Michigan Investment Network


Recent Blogs


Pitching Help Desk


Testimonials

"We have already had one investor for $25K, and another who is very involved in the food business, who could be a funder on a much larger level. So we are very pleased, and offer our thanks."
Bruce J.

 BLOG >> April 2023

New Business Statistics [Entrepreneurship
Posted on April 20, 2023 @ 03:57:00 PM by Paul Meagher

You might have heard that the rate of failure for startups is high. If you google "startup failure rate", you will be immediately confronted with the statistic that 90% of startups fail. There are lots of sites that parrot this number.

Jason Feifer, who is the editor in chief of Entrepreneur magazine, disputes this claim in his 2022 book Building for Tomorrow:

Don't believe any of that. The statistic is wrong - by the numbers and more important by the definition of fail...

First, the facts: About half of businesses survive their first four years according to the U.S. Census Bureau. Does that mean the other half failed? No. At the time that they closed, about a third of those businesses were successful. "It appears that many owners may have executed a planned exit strategy, closed a business without excess debt, sold a viable business, or retired from the work force," the study says. In other words: Just because a business ends, that doesn't mean it ends badly....

Even if the stat were true [i.e., Nine out of ten new businesses fail ], we would need to define the word fail. If a business truly does fail - if it ran out of money, laid off its staff, and totally crashed and burned - is that a failure? Maybe .. but maybe not! Great businesses have been built out of the lessons from failed ones. YouTube began as a failed dating site; Twitter began as a failed podcast platform called Odeo; Instagram began as a failed app to help plan meetups called Burbn.

This is not just true for companies. The most successful people in the world have told me that they attribute their successes to their failures. pp. 134-137

If you research some of the sites that report that 9 out of 10 startups fail you will notice that they often use a restrictive definition of what constitutes a startup. They often restrict the word startup to refer only to companies doing innovative work in some high tech space that are funded by private capital. If the people reporting the statistic want to restrict the use of the word startup to these types of businesses then they are arguably misleading the general public when claiming 9 out of 10 startups fail. I suspect most people believe that those who open salons, restaurants, retail stores and other types of businesses are startups also and assume the failure rate applies to them also.

Whenever anybody quotes a statistic on how common startup failure is, they should make an effort to be clear about what they mean by a startup and what source they are relying upon to make their failure rate claim. Depending on the definition of what a startup is, who the source of the statistic is, over what time horizon, and how they define what failure consists of, you could be looking at a huge range of possible statistics for what the "startup failure" rate is. Talking in general terms about the rate of "startup failure" is not likely to be that useful.

Is starting a business a risky proposition? Yes, but probably not as risky as most people have been lead to be believe and the reasons for closing down a business may not be as dire as we imagine.

Permalink 

 Archive 
 

Archive


 November 2023 [1]
 June 2023 [1]
 May 2023 [1]
 April 2023 [1]
 March 2023 [6]
 February 2023 [1]
 November 2022 [2]
 October 2022 [2]
 August 2022 [2]
 May 2022 [2]
 April 2022 [4]
 March 2022 [1]
 February 2022 [1]
 January 2022 [2]
 December 2021 [1]
 November 2021 [2]
 October 2021 [1]
 July 2021 [1]
 June 2021 [1]
 May 2021 [3]
 April 2021 [3]
 March 2021 [4]
 February 2021 [1]
 January 2021 [1]
 December 2020 [2]
 November 2020 [1]
 August 2020 [1]
 June 2020 [4]
 May 2020 [1]
 April 2020 [2]
 March 2020 [2]
 February 2020 [1]
 January 2020 [2]
 December 2019 [1]
 November 2019 [2]
 October 2019 [2]
 September 2019 [1]
 July 2019 [1]
 June 2019 [2]
 May 2019 [3]
 April 2019 [5]
 March 2019 [4]
 February 2019 [3]
 January 2019 [3]
 December 2018 [4]
 November 2018 [2]
 September 2018 [2]
 August 2018 [1]
 July 2018 [1]
 June 2018 [1]
 May 2018 [5]
 April 2018 [4]
 March 2018 [2]
 February 2018 [4]
 January 2018 [4]
 December 2017 [2]
 November 2017 [6]
 October 2017 [6]
 September 2017 [6]
 August 2017 [2]
 July 2017 [2]
 June 2017 [5]
 May 2017 [7]
 April 2017 [6]
 March 2017 [8]
 February 2017 [7]
 January 2017 [9]
 December 2016 [7]
 November 2016 [7]
 October 2016 [5]
 September 2016 [5]
 August 2016 [4]
 July 2016 [6]
 June 2016 [5]
 May 2016 [10]
 April 2016 [12]
 March 2016 [10]
 February 2016 [11]
 January 2016 [12]
 December 2015 [6]
 November 2015 [8]
 October 2015 [12]
 September 2015 [10]
 August 2015 [14]
 July 2015 [9]
 June 2015 [9]
 May 2015 [10]
 April 2015 [9]
 March 2015 [8]
 February 2015 [8]
 January 2015 [5]
 December 2014 [11]
 November 2014 [10]
 October 2014 [10]
 September 2014 [8]
 August 2014 [7]
 July 2014 [5]
 June 2014 [7]
 May 2014 [6]
 April 2014 [3]
 March 2014 [8]
 February 2014 [6]
 January 2014 [5]
 December 2013 [5]
 November 2013 [3]
 October 2013 [4]
 September 2013 [11]
 August 2013 [4]
 July 2013 [8]
 June 2013 [10]
 May 2013 [14]
 April 2013 [12]
 March 2013 [11]
 February 2013 [19]
 January 2013 [20]
 December 2012 [5]
 November 2012 [1]
 October 2012 [3]
 September 2012 [1]
 August 2012 [1]
 July 2012 [1]
 June 2012 [2]


Categories


 Agriculture [77]
 Bayesian Inference [14]
 Books [18]
 Business Models [24]
 Causal Inference [2]
 Creativity [7]
 Decision Making [17]
 Decision Trees [8]
 Definitions [1]
 Design [38]
 Eco-Green [4]
 Economics [14]
 Education [10]
 Energy [0]
 Entrepreneurship [74]
 Events [7]
 Farming [21]
 Finance [30]
 Future [15]
 Growth [19]
 Investing [25]
 Lean Startup [10]
 Leisure [5]
 Lens Model [9]
 Making [1]
 Management [12]
 Motivation [3]
 Nature [22]
 Patents & Trademarks [1]
 Permaculture [36]
 Psychology [2]
 Real Estate [5]
 Robots [1]
 Selling [12]
 Site News [17]
 Startups [12]
 Statistics [3]
 Systems Thinking [3]
 Trends [11]
 Useful Links [3]
 Valuation [1]
 Venture Capital [5]
 Video [2]
 Writing [2]