Do 9 Out of 10 Startups Really Fail?
Q: What is the truth behind "9 out of 10 startups fail"? Where does the "9 out of 10" come from and what is it specific to? Is it 9 out of 10 businesses, ideas, or companies? What is failure? If a startup gets seed or series A funding, is it still 9 out of 10? If a company gets sold for two times revenue, is that a failure? What's the deal here?
I've done some research on the topic. Many sources track U.S. business failure rates, from business schools to D&B to the Federal government (see data points below). What is meant by failure is the key question. The other side of the coin is defining what you mean by success.
For example, if success is measured by starting a company that achieves $1m in Revenue, then 95% of all startups fail. Many entrepreneurs would see achieving $1m in Revenue as a good measure of success.
That means there are many small businesses between $0 and $1m in Revenue that survive, but are bumping along without making a significant impact and without making any income.
Here are a few different sources and relevant data points that I combined to create the header graphic:
1. Growth/Size Failure Rates:
Failing to achieve more than $10m in revenue: 99.4%
Failing to achieve more than $1m in revenue: 95%
Source: Fortune article citing an Association for Corporate Growth study
2. Successful Investment Failure Rates:
Failing to meet projections: 90 – 95%
Failing to achieve projected ROI: 70 – 80%
Losing most or all money invested: 30% - 40%
Source: Harvard Business School research
3. Survival Failure Rates:
Failing to survive: 75%
Source: SBA Small Business FAQs (see chart below):
Source: Bureau of Labor Statistics
Interpreting the header graphic above: according to the SBA, only about 25% of startups survive and of those that survive, according to the ACG only about 5% of surviving firms reach $1m in Revenue (8 firms out of the surviving 167 firms of the original 667 started) , and finally, according to the ACG, only 1 of the surviving 167 firms will reach $10m in Revenue.
To understand more about why so many startups fail, see Why Do Most Startups Fail?