Each year, thousands of ambitious entrepreneurs start new businesses. These entrepreneurs feel bright and full of hope. And plenty of small business statistics show that by the end of four years more than half of them will be gone.
Small business failure rate aside, many small businesses make it past that critical period and thrive. How many make it and what industries fare best? We’ve collected these startup statistics for small businesses from a variety of sources to answer those questions.
GENERAL STARTUP STATISTICS
- 69 percent of U.S. entrepreneurs start their businesses at home.
- According to the National Association of Small Business’s 2017 Economic Report, the majority of small businesses surveyed are LLCs (35 percent) followed by S-corporations (33 percent), corporations (19 percent), sole proprietorships (12 percent), and partnerships (2 percent).
- 51 percent of people asked, “What’s the best way to learn more about entrepreneurship?” responded with “Start a company”.
SMALL BUSINESS OWNER STATISTICS
Who’s starting small businesses today? Here’s a look at small business owners:
- Gender:
- 73 percent identify as male; and
- 25 percent identify as female.
- Age Range:
- 50-59 years old: 35 percent;
- 40-49 years old: 25 percent;
- 60-69 years old: 18 percent;
- 30-39 years old: 14 percent;
- 18-29 years old: 4 percent; and
- 70+ years old: 4 percent.
- Education:
- High School / GED: 33 percent;
- Associates Degree: 18 percent;
- Bachelor’s Degree: 29 percent;
- Master’s Degree: 16 percent; and
- Doctorate: 4 percent.
- Reason for starting business:
- Ready to be his/her own boss: 26 percent;
- Wanted to pursue his/her passion: 23 percent;
- The opportunity presented itself: 19 percent;
- Dissatisfied with corporate America: 12 percent;
- Laid off or outsourced: 6 percent;
- Not ready to retire: 6 percent;
- Other: 5 percent;
- Life event such as divorce, death, etc.: 3 percent.
- Ethnicity:
- White/Caucasian – 71 percent;
- Hispanic/Latino – 6 percent;
- Black/African American – 7 percent;
- Asian/Pacific Islander – 11 percent;
- Other – 5 percent.
- 82 percent of successful business owners did not doubt they had the right qualifications and proper experience to run a company.
STARTUP FAILURE RATE STATISTICS
- Of all small businesses started in 2014:
- 80 percent made it to the second year (2015);
- 70 percent made it to the third year (2016);
- 62 percent made it to the fourth year (2017);
- 56 percent made it to the fifth year (2018).
- Given those numbers, a bit more than half of all startups actually survive to their fourth year, while the startup failure rate at four years is about 44 percent.
- Top 10 causes of small business failure:
- No market need: 42 percent;
- Ran out of cash: 29 percent;
- Not the right team: 23 percent;
- Got outcompeted: 19 percent;
- Pricing / Cost issues: 18 percent;
- User un-friendly product: 17 percent;
- Product without a business model: 17 percent;
- Poor marketing: 14 percent;
- Ignore customers: 14 percent; and
- Product mistimed: 13 percent.
STARTUP FINANCE STATISTICS
Money is a key ingredient to the small business success rate. Here’s a financial snapshot of small business startups:
- A third of small businesses get started with less than $5,000 and 58 percent got started with less than $25,000.
- In addition, 65 percent admitted to not being fully confident they had enough money to start their business and;
- An overwhelming 93 percent said they calculated a potential run rate of shorter than 18 months.
- The most popular small business financing methods in 2018 were:
- Personal funds 77 percent;
- Bank loan 34 percent;
- Borrowing from family/friends 16 percent;
- Other funding 11 percent;
- Donations from family/friends 9 percent;
- Online lender 4 percent;
- Angel investor 3 percent;
- Venture capital 3 percent;
- Crowdfunding 2 percent.
- 40 percent of small businesses are profitable, 30 percent break even and 30 percent are continually losing money.
- Having two founders, rather than one, significantly increases your odds of success as you’ll:
- Raise 30 percent more money,
- Have almost 3X the user growth, and
- Are 19 percent less likely to scale prematurely.
- 82 percent of businesses that fail do so because of cash flow problems
- 27 percent of businesses surveyed by the NSBA claimed that they weren’t able to receive the funding they needed.
FASTEST GROWING SMALL BUSINESS INDUSTRIES
The industries with the top number of small business startups in 2018 were:
- Business services: 11 percent;
- Food/Restaurant: 11 percent;
- Health/Beauty/Fitness: 10 percent;
- General retail: 7 percent;
- Home services: 6 percent.
INDUSTRIES WITH THE BEST STARTUP STATISTICS
The 10 most profitable small business industries by net profit margin (NPM) are:
- Accounting, Tax preparation, Bookkeeping, and Payroll Services: 18.4 percent NPM
- Lessors of Real Estate: 17.9 percent NPM
- Legal Services: 17.4 percent NPM
- Management of Companies and Enterprises: 16 percent NPM
- Activities Related to Real Estate: 14.9 percent NPM
- Offices of Dentists: 14.8 percent NPM
- Offices of Real Estate Agents and Brokers: 14.3 percent NPM
- Nonmetallic Mineral Mining and Quarrying: 13.2% NPM
- Offices of Other Health Practitioners: 13 percent NPM
- Medical and Diagnostic Laboratories: 12.1 percent NPM
INDUSTRIES WITH THE WORST STARTUP STATISTICS
The 10 least profitable industries in the US by net profit margin (NPM) are:
- Oil and Gas Extraction: -6.9 percent NPM
- Software Publishers: -5.1 percent NPM
- Beverage Manufacturing: -3.7 percent NPM
- Semiconductor and Other Electronic Component Manufacturing: -0.3 percent NPM
- Forging and Stamping: 0.4 percent NPM
- Farm Product Raw Material Merchant Wholesalers: 0.9 percent NPM
- Beer, Wine, and Distilled Alcoholic Beverage Merchant Wholesalers: 2.1 percent NPM
- Petroleum and Petroleum Products Merchant Wholesalers: 2.8 percent NPM
- Grocery Stores: 2.2 percent NPM
- Bakeries and Tortilla Manufacturing: 2.3 percent NPM
Bottom Line
So, if you want to start your own business, don’t let the startup statistics above put you off. After all, you’re more likely to succeed if you’ve failed than if you’ve never tried:
- Consider, founders of a previously successful business have a 30 percent chance of success with their next venture, founders who have failed at a prior business have a 20 percent chance of succeeding versus an 18 percent chance of success for first time entrepreneurs.
Startup Photo via Shutterstock