Stunning Startup Failure Percentage
"If you intend to start a full-time, incorporated business, the odds that the business will survive at least eight years with you as the owner are better than one in four; and the odds of its surviving at least years with a new owner are another one in four. So the eight-year survival rate for incorporated startups is about 50%."
Source: Bygrave, William D., The Portable MBA in Entrepreneurship (New York: John Wiley & Sons, 1997), p.10.
This statement may come as a surprise to you if you've heard the statistic that four out of five businesses fail within the first five years. The reason the failure rate is so high with that statistic is that sole propietorships are included. Including sole propietorships pushes up the failure percentage because:
- Most businesses are sole propietorships.
- Sole propietorships are very easy to form and are mostly for small businesses that don't plan to grow large. As such, many of them may be part-time and not taken as seriously.
- The 80% failure rate doesn't take into account that many of the owners of sole propietorships may have left the business for one of many reasons, not including bankruptcy.
The new 50% failure rate statistic has incredible ramifications when choosing between an entrepreneurial career or a corporate one. What do you think the failure rates for a career inside of a large company are? I would be willing to wager it is pretty high because:
- Large businesses are laying off more people than they are hiring.
- A business hierarchy is structured as a pyramid. Therefore, as you get closer to the top, competition is more fierce.
- You take the risk of the company going bankrupt, the company being restructured, your division being discontinued, or you being fired for something you did or did not do (politics).
- If you leave a company, you get severance based on how long you've been working there. If you start a company and leave it, you either profit from its sale or you own a percentage of it that you can later sell.
Posted at October 26, 2003 05:04 PM
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