dreaded “ran out of money” scenario.
Retail Business Survival Rates
1st Year: About 15.8% of retail businesses don’t make it through their first year, meaning around 84.2% do survive.
5th Year: By the 5th year, 41.7% have closed their doors, so the survival rate drops to about 58.3%.
10th Year: Fast forward to the 10th year, and around 58.3% of retail businesses have failed, leaving a survival rate of roughly 41.7%.
(And yeah, it’s just a coincidence that the failure and survival rates flip between the 5th and 10th years.)
Real Estate Business Survival Rates
5th Year: By year five, around 41.3% have failed, so the survival rate stands at 58.7%.
10th Year: By the 10th year, 57.8% of real estate businesses have closed, leaving a survival rate of about 42.2%.
Restaurant Survival Rate
1st Year: Around 20.1% of restaurants fail within the first year, meaning about 80.9% survive.
5th Year: By the fifth year, 48.6% have closed, so the survival rate is about 51.4%.
10th Year: By the 10th year, 65.4% of restaurants have gone under, leaving just 34.6% still in business.
How Many Service-Based Businesses Fail?
1st Year: About 17.5% of service-based businesses don’t make it through the first year, giving them a survival rate of roughly 82.5%.
5th Year: By year five, around 43.1% have failed, so the survival rate drops to 56.9%.
10th Year: By the 10th year, 60.4% of service-based businesses have closed, leaving a survival rate of about 39.6%.
So, Which Businesses Are Most Likely to Succeed?
When it comes to starting a business, understanding the odds of success in different industries can help guide your decisions.
Based on the survival rates we’ve looked at, here’s a breakdown of which types of businesses are most likely to stand the test of time, ranked from the most to the least likely to succeed:
#01
Service-Based Businesses
5th Year Survival Rate: 56.9%
10th Year Survival Rate: 39.6%
Why They Succeed:
Real Estate Businesses
5th Year Survival Rate: 58.7%
10th Year Survival Rate: 42.2%
Why They Succeed:
#03
Retail Businesses
5th Year Survival Rate: 58.3%
10th Year Survival Rate: 41.7%
Why They Succeed (and Struggle):
Restaurants
5th Year Survival Rate: 51.4%
10th Year Survival Rate: 34.6%
Why They Struggle:
Real estate and retail also present good opportunities, especially with the right strategies and market positioning.
Restaurants, though challenging, can still thrive with a solid business plan and strong customer focus.
Ultimately, your success depends on choosing the right industry, understanding the market, and executing a well-thought-out plan that sets your business apart from the competition.
The data shows that no matter what type of business you start, you have a solid 30-40% chance of finding success within ten years.
That’s not bad at all!
Instead of getting hung up on the possibility of failure, embrace the fact that with perseverance, learning, and adapting, you have a good shot at making it.
And remember, if you start a business and it doesn’t work out, it’s not the end of the road—it’s a learning experience.
Many successful entrepreneurs have failed multiple times before they found the right formula. It’s also worth considering starting more than one venture; launching 2-3 businesses increases the likelihood that at least one will take off.
Ultimately, the key is to dive in, take action, and give it your best shot. Success isn’t guaranteed, but neither is failure.
By focusing on your goals, executing a strong plan, and staying adaptable, you’ll put yourself in the best possible position to succeed. So get in there, start that business, and make it happen!
Seven Steps to Start a Business and Increase Your Chances of Success
Identify a Viable Business Idea
Conduct Thorough Market Research
Create a Solid Business Plan
Secure Funding
Build a Strong Online Presence
Launch with a Marketing Strategy
Stay Adaptable and Keep Learning
By following these seven steps, or something similar, you’ll be well-equipped to navigate the challenges of entrepreneurship and increase your chances of building a successful, lasting business. Remember, the key is to take action, stay focused on your goals, and never stop learning.
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