It takes guts, determination, and a healthy dose of wild optimism to attempt building a startup of your own. It also takes years of hard work. Despite all this, 70% won’t live to see their 10th birthday. So, what is the startup failure rate in your industry, your city, your niche? And why do so many people give up on the idea they fought so hard for? Most entrepreneurs are aware that it can be difficult to get repeat funding, build a viable business model, and grab their customers’ attention. But did you know most businesses fail simply because there is no market for their product? If you don’t do your market research properly, all your subsequent efforts to stay afloat will have been in vain. It’s important to learn what percentage of startups fail in the industry you’re targeting. Don’t set yourself back by ignoring economic, financial, social, and cultural data on the current state of affairs in your particular niche. And make sure you have a good grasp on what the competition is doing so you can provide a product or service with a point of difference. We’ve prepared an infographic on the latest and most relevant startup statistics to help your business get off the ground. To do this, we’ve compiled high-quality data from independent studies and reports, as well as government websites and academic papers. Our goal? To find out what prevents startups from failing, how to conduct the best market research, where to get funding, and how long it takes to start making money organically. What are the best cities for startups? What are the most profitable industries for startups? It’s worth asking yourself all these questions before you begin investing time and money into an idea that may not succeed. With a steady focus and the right information, you’ll give yourself the best chance of getting the job done. Top Startup Failure Rate Statistics - Editor’s Choice Access to talent (63%) was the critical issue affecting most startups in 2019. Only 6% of U.S. startups believe organic growth will be their company’s next source of funding. Incompetence, at 46%, is the most common reason why businesses fail, according to a Statistic Brain study. San Francisco and Silicon Valley account for 13.5% of global startup deals. 50% of U.S. startups say they were concerned trade policy between the U.S. and China will hurt their businesses in 2019. Of the startups surveyed, 58% started with less than $25,000 and one-third started with less than $5,000. More than 80% of U.S. startups said they planned to add employees in 2019. Startup Failure Rate Statistics Incompetence, at 46%, is the most common reason why businesses fail, according to a Statistic Brain study. (Statistic Brain) In this case, the term “incompetence” refers to a wide variety of inadequacies. These include emotional pricing, no experience in record-keeping, a lack of planning, no knowledge of finance, failure to pay taxes, and spending too much with limited business revenue. The percentage of startups that fail after four years in the U.S. is over 50%. (Statistics Brain) Businesses in the fields of information (63%), transport, communication and utilities (55%), and retail (53%) are the most likely to fail. Their somewhat more successful counterparts include real estate, finance, and insurance (42% failure rate), along with education and health (44%). 65% of entrepreneurs admit they were not fully confident they had enough money to start their business. (Business Insider) Sadly, 93% calculated a run rate of under 18 months. Of these, 25% calculated a run rate of less than six months, while 36% didn't make any calculations at all. Only 9% of businesses fail due to an utter lack of passion. (CBINSIGHTS) How many new businesses fail just because their owners simply don’t care enough to make an effort? Not too many, as it turns out. Still, this is a ridiculous reason to go down. As stated in the infographic, CBINSIGHTS performed post-mortems on 101 failed startups to learn what drove them to an early grave. Mostly, it was a lack of market need, inadequate funding, or an incompetent team. In 2018, there was a decline of about 2% in cultural support, human capital, competition, internalization, and risk capital. (Global Entrepreneurship Index 2018) Unfortunately, the Global Entrepreneurship and Development Institute has noticed that the overall environment in 2018 is less supportive of startups and entrepreneurship. 56% of companies that raise a follow-up round of funding after their seed are then able to raise a second follow-up round. (CBINSIGHTS) Wondering how to make a startup company successful? Make sure you project a professional, hard-working image to earn subsequent funding. As this research shows, it’s easier to raise a third round of financing than a second one, with only 40% of businesses successfully raising their first post-seed round. After the third round, though, your chances of getting subsequent funding are likely to drop steadily. Access to talent (63%) was the critical issue affecting startups in 2019. (US Startup Outlook 2019) Even the best startup business will face a number of challenges on its way to success. In the 2019 US Startup Outlook survey, nearly 1,400 technology and healthcare startup founders and executives cited the most important public policy issues affecting their business. The most compelling issues other than access to talent were healthcare costs (44%) and cybersecurity (40%). The final three concerns were customer privacy (33%), corporate taxes (22%), and international trade (also 22%). In 2019, 50% of U.S. startups said that their more realistic long-term goal is to be acquired, 7% less than in 2018. (US Startup Outlook 2019) A larger percentage of startups compared to last year say they don’t know what their ultimate goal is, underscoring the difficulty of planning an exit strategy amid increased market volatility. With plenty of capital available, many corporations, private equity funds, and scaling companies have the resources to make acquisitions. Only 6% of U.S. startups believe organic growth will be their company’s next source of funding. (US Startup Outlook 2019) Organic growth is crucial, as startup success statistics show. Other important sources of funding include bank debt, IPOs, mergers, government grants, ICOs, and crowdfunding. 50% of U.S. startups say they are concerned trade policy between the U.S.A. and China would hurt their business in 2019. (Exploring the Factors of Startup Success and Growth) Of those, 33% are somewhat worried, while 17% are very concerned. This might be due to China’s “Made in China 2025” plan. This is a strategic project issued by Chinese Premier Li Keqiang and his cabinet in May 2015. In short, China plans to move past being the world’s “factory” and start producing higher-value products and services. The small business survival rate – which currently sits at 30% past the 10-year milestone – might not drop because of this economic shift. There is another issue, though. According to a Churnbase study, China has more unicorn companies than the U.S.A., in spite of America being the primary source of venture capital. Startup Trends You Can Focus On To Succeed Of the startups surveyed, 58% started with less than $25,000 and one-third started with less than $5,000. (Business Insider) Kabbage recently polled 600 thriving U.S. small business owners to better understand their cash flow issues. Admittedly, these small business owners indicated they had at least some knowledge of how to build a startup. In many cases, this knowledge included experience in financing and bookkeeping (35%), legal and compliance (29%), and marketing and advertising (28%) when starting their business. Maybe the motto that “it takes money to make money” doesn’t apply all the time. Globally, product innovation scores have increased by 22% since 2017, while startup skill scores have risen by 11%. (Global Entrepreneurship Index 2018) The Global Entrepreneurship and Development Institute came up with these figures. It is one of the top research centers focused on understanding and improving the relationship between entrepreneurship, innovation, and prosperity. Based on the organization’s findings, people are getting better at understanding and identifying successful startup business ideas and turning them into useful products. 60% of U.S. startups expected business conditions for their company to improve in 2019, 1% less than in 2018. (US Startup Outlook 2019) Entrepreneurs’ hopes and dreams are slightly grimmer than in 2017. On the other hand, 31% of respondents believe that business conditions will stay the same. As many as 9% think conditions are likely to get worse, a 4% increase since 2018. On average 15% of micro-enterprises are traders, while the share is 60% for small enterprises. (OECD) The success startups expect to achieve seems to revolve mostly around trade. A 2018 OECD report on entrepreneurship classified micro-enterprises as having between zero and nine employees (zero meaning the owner is the only one working). According to this measure, a small enterprise employs between 10 and 49 people. Organizations’ capacity to channel innovations to the economy is more potent in innovation-driven economies (1.55%) than in efficiency-driven (1.17%) or factor-driven economies (-0.59%). (Global Entrepreneurship Index 2018) Successful startup businesses identify and understand how developed their country’s economy is before they decide what startup idea to pursue. Factor-driven economies rely mainly on unskilled labor and natural resources, while efficiency-driven economies are characterized by more efficient production processes and higher quality. Finally, innovation-driven economies depend on skilled, educated, and knowledge-based labor, with a more developed service sector. Scores on the Global Entrepreneurship Index have improved by 3% on average since last year. (Global Entrepreneurship Index 2018) The GEI analyzes startups’ health based on 12 main factors. These startup success factors include product innovation, process innovation, human capital, cultural support, and the perception of opportunities. 71% of surveyed U.S. startups have successfully raised capital in 2018. (US Startup Outlook 2019) A quarter of these businesses don’t consider the fundraising environment to be challenging. That may be because there is currently a trend of venture capitalists and private equity firms investing larger sums into a smaller deals. These startup trends only apply to high-performing young businesses, however. Struggling startups are finding it increasingly more difficult to raise funds. More than 80% of U.S. startups said that they planned to add employees in 2019. (US Startup Outlook 2019) The success startups hope to achieve often relies on paying a bunch of new employees to do the heavy lifting, so to speak. As many as 29% of entrepreneurs recognize that it’s extremely challenging to find talent with the necessary skills to grow their businesses. Another 62% say it is somewhat challenging. Startups are most in need of filling product development, sales, and technical positions. Startup Guide: Ageism, Racial Bias, and Venture Capital In 2019, the percentage of startups with at least one woman on the board of directors increased to 37%. (US Startup Outlook 2019) That’s the highest result since SVB started doing research in 2015. Additionally, 53% of startups now feature at least one woman in an executive position, a 10% increase compared to last year. 37% of founders believe startup investors show some kind of age bias against them. (State of Startups) In 2018, the State of Startups annual survey interviewed hundreds of venture-backed founders, who talked about what it’s like running a tech startup today. On average, founders think ageist attitudes begin once they turn 46. In 2018, 26% of surveyed tech startup founders believe a race bias is exists. (State of Startups) Small business stats and startup stats don’t usually cover these issues, but discrimination remains a huge problem. In the State of Startups annual survey of 529 founders, almost 30% agreed people in the American startup scene need to do more to fight racial bias. In 2019, 52% of U.S. startups expected their company’s next source of funding to be venture capital. (US Startup Outlook 2019) That’s down 2% from 2018. Due to limited revenue or high costs, most of startups’ small-scale operations aren’t sustainable in the long run without additional funding. That’s why, after receiving their initial investment, most young startups will either fail or need subsequent investments. As for subsequent investments, 17% of the U.S. startup budget comes from angel investors, micro VCs, or an individual investor. Only a small number of companies become profitable solely thanks to their first investment. As many as 8% hope for private equity, while 7% rely on private investors. On average, a typical angel investor in the U.K. holds their investment for six years. (The UK Business Angel Market) A study of the U.K. Angel Business Market came up with this figure. Startup statistics in the UK show hugely positive signs of continued growth in the angel market. In fact, 41% of angel investors increased their investments during the 2016-17 tax year. Growth has been impressive, with 69% of investee businesses surpassing their expectations. San Francisco and Silicon Valley account for 13.5% of global startup deals. (StartupsUSA) San Francisco tops the list, playing host to nearly 10% of global venture capital deals. In other startup news, New York is the runner up, with 6.5%. London is next, with 5% of global venture capital deals, half of what San Francisco provides. Finally, the heart of Silicon Valley, San Jose, accounts for almost 4% on its own. Boston and L.A. each account for more than 4% of all startup deals on a global scale. Bangkok takes first place for global growth of venture capital deals, with an increase of more than 600% between 2010 and 2017. (StartupsUSA) Thailand's successful startup industry expected to see double-digit growth in 2018, driven by local funding and foreign venture capital. Local startups are being encouraged by government support, and Thailand is promising as overall costs for startups are low relative to Singapore. Globally, the majority of enterprises (between 70% and 95%) are micro-businesses, meaning they have fewer than 10 employees. (OECD) Startup statistics show that in most OECD economies, small and medium-sized enterprises account for over half of all employment and value added within the business sector. These are either single-person businesses, where a freelancer opens a firm and is self-employed, or a partnership of some sort. Small businesses such as these are easier to manage. Since poor time and resource management are some of the most common causes of the high startup failure rate, this reluctance to start big is probably a good idea. In most OECD countries, venture capital constitutes less than 0.05% of GDP. (OECD) This is according to the OECD, an intergovernmental organization consisting of 36 member countries. The two major exceptions to the small GDP percentage of venture capital are Israel and the United States, where the venture capital industry is more mature and represents more than 0.35% of GDP. Tech Startup Statistics The fastest-growing tech startups are in advanced manufacturing and robotics, which is growing at a rate of 189.4%. (Global Startups Ecosystem Report) According to a 2018 report, advanced manufacturing and robotics has the best five-year growth rate of any tech subcategory. This stat specifically measured early-stage deals from 2012-17. Agtech and new food is the second-fastest-growing sector for startups, with a growth rate of 171.4%. (Global Startups Ecosystem Report) The 2018 Global Startup Ecosystem Report found agtech businesses to be among the most profitable startups. The agriculture industry employs a huge number of people and adds $3.2 trillion annually to the global economy. Now, digitization is transforming this vital industry, especially in the fields of automation and quality control. Blockchain is the third-fastest-growing tech startup category, with a 162.6% growth rate. (Global Startups Ecosystem Report) Blockchain is still in the emerging phase of the startup lifecycle. This peer-to-peer value exchange eliminates the need for third-party mediators. The technology has applications across myriad industries, particularly within the financial services sector. When you look at tech startup trends, nothing’s hotter right now than blockchain. AI, big data, and analytics are the fourth-fastest-growing tech startups, at 77.5% growth rate. (Global Startups Ecosystem Report) This sub-sector is growing strongly and is much closer than many other sub-sectors to the mature phase, encompassing 5% of all global startups. Worldwide GDP could grow up to 14% by 2030 as a result of AI, which would mean an additional $15.7 trillion for the global economy. Why Some Startups Succeed (and Why Most Fail) Market research: You’ve fulfilled your lifelong dream by starting a real estate agency. But the area you should be covering is already packed with realtors, and your service is surplus to the market’s needs. You fail. Business plan: Identifying market demand is just the beginning. You need to split your business plan into small, achievable goals, and predict potential problems and solutions. Funding: Whether you’re backed by a venture capitalist, an individual contributor, or the government, your business will probably need repeat investments. The best startup advice you can get is to not stretch for cash during your first year, or you might never get off the ground. Location and marketing: An integrated, multi-channel online presence is a must for any business to survive in the 21st century. If you open a coffee shop with no website or social media presence in a neighborhood that couldn’t care less, you’re going to have a bad time. Knowledge: The truth is that some entrepreneurs take up this challenge with little to no previous knowledge of finance, accounting, or their niche. Make sure you enroll in courses to learn the skills you need before you try to break into the market. Conclusion If you want to succeed, a positive attitude and hard work alone aren’t going to cut it. You need to know, not hope that your business will be a success. The startup success rate becomes less favorable with every year your business keeps operating, and as time goes by, survivors are increasingly rare. You won’t get too many shots at building a profitable company, so time and quality information are of the essence. Don’t be fooled: the myth of the personality cult, maverick tech entrepreneur who makes millions winging it is a sham. If you’re born into considerable wealth, you might be able to pull that off. The chances are, though, that you’ll only succeed if you work harder and smarter than your competition. Over-prepare, read up on all the you can get your hands on, then prepare yourself for the ultimate leap of faith so you don’t become just another number in the startup failure rate.
