Whether you’ve always wanted to start your own small business or are simply curious about the process, there’s a lot to know about how it works. Frankly, there’s a lot to know about small business failure. From getting a start-up loan to creating a business plan, the process of starting a business can take longer than it would for a well-established company. According to figures from the Bureau of Labor Statistics, nearly 23.2% of
American businesses will fail by 2022. The long-term numbers are the highest, with 48% of small businesses failing after five years and 65.3% closing after 10 years, according to Credit Tree analysis.
Business metrics are a measure of success and a smart way to dig deeper into the details. Understanding these numbers can help you understand why businesses are closing and hopefully avoid these pitfalls yourself.
Click through the amazing list of 30 studies backed by successful studies, all in one safe place. Are you ready to fail? Let's start.
First bankruptcy statistics
18.4% fail in the first year
49.7% fail in the first five years
65.6% fail in the first ten years
Only 25% fail in the last fifteen years
What percentage of companies fail?
There are countless reasons why various businesses fail. What is the failure rate when you consider all the startups, local small businesses, large corporations, and venture capital-backed unicorns? In short: lots of them.
To begin with, let's look at how many companies are founded every year and are replaced by new ones that went bankrupt before them.
How many companies went bankrupt in the first 3 years?
37.9% of new businesses in the US fail within the first three years.
(Lending Tree and SBA)
Getting through the first year is hard work, but statistics show it doesn't get any easier within three years. Just over six in ten companies reach their third anniversary, meaning 37.9% went bankrupt during this period.
Crisis due to the positive winds of the financial crisis.
35% of companies go bankrupt because there is no need for a market
Research shows that 35% of startups fail to develop products that are not relevant to their markets. This is because startups do not do proper market research and/or do not create an MVP (minimum viable product) to properly test their product.
Another reason for the lack of demand is the COVID-19 epidemic. As the world changed habits, companies found themselves turning to the Internet or creating new products to meet new needs.
20% of companies fail because their competitors outperform them
The third biggest reason why 20% of companies fail is not being able to keep up with the competition. It doesn't help that nearly 14% of small businesses admit to having a marketing problem that significantly contributes to them beating their competitors. A small company may have a new idea to bring to market, but large companies can easily copy their offering and take it to scale. In short, competition is the cause of one fifth of business failures.
Revenue figures are starting to stagnate and even change in capacity
Business success rate by country
Are you curious about this issue on a global scale? Let's take a look at statistics analyzing business success rates by comparing some of the world's largest countries and regions.
The average annual bankruptcy rate in the United States is 12.72%.
What is the annual bankruptcy rate of US companies? According to Shopify, the world leader in e-commerce, the average annual business failure rate between 2017 and 2021 was 12.72%. What does this mean? Approximately 13% of all companies founded in 2016 fail each year.
On average, 35.1% of small and medium-sized businesses in Canada survive for at least 16 years.
(Government of Canada)
Canada has a bankruptcy rate similar to that of the United States; Approximately 35% of small and medium-sized businesses are at least 16 years old. These business failure statistics relate to the industry that provides the product. In the service sectors, only 29.6% of these SMEs can survive in the same period. The one-year survival rate for businesses in Great Britain is 88.3%.
(Statista)
This means that new businesses in Britain have a higher survival rate in their first year than businesses in the US (around 20% fail). What is the long-term failure rate for UK companies? It is estimated that 39.6% of UK-based companies have been in business for more than five years.
Greece has the highest one-year survival rate in Europe at 96.7%.
(Business Insider)
EU has the highest commercial success like the USA. States. Almost one in five new businesses in the EU fail in the first year. However, Greece performed very well and came out on top with a perfect score of 96.7%. In second place is Sweden, followed by the Netherlands and then Belgium.
The EU member state with the lowest one-year survival rate is Lithuania, at 63.6%. Other countries at the bottom of the list with the highest probability of failure include Portugal, Denmark and Poland.
29% of trade expected to take place in South Korea in 5 years
(Statista)
According to 2019 statistics, the average business failure rate in South Korea over a five-year period is 71%. Only 65% of new businesses in this Asian country survive the first year. Only 49.5% of companies survive in the second year. In the third year, 42.6% cannot achieve this.
1. Kodak
Kodak was a technology company that dominated the photographic film market for much of the 20th century.
How They Failed to Innovate:
Despite creating the world's first digital camera, management was so focused on the success of photographic film. They missed the revolution. They failed to innovate and filed for bankruptcy in 2012.
Nokia
Nokia was the first mobile network in the world. In the late 1990s and early 2000s, Nokia was the world leader in mobile phones.
How they failed to innovate:
The company underestimated the power of its brand and believed it might be too late to win in the phone competition. In 2008, a year after the iPhone's debut, Nokia decided to adopt Android, but it was too late. Their products were not competitive enough.
Yahoo
In 2005, Yahoo was one of the largest players in the online advertising market. But he downplayed Search's importance to traditional media monitoring.
How they fail to innovate:
Focusing too much on media means they ignore consumer trends and the need to improve user experience. Yahoo has failed to create a model for monetizing “ideas” similar to Google.
Xerox
Xerox was the first PC inventor and its products were ahead of their time.
How they failed to innovate:
Management thought digitalization would be too expensive and believed Xerox's future was in copiers. Xerox didn't understand that it couldn't continue to make money the same way, sometimes technology fail.
Blockbuster
Xerox was the first to invent the computer and its products were ahead of their time. Unfortunately, management thought digitalization would be too expensive and did not bother to take advantage of these opportunities.
How they fail to innovate:
Management is complacent, values the strength of their brand, and doesn't see the lines changing. While Netflix shipped DVDs to consumers' homes, Blockbuster found that its physical stores were enough to keep its customers happy. It wasn't him.
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