Many businesses fail within their first year of launch and the reason may vary from one business to another. S,o therefore, knowing some key startup failure statistics can help founders increase their chances of success in the market.
According to 54Collective.com, about one in five startups will fail in the first year. Eventually, 90% will close shop. Even unicorns, startups that manage to reach stratospheric valuations, eventually go bust 99% of the time. And only 1% of startups are ever valued at $1 billion or more. Disruptive companies that threaten to take their industry by storm also have a ninety-plus percent failure rate.
Now, access to financing is a perennial problem for startups. A multi-year study that ended back in 2018 suggested that cash flow problems drove 82% of closures. The trend continues until today, with many studies naming funding as the number one problem for struggling startups.
Poor idealization or market research is also rampant, with studies showing this stage is often rushed or misconstrued. Finding a product-market fit takes 3X more time and effort than most founders estimate, and they overrate the value of their idea by 255% on average.
Here are other interesting stats to keep in mind:
- 30% of startups fail within three years.
- 50% don’t make it past five years.
- 70% close down in 10 years.
- Only 40% manage to turn a profit.
- Those profitable ventures belong to only 8% of entrepreneurs or 1 out of 12.
- A third of startups don’t have up to $5000 in cash at their disposal at launch.
- However, launching usually requires about $3000.
- One of the most significant expenses is payroll cost.
- Of the 0.05% of startups that manage to secure venture backing, 75% fail and swallow up their investor’s funds.
- Success rates increase with experience – first-time founders make it just 18% of the time, while second-time and beyond see greater success.
The grim reality of startup failure stands bare. A staggering 90% of startups don’t survive past a decade. Even being a unicorn or disruptor doesn’t exempt a startup from high risks of failure. Founders often underrate or miscalculate the risks, blindsided by their own theories and oversight in certain sensitive areas.
