The most common reasons small businesses fail include a lack of capital or funding, the retention of an inadequate management team, a faulty infrastructure or business model, and failed marketing initiatives. It's often said that more than half of new businesses fail within the first year. Bureau of Labor Statistics (BLS), this is not necessarily true. BLS data shows that approximately 20% of new businesses fail during the first two years of opening, 45% during the first five years, and 65% during the first 10 years.
Only 25% of new businesses grow to be 15 years old or older. These statistics haven't changed much over time and have been fairly consistent since the 1990s. While the odds are better than you might think, there are still a lot of businesses that close every year in the United States. While the rate of business failure in the first two years is around 20%, it doesn't mean you have to fail.
Through research, planning, and flexibility, you can avoid many of the pitfalls of a new business and be part of the 25% that survive 15 years or more. However, from there, the figure drops sharply. Only about half of the small businesses that survive have passed the five-year mark, ranging from 45.4% to 51%, depending on the year the company was started. Beyond that, only one in three small businesses reaches the age of ten and lives to count it.
Identifying a need in the market before pulling the trigger is critical to small business success. You can have the best product in the industry, an efficient pricing structure and a huge budget, but if no one wants what you're selling, there's not much you can do to save what's destined to become a sinking ship. In many technology-related sectors, competition is intense and can often be the reason why a startup cannot maintain its profitability. However, competition spans all areas and can contribute to potential business failure, regardless of the sector.
Pricing is the last major reason for small business failure. Pricing can be difficult in some sectors, especially in the software sector and in various services, as there are often few or no points of reference for how much a company should charge. How can you maintain the supply of 200,000 liters of milk per week?.
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