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Are you considering starting a business? If so, you are in the right place because you are about to read what you should know before you start. Starting your own business is a risk. However, knowing the common reasons for the failure of startups will prevent you from making the same mistakes. Statistics on startup failures will help you understand the problems better.
This article has gathered 25+ startup failure statistics you need to know, including top reasons and rates. You will also get an insight into the top reasons why they fail and the common problems that lead to failure. Without wasting any more time, let's move on to our article that will contribute to the success of your startup.
Starting a new business takes a lot of work. You can see in many sources that ninety percent of startups fail. There are a lot of reasons why a startup can fail. It may even be a combination of several reasons. The most common reasons why startups fail are:
Top reasons for the failure of start-ups
This paragraph will describe the startup failure rate statistics at different stages. From the early days of idea creation to the later stages, you can encounter many other problems. Each stage has its unique obstacles that contribute to startup failure rates. According to Failory:
Startup failure rates by stage
When we look at the statistics, we can see that the rate of failed startups at the end of the first year is lower than in other years. The failure rate of startups has increased over the years. Factors such as market conditions can become difficult to deal with over time. This can lead to failure for startups over time.
Just as it varies by stage, the failure rate of startups also varies by industry and business model. We will now examine the failure rates of startups by industry with a few examples.
Startup failure rates by industry
Let's take a look at more than 25 statistics on startup failures. These statistics will guide you through why startups fail and help you learn from the experiences of those who have been there. Take a look at these statistics before you start your business plan:
1. In the United States, 20.8% of private sector startups fail within the first year. By the end of the fifth year, 48.4% had died. 65.1% of startups fell by the end of ten years (Lendingtree).
2. Columbia is the region in the United States with the highest rate of venture failures in the first year. The nation's capital has the highest failure rate at 28%, followed by Missouri and Rhode Island at 27.2% (Lendingtree).
3. According to the most recent data on the March 2022 state of enterprises launched in March 2021, nearly 21% of private sector businesses in the United States fail within the first year (LendingTree).
4. The IT sector has the highest proportion of businesses that fail in the first year, at around 26%. The IT sector includes processes such as producing information and cultural products and processing data (Lendingtree).
5. Professional, scientific, and technical services (23.4%) and administrative and waste services (23.1%) industries had the second and third-highest one-year failure rates (Lendingtree).
6. Only one in every twelve entrepreneurs succeeds in developing a profitable startup. According to a 2019 study, only 8.3% of entrepreneurs create a successful business. This equates to only one in twelve entrepreneurs (Luisa Zhou).
7. Startups fail at a rate of greater than 90%. Over nine out of ten startups fail, with about 20% failing within the first year of operation (Luisa Zhou).
8. Long-term failure rates for all startups are 70%. By the end of year five, the failure rate increased to 50%, and by year 10, it grew to 70% (Luisa Zhou).
9. 20% of startups fail because they need to catch up to the competition. In addition to poor management and market fit, one in five startups die because they cannot overtake their competitors (Luisa Zhou).
10. Leading causes of startup failures include poor business concepts at 19%, regulatory or legal challenges at 18%, and pricing issues at 15% (Luisa Zhou).
11. In 2018, 82% of startups were reported to have closed because of cash flow concerns (Demandsage).
12. The failure rate of owners starting a business for the first time is 82% (Demandsage).
13. 6% of startups failed because of technology-related issues, such as incorrect security systems or outdated solutions (Demandsage).
14. Between March 2020 and February 2021, the pandemic drove 25% more firms to close than the average (tech.co).
15. Only two out of every five startups make a profit. Three out of five enterprises either break even or cause a loss (Marketsplash).
16. 75% of venture-backed businesses never return profits to funders (Failory).
17. In 30-40% of cases, investors lose their entire original investment (Failory).
18. Finding a market fit for a new startup takes two or three times as long as many entrepreneurs estimate. In addition, before product-market fit, founders overestimate the value of their intellectual property by up to 255% (Luisa Zhou).
19. 35% of startups fail because there is no market need for their product (Luisa Zhou).
20. Startups have three critical phases: Pre-seed, Series A, and maturity. Approximately 60% of organizations that get pre-seed funding fail to advance to Series A (Luisa Zhou).
21. 99.9% of unicorn startups fail. Companies are called "unicorn startups" when they reach a valuation of over 1 billion dollars without going public. Only 0.00006% of startups achieve unicorn status (Luisa Zhou).
22. According to The National Venture Capital Association, 25% to 30% of firms that receive VC funding fail (Luisa Zhou).
23. More than 75% of Fintech (Financial Technology) startups fail. Popular industries for fintech startups include mobile banking, bitcoin, and investment apps (Luisa Zhou).
24. Disruptive startups have a 90% failure rate. Disruptive startups establish new markets or reinvent current ones (Luisa Zhou).
25. 23% of startups fail because they don't have the right team in place. This is the third most common reason for startup failure (tech.co).
In this article, you have seen some critical information about the failure rates of startups through statistics. The startup statistics will show you why startups fail and the failure rates by stages and sectors. You can make inferences from these statistics and ensure your business succeeds. Here are a few key points to consider before launching your startup:
By analyzing these statistics, you can create an effective plan for your business. Now, you have all the data you need for a successful startup!
Fatih is a content writer at forms.app. He is also a translator and interpreter. Fatih loves reading and writing. He is passionate about exercising and traveling. His specialties are surveys, statistics, and translation.