Will a new business last? The real odds
Four in five new businesses see their first birthday. Half see their fifth. About a third see their tenth.
Most people who think about starting a business have heard a number like “nine in ten fail.” It is a good story and a bad statistic. The best long-running count of what happens to new American businesses comes from the US Bureau of Labor Statistics, which follows every new private-sector establishment from the year it opens. Its most recent ten-year look followed the businesses born in 2013.
The numbers
Of the businesses that opened in 2013, 79.6% were still operating a year later. After five years, 50.6% were still open. After ten years, 34.7% were.
Put plainly: a new business has roughly a four-in-five chance of seeing its first birthday, a coin toss of seeing its fifth, and about a one-in-three chance of seeing its tenth. The first year is the steepest drop, and the losses slow down after that. A business that has made it to year five has much better odds of reaching year ten than a brand-new one does.
These figures have been strikingly steady. The BLS has tracked cohorts of new businesses since the 1990s, and in almost every year the shape is the same: about a fifth gone in the first year, about half by the fifth.
What “still operating” does and does not mean
The count is of establishments, which means places of business, not founders. Three things follow from that.
- A business that closes is not always a failure. Owners retire, sell, merge with a competitor, or close one shop to open a better one. The data cannot tell a bankruptcy from a happy sale.
- A business that survives is not always a success. Plenty of ten-year-old businesses pay their owner less than a job would have.
- Founders often try more than once. Someone whose first business closes in year two may run a second one for twenty years, and the statistics see two separate establishments.
So the honest reading is: the specific business you open has about even odds of lasting five years, and your own working life as someone who runs businesses may well last longer than any one of them.
What moves the odds
The BLS numbers are averages across every kind of business, from a dental practice to a food truck, and the averages hide a lot. Survival rates differ by industry: businesses that need a licence, a qualification or expensive equipment to start tend to last longer than those anyone can open, because the barrier that keeps competitors out also keeps the business in. Businesses in fast-moving, low-margin trades, such as restaurants and retail, tend to have harder early years.
Beyond industry, the things that most often decide whether a small business gets through its first years are not mysterious:
- Money to survive the slow start. Many businesses that close in year one were working, just not fast enough to pay the bills before the savings ran out.
- Customers before costs. A business with paying customers before it signs a lease is in a different position from one that hopes customers will come.
- The founder’s experience in the trade. Knowing how the work is done, and what it really costs, removes a lot of expensive surprises.
- Keeping fixed costs low. Rent, staff and loan payments arrive every month whether or not the customers do.
None of these guarantees anything. They move the odds, which is the most any choice can do.
The cost of the attempt
What the survival curve does not show is what an attempt costs the person making it. Savings put in, a salary given up, the hours, and sometimes a relationship strained by all three. A business that closes in year three can leave its owner with debt and no pension contributions for those years, or with skills and contacts that pay off for the rest of a career. Two people with the same closed business can come out of it in very different places, depending on how much they risked and how they ended it.
Questions people ask
Is it true that 90% of businesses fail? Not in the government’s figures. About a fifth of new US businesses close within a year and about half within five; after ten years roughly two-thirds have closed. The “90%” figure usually comes from studies of start-ups chasing venture capital, a small and unusually risky group, or it is simply repeated without a source.
Is the first year the hardest? It is the year with the most closures. After that, each year a business survives makes the next year a little more likely, because the businesses that were never going to work have mostly already closed.
Does keeping a job while starting help? It lowers the personal risk, because the founder is not living off savings. It can also slow the business down. Many founders start part-time and leave their job once the business pays a regular income, which keeps the odds of a personal financial disaster low while the business proves itself.
In One Life
A business in One Life is a chain of decisions, not a single roll. “Do you start a business?” is one of the game’s Life Questions: it can come up when a life has the savings, the skills or the restlessness for it. If you say yes, the game asks what you put in, whether you keep your job while you start, and later, “Do you expand or sell?” If the business fails, a third question can follow: “Do you try again after failure?”
The odds behind each step start from real survival rates like the ones above and are moved by the life you have lived: what you saved, what you know, how much stress you are carrying and who is standing next to you. The game never tells you a business will work. It tells you what the odds were, and shows you what the attempt did to the rest of the life.