Understanding business failure rates
The U.S. Bureau of Labor Statistics reports that 23.2% of businesses founded in 2022 were already closed in 2023. That business failure rate increases the longer a business operates. For example, a business that opened three years earlier had a 36.2% chance of failing, and the five-year survival rate is only about half of businesses—48% of companies started in 2018 had closed by 2023.
Businesses can fail for several reasons. Some of the more common ones include:
- Not having or making enough money to invest in the business
- Poor management of their team and operations
- Misunderstanding their audience
- Ineffective marketing of the business
- Lousy business strategy or not having a business plan at all
Don’t let these stats deter you. Just because many businesses fail, it doesn’t mean you’re automatically doomed.
The numbers back that up, too. Of the businesses started in 2013, 34.7% were still operating in 2023. That’s more than one in three businesses defying the odds for over a decade.
The rewards of entrepreneurship
Over one million private sector establishments were created in 2023. There’s a reason so many people look to start a business—the rewards of entrepreneurship can be bountiful.
Financial independence
Many entrepreneurs start because they want to make more money. If someone has struggled to improve their financial security throughout their career, they might view starting a business as a path to riches.
Though it often takes a while to get there, a successful business can generate more income than a typical 9-to-5, creating new levels of financial independence.
Personal fulfillment
Some people are perfectly content working a corporate job, but entrepreneurs have a different mindset. They might find themselves daydreaming about launching a new venture, being more in control of their career and following a passion they’ve had for years.
For budding entrepreneurs, that satisfaction is worth making the leap into starting a business.
Learning new skills
Ask an entrepreneur for lessons about running their businesses. Nearly all of them will say they learn something new every day.
Whether it’s testing a budding technology to streamline business operations, figuring out how to delegate work, or writing marketing copy for a customer email list, you’ll get plenty of experience to improve a variety of skills.
Making a positive impact
Business owners positively impact their local communities, and those effects can potentially grow nationwide or even globally. You’ll hear from customers whose lives have gotten better because of your product.
Additionally, you can support events in your city and partner with other small businesses. It’s remarkable to see how your efforts improve the area where you live (and beyond)!
Entrepreneur success stories
Despite the significant business failure rate, there is no shortage of success stories among small business entrepreneurs. Their work can inspire you if you’re just starting or considering a business.
- Patty Dominguez’s former company laid her off during the Great Recession of 2008. During that time, she assessed her values and what was most important to her. In 2013, she launched The Moxie Circle LLC, which continues to help other women grow their businesses.
- Natasha Eubanks loved reading about celebrity news in publications like People and E!, but she noticed they lacked coverage of Black celebrities. Natasha taught herself basic coding skills and launched her website, TheYBF.com (the Young, Black and Fabulous), a digital haven for Black entertainment news enthusiasts. That was nearly 20 years ago, and Natasha still says she’s on a “break” from law school because she’s having such a good time in digital media.
- Ross Chanowski started NuMarket during the COVID-19 pandemic to support the restaurant and food and drink industries. Ross’s team has expanded to a global presence, and the company has helped hundreds of businesses gain more customers through a unique style of crowdfunding.
Mitigating risks and increasing chances of success
A great product or service is only one piece of the entrepreneur puzzle. Smart business owners know that mitigating risks increases the odds they’ll succeed.
Here are a few things every business owner should do:
- Thorough market research: Simply asking a friend what they think about your product isn’t enough to determine its viability. You’ll need to conduct detailed market research. What are competitors doing? What kind of demand is there for what you offer? You might run a survey to learn more about pricing, features, and how people perceive your brand, getting responses from people with different backgrounds.
- Solid business planning: Once market research is complete, it’s time for your business plan. This plan should include information like your executive summary, company and product description, market analysis, organization, and how you’ll make money and fund the business. Here’s a guide to get you started.
- Effective financial management: Have you ever read a story about a celebrity going broke? Poor financial habits are typically the common thread in these tales. If you don’t have a good grasp on your books, you could be spending more than you have. Or you may make more lavish purchases when basic ones would work fine. Getting your finances in a good spot is essential.
- Seeking out mentors: If this article were a song, “You’re not on your own” would be its chorus. We’ll say it often, but it’s true: The best businesses come from collaboration. Look for a mentor who can give you advice, and always be curious and gracious with others.
Beyond trying to minimize risk as much as possible, successful entrepreneurs share another trait.
Embracing a growth mindset
There’s some interesting psychology behind a growth mindset. At its core, it means believing challenges and failures will happen, but hard work and help from others will enable you to overcome them.
Consider all the businesses that started at the end of 2019. Do you think they anticipated a global pandemic a few months later? No one could have accurately predicted the devastation on businesses and society. While many companies did shut down or turned to reduced hours, others thrived on the challenge and are more successful today.
We sincerely hope the last global pandemic is behind us. Yet, there will be other obstacles along the way, and a growth mindset is critical to getting through them. If you fail, learn from it for the next time. When a change worries you, dive into learning more about it. You may have internal or external voices putting doubt into your mind, but you also have a choice in how you tackle these challenges.
Planning for resilience
Business resilience is the ability to adapt to changing market conditions and expectations and withstand challenges. You don’t know when a pandemic, inflation, evolving online experiences, or something else could impact your business.
To build a resilient business model, consider the risks your company might face. Supply chain issues or cybersecurity attacks are among the more common, though there could be ones specific to your industry or region. Prioritize these risks by their potential impact. Once you have that list, create a comprehensive strategy for these risks. The key is to spell out as many details as you can. Who will have ownership at each step? Will there be multiple spokespeople? Are there pre-written messages you can create ahead of time? Do you need outside resources? How will you inform your partners and customers if need be?
Once your plan is fleshed out, it’s worth sharing with all stakeholders (or having them contribute along the way). If a disruption happens, other co-founders, employees, investors, or board members should know their roles. This type of contingency planning is essential for any business—and once you do it, practice, test, and practice again.
Throughout it all, it’s vital to maintain a flexible approach. While you may be able to forecast many things, the market is constantly changing. Your preparation and willingness to adapt will provide enormous benefits when something unexpected comes up.
The power of innovation and creativity
Most successful businesses don’t invent something entirely new. Rather, they create a new solution to an existing problem or find a better way to do something.
Take that same approach when starting your business. Unique value propositions and differentiation can contribute to business success.
Look at Aaron Krause, the founder of Scrub Daddy. He didn’t invent the traditional sponge, but he did notice that it would scratch paint and wasn’t effective for certain things. So, he used his engineering background to manufacture a better design: a round foam sponge, grooved on one side, with two holes punched out of the center.
Krause initially marketed that sponge to auto body shops to help mechanics scrub their hands. Those shops met him with strong opposition. Scrub Daddy wasn’t born until years later when Krause found another innovative use for his product. He tested his sponge out on lawn furniture and dishes, adding a smile to the sponge to assist with cutlery, and that was when he had his “a-ha” moment. The company is still thriving more than a decade later.
There are endless ways to be creative within your business. For instance, while marketing your company is important, building your personal brand can also have a massive effect. It showcases your personality while connecting with your customers.
Resources and support for entrepreneurs
Even if you’re the sole employee at your company, you’re never truly on your own. The network of resources and support for entrepreneurs is extensive, from large corporations to other entrepreneurs.
- Networking groups: Networking groups can offer insights into business ownership that you might not realize. Some of the largest ones are SCORE and Entrepreneurs’ Organization. Your local Chamber of Commerce will likely have additional groups to connect with.
- Online communities: Burning the midnight oil is much more enjoyable when you can check in with others. Reddit subreddits, Discord channels, Facebook groups, and specific niche forums are great places to start. There are also digital communities specifically for small business owners. For example, Outgrow Your Garage aims to support entrepreneurs and reduce inequity through accessible programming, such as digital courses and workshops.
- Business startup incubators: An incubator is designed to help startups grow. Typically, the incubator provides a workspace at reduced or no cost and access to mentors and investors. In exchange, the company has to hit certain milestones the incubator sets. Here’s a list of top incubators.
- Business startup accelerators: Startup accelerator programs only accept 1-3% of applicants, but they can be highly beneficial. Funding is a key component of accelerator programs, though you’ll also earn validation on your product and have the opportunity to demo and pitch it.
- Local businesses: Don’t be shy about saying hello in person. Business owners often like to bond with one another, so introduce yourself next time you go to that little spot down the street. You never know what you might learn!
Final thoughts
Building a successful business never happens overnight, and the business failure rate is certainly something to be mindful about. However, if you have entrepreneurial dreams, pursuing those goals will be one of the most rewarding endeavors you’ll ever experience.
Long-lasting businesses also usually have a strong team that collaborates and uses its strengths. Bench supports new business owners by simplifying their finances and helping them get where they want to go. That adds up to a greater chance of success in the long run—and that’s a dream come true. See how Bench works.
