How Many New Businesses Fail – Many people dream of starting their own business, based on their own ideas and dreams. They try to escape workplace rules, politics, and all the internal chaos that might limit their growth.
No wonder those same people want total control over their time and goals. Starting your own business can sound overwhelming and complicated at first, but if you break down the process of how to start a business into steps, you just have to take the brave first step that will lead you on your entrepreneurial journey.
How Many New Businesses Fail
Whether it’s an e-commerce store or a brick-and-mortar business, understanding what’s going on in the small business world can help you better manage risks and opportunities.
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Whether you already own your own business or are planning to start a new one this year, these stats will help you find out what’s new and what you should expect. These statistics will help you understand what affects small businesses, how they operate, how they affect the economy, and more in detail.
The latest statistics show that there are 32.5 million small businesses in the United States, accounting for 99.9% of all U.S. businesses (SBA, 2021).
The Small Business Administration (SBA) defines a small business as a company with fewer than 500 employees. This means that many of the high-value startups in the U.S. fit this definition of a small business.
The definition of a small business varies around the world. In the EU, by contrast, any business with fewer than 50 employees is considered a small business. In Australia, companies with fewer than 15 employees are considered small businesses.
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Small business statistics show that most businesses in the United States have fewer than 500 employees. Breaking it down further, we found about 38 million businesses with fewer than 100 employees, and about 23 million businesses with fewer than 20 employees.
With so many small businesses in the United States, it’s no surprise that small businesses create the majority of jobs. According to the Small Business Administration, small businesses create 1.5 million jobs annually, accounting for 64% of new jobs in the United States (Fundera, 2019).
Statistics from the past year tell us that small businesses have been integral to America’s economy and growth. They offer employment opportunities, financial growth, and a range of unique products and services. So whether or not they become bigger companies, they contribute to economic growth.
More than 90% of the business population represents small and medium enterprises, also known as SMEs (SalesForce, 2019). As the latest statistics show, small companies are responsible for creating a large number of jobs.
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In recent years, SMEs have continued to create jobs. SMEs are also major players in fostering innovation. These contributions vary by company, industry and country. But better access to global markets, improved knowledge networks, and digitalization have played an important role in promoting the participation of SMEs in the global economy. All in all, SMEs make a significant contribution to global economic growth by providing employment, contributing to sustainable industrialization and fostering innovation.
There are many reasons why people might be motivated to start their own business. Among the most common motivations, 29% of respondents said they started their own business because they wanted to be their own boss (Guidant Financial, 2021).
The next most popular reason for starting your own business is dissatisfaction with corporate America. Seventeen percent of respondents chose this as their main motivation. Other common reasons include wanting to pursue your passion, opportunity, being inspired, and simply not wanting to retire.
Starting one’s own business means people are free to be not only their own bosses, but also their own time’s bosses. It gives you the freedom to make decisions and work how, when and where you want. There can be many reasons why people around the world decide to pursue this kind of financial freedom, but most of the top motivations have to do with getting out of their current jobs and becoming more independent in the way they work.
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Uncertainty is a major factor that’s really affecting small businesses, and that’s been especially true during the coronavirus pandemic.
According to the latest small business statistics, nearly one-third (31%) of small businesses in the United States are not currently operating (Facebook, 2020).
In March 2020, when the US became the new epicenter of the virus, more than 70% of US small businesses closed. Of those closed small businesses, more than 60 percent were due to orders from the government or health authorities as much of the country went into lockdown to curb the spread of the virus.
Some small business owners have taken steps to adapt to the new reality created by the coronavirus. Many of them have increased their online activities in an attempt to reach their customer base and keep their business alive by selling their products and services online.
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In fact, more than half (51%) say they have increased their interactions with customers via the internet. Additionally, 36% of individual businesses that use online tools are now doing all their sales online.
Looking ahead, 28% of these small business owners said cash flow will be their biggest challenge in the near future, followed by a lack of consumer demand.
Statistics tell us that the new generation of entrepreneurs are more likely to work part-time. In fact, millennials and Gen Z are 188% more likely to aim to create a side hustle than baby boomers or traditionalists (Salesforce, 2019).
Millennials and Gen Z are also 48 percent more likely than Baby Boomers to say they started a business because they are keen to bring ideas to market. Since you can start your own business with ease, the process becomes more comfortable for the new generation who want to be their own boss. Starting a business from the comfort of your home has become easier thanks to the rise of online marketplaces, low- or no-code, and outsourced development.
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One of the greatest fears of entrepreneurs is the risk of failure. This is not an unrealistic fear. In fact, the latest statistics show that more than 20% of small businesses fail in their first year, and nearly 50% of small start-ups fail within their first five years (Bureau of Labor Statistics, 2021).
Now, this statistic shouldn’t stop you from starting your own business. In fact, it should do the opposite. By understanding why and how most small businesses fail within their first year, you can develop a business strategy to overcome potential risks you may encounter. Of course, you can’t completely eliminate all risks, but it will help you better understand what you can do in different situations that may arise.
The main reason for the failure of new businesses is insufficient market demand. In fact, 42% of small businesses fail as a result (CB Insights, 2019). So if there’s one thing you should be sure of before starting your business, it’s the product you need to offer your customers.
The next most likely reason new businesses fail is that they run out of cash. According to a report, 29% of new businesses fail due to lack of funding. Other reasons why startups fail include not being able to find the right team to work with, being beaten by industry competitors, cost-related issues, and unfriendly products.
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Reflecting on why new businesses fail, it’s safe to say that it’s a combination of customer-centric reasons and a lack of resources, the building blocks of a successful business.
In the first few years of starting a new business, small companies have to face many challenges that limit their potential. One of the biggest challenges small businesses face is a poorly qualified workforce. In fact, 52% of respondents said that the most important issue for small businesses is workforce quality (CNBC, 2019). Small business owners say it’s hard to find qualified people to hire. For businesses with more than 50 employees, % of owners feel it is more difficult to find qualified employees.
In addition to this, small business owners face financial challenges. Since small companies don’t have the advantage of being backed by large amounts of capital, they often have a hard time figuring out how to manage their finances.
Social media is the number one choice for small business owners. In fact, 64% of small businesses surveyed use social media in their marketing strategy (The Manifest, 2019).
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The same study showed us that almost all small businesses advertise. In most cases, this advertising is through digital media
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