Startup Failure Rates,The REAL Numbers

There is a huge amount of misinformation on the Web about new business failure rates that gets cited and reproduced all over the place and that’s a problem for a host of reasons. Below is Figure 6.2 (p.99) from my book The Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By. The data come from a special tabulation by the Bureau of the Census produced for the Office of Advocacy of the U.S. Small Business Administration.

While these data look at the 1992 cohort of new single-establishment businesses, the failure rate percentages are almost identical for all the cohorts that researchers have looked at. So, these are pretty much the one through ten year survival rates of new firms.

These are the averages. There are considerable differences across industry sectors in business failure rates (see Figure 7.1 on page 113 of Illusions of Entrepreneurship), which is pretty interesting and important. But I’ll have to leave a discussion of what those are and why they exist for another blog post.

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Prof. Scott Shane is the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University and author of The Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By

Cross-posted from Anita Campbell's SmallBizTrends