7 out of 10 Startups Fail in the First 5 Years

While these statistics have been bandied around for decades, I looked at my experiences working with entrepreneurs, published research, and AI queries to find out the latest.

Here’s what I found:

Longevity?

Approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.

Education?

Approximately 30% of entrepreneurs only finish high school, 31% have an associate degree, 17% have a bachelor's degree, 18% obtained a master's degree, and 4% have a Ph.D.

Startup Age?

The average age of the most successful startup entrepreneurs is 45 – and founders in their 20s are the least likely to build a top firm.

Number of startups?

In 2019, the rate of new entrepreneurs in the U.S. was 0.31% or 310 individuals per 100,000 adults.

So Why Do Startups Fail? The Reasons are numerous, with detailed underlying explanations, depending on the source of research. Here’s a curated list in no particular order:

• Poor business model

• Incompatible Team Members

• Issues with product-market fit

• Insufficient capital

• Ignoring legal and regulatory issues

• Lack of market demand

• Poor execution

• Ineffective leadership

• Wrong team

• Ignoring customer feedback

• Lack of differentiation

• Scaling too quickly or too slowly

• Lack of experience

• Insufficient resources

• Lack of mentorship and guidance

• Inadequate market research

• Difficulty in recruiting talent

• Lack of focus

• Poor financial management

• Failure to adapt

• Lack of resilience

So, what’s the common denominator, and how do you beat the odds?

Tada! Management Planning.

Approximately 26% of entrepreneur founders write a business plan and build a 3-year proforma financial analysis.

The lack of adequate planning is widely recognized as a significant underlying factor contributing to startup failure.

Small Business Administration studies show that inadequate planning is the top reason why startups fail.

Proper planning is essential for a startup's success. It seems obvious, but it’s more elusive than one might think.

It’s essential to address key areas:

Conduct thorough market research, develop a viable business model and business plan, create a realistic financial plan, and establish clear goals and strategies for growth. Doing so effectively builds adaptable management tools to guide the team and the enterprise to sustainable success.

Here’s to your success – in business and in life.

Tom

P.S. Do you have a question or issue you want me to write about? Let me know in an email to [email protected].

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