What percentage of startups fail? The odds of success

Brief overview of the startup ecosystem

Young businesses face tough competition and constantly navigate challenges like securing funding, building strong teams, and reaching the right audience. They cannot exist on their own at this stage. Each startup is a complex system where many parties interact. These are entrepreneurs who generate continuous innovation, investors who provide funding and mentors who share their experience and connect startups with partners. Some startups manage to thrive and disrupt entire industries, but others struggle to adapt to market demands or overcome operational hurdles.

How to succeed in this ecosystem? You must understand customer needs, refine pivot strategies, and stay resilient through setbacks. This environment is highly unpredictable, yet it remains a breeding ground for innovation and valuable lessons through both achievements and failures. It’s a space where big risks often lead to remarkable rewards - or equally important learning from failure.

Startup business failure rates and statistics

There are over 150 million startups in the world, and 50 million new businesses appear every year. However, only 1200 of them have achieved the “unicorn” status, meaning they are valued at over $1 billion.

Did you know? ByteDance, the parent company of TikTok, is the most successful unicorn startup today. Its valuation reached $225 billion. This impressive figure makes it the highest-valued startup globally.

What is really sad is the fate of 90% of ventures of the overall quantity – they simply die at different stages. It’s proved by the latest small business statistics:

• The 90% reality. Most startups just don’t make it. Making business is difficult for all entrepreneurs globally. So, they close down at different stages of their existence, and only 10% survive.
• Funding hurdles. Only 40% of startups that raise initial funds manage to secure Series A funding. Even with the first success, it is still hard to grow further. Moreover, out of this number, 35% will not gain investor confidence in the Series B round.
• No market fit. Nearly half of startups (42%) fail because they lack product-market fit.  Moreover, another 17% do not succeed because of a poor product, and an additional 13% close down due to the wrong timing of the offered product.
• Team challenges. Nearly 25% of startups fail because they don’t have the right people on the team. Building a group with the right mix of skills and vision is crucial for success​.
• Running out of cash. Around 38% of startups fail because they run out of money or cannot secure sufficient funding.
• Fierce competition. Nearly 20% of startups fail as they are much weaker than their competitors.

Did you know? The recession effect on startups is quite interesting. Startups launched during the 2007-2009 Great Recession demonstrated much stronger resilience in entrepreneurship than those started in booming economies.

Common startup reasons for failure

Let’s dig deeper into the above business closure statistics and review some business pivot case studies to understand why young companies are often doomed to fail:

• Lack of cash and financial mismanagement. This is a major reason for startup mortality rate. This can happen from poor budgeting, unexpected expenses, or overestimating revenue. For instance, Juicero burned millions on a product with little demand. To avoid this, startups need to carefully monitor expenses, plan for setbacks, and stay within their means. Regular financial reviews and sticking to a simple budget can help ensure long-term success.
• Lack of product-market fit. If there’s no real demand for your product, it will never succeed. Quibi, a streaming platform for short videos, raised billions but shut down because it failed to connect with viewers. Startups should prioritize customer problems. Testing ideas through iterative product development can save time and money before a scaling phase.
• Ineffective business model. A great idea won’t survive without a clear way to make money. Pets.com failed because its high costs and low margins didn’t work. Startups should ask tough questions early: How will we earn revenue? Are our costs sustainable? Successful businesses regularly tweak their models to meet changing markets and ensure profitability.
• A poor product. Startups that rush to launch often face backlash when their product doesn’t meet expectations. The Microsoft Zune couldn’t compete with the iPod due to its clunky design and limited features. Startups should focus on quality and listen to early users. A minimum viable product (MVP) can help gather feedback and test customer readiness to buy.
• Wrong people on a team. Strong team dynamics and leadership have their pros and cons. Too many contradictions can lead to failure. For example, WeWork struggled due to leadership issues. Startups must bring together diverse talents, maintain clear communication, and work toward a shared vision. Regular team evaluations can keep everyone on track.
• Competition. Competitors can quickly outshine inexperienced startups. MySpace, for example, lost to Facebook because it failed to innovate. Startups should study their competitors and find ways to stand out. You can offer a better service, a unique niche, or faster adaptability. Agile business strategies are key to staying afloat in a crowded market.

Stages of startup failure

A new business lifespan depends on the stages and lifecycle of startups. Here are the data from the Bureau of Labor with details on the most common issues young businesses fail to solve.

• 20% of startups fail by the end of their first year. In these early stages, many businesses struggle to establish a customer base, secure funding, and navigate the complexities of the market.
• 30% fail by the second year. By this point, companies often face cash flow problems, poor business strategies, or operation management difficulties.
• 50% fail by the fifth year. At this stage, many startups do not scale properly, fail to cope with increasing competition, or adapt to ever-changing market demands.
• 70% fail by the tenth year. As businesses mature, they face challenges. These usually include management and the ability to develop in accordance with market trends and customer expectations.

How to improve the survival rate of startups

Every founder can minimize their business startup failure rate. Here are some solutions and strategies for success.

• Test your idea early. Start with a simple version of your product (MVP). This helps you figure out if people actually want it before burdening investments.
• Track your cash. Precisely monitor your spending. Many startups fail because they run out of money, so always know where your funds are going.
• Find alternative funding. Consider bootstrapping and crowdfunding not to fully depend on venture capital finding challenges.
• Listen to your customers. Get feedback from your customers regularly and make improvements. This helps you keep your product in demand.
• Be ready to adapt. Have a flexible team that can quickly change direction if something isn’t working. Flexibility is key to surviving the challenges of starting a business.

These simple steps will greatly increase your chances to join those happy 10% entrepreneurial ventures that will survive and succeed.

Impact of economic and external factors

Global economic trends significantly influence the survival of startups. Inflation, recessions, and changes in consumer spending can make it harder for new businesses to survive. Moreover, economic downturns make it a struggle to find investors, and reduced market demand often forces startups to adjust or fail. Fintech and e-commerce are the most sensitive in this respect and experience higher failure rates in tough economic times. In challenging times, it’s crucial for businesses to be adaptable and craft strong startup survival strategies to overcome all the trials.

Conclusion