Choosing the Right Industry Matters

Picking the right sector or industry is important to being successful in business because there are considerable differences across industry sectors in business failure rates. Below is Figure 7.1 (p.113) from my book Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By. The data come from an article by Amy Knaup in Monthly Labor Review and look at the 1998 cohort of new businesses.Source: Adapted from Knaup, A. 2005. Survival and longevity in business employment dynamics data. Monthly Labor Review, May: 50-56.

The data show that the four-year survival rate in the information sector is only 38 percent, but is 55 percent in the education and health services sector. That is, the average start-up in education and health sector is 50 percent more likely than the average start-up in the information sector to live four years. That’s a huge difference.

Moreover, most of the sector trajectories don’t cross; the sectors that have lower initial survival rates generally tend to continue with these lower survival rates every year.

In short, the sector of the economy in which you start your business has a huge effect on the odds that your company will still be around several years in the future.

Related posts by author:

• The Unspoken Problem of Franchising: Undesirable Industries
• Startup Failure Rates,The REAL Numbers

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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.