Small Business Success Rates: Demystifying the Numbers

In this article, we cover:

• Demystifying small business success rates by popular industries
• Factors to establishing a business that survives

Entrepreneurship is critical to the U.S. economy. To understand its health, the Bureau of Labor Statistics keeps a pulse on labor market data. For example, it tracks business success rates by industry. This publicly available information is critical to understand and it can give startups an edge. We break down business success rates for several industries, walk you through how to find and analyze the data, and discuss ways to create a successful business so you are not one of the businesses that will eventually fail (spoiler, many do).

Small business success rates by popular industries

The U.S. Bureau of Labor Statistics (the source of the following graphs in the article) has been tracking small business success rates by industry since the early 90s. This data reveals trends that tell us that a lot of businesses inevitably fail. This harsh reality should not dissuade entrepreneurs from starting a small business. However, it should be seen as motivation to start a business the right way, which we dive into later in this article.

To give you a general sense of small business success rates, let’s jump into the numbers for the following industries: healthcare, real estate, transportation and warehousing, Professional, scientific, and technical services, and accommodation and food services. If these industries are not relevant to you, in the next section of the article, we share how to find small business success rates (and other data) for other industries that apply to your business.

All of the following data is pulled from the U.S. Bureau of Labor Statistics and looks at the success rates of five 2015 business cohorts:

Healthcare

In 2015, the Health Care and Social Assistance cohort had 112,747 businesses (i.e., net new businesses established that year). This chart shows how many businesses of the original 2015 cohort remain year over year through 2022. As of 2022, of the 112,747 Health Care and Social Assistance businesses established in 2015, only 49.2% remain in existence. After 7 years, less than half remain.

Real estate

In 2015, the Real estate and rental and leasing cohort had 24,027 businesses (i.e., net new businesses established that year). This chart shows how many businesses of the original 2015 cohort remain year over year through 2022. As of 2022, of the 24,027 Real estate and rental and leasing businesses established in 2015, 56.6% remain in existence. After 7 years, more than half remain.

Transportation and warehousing

In 2015, the Transportation and warehousing cohort had 18,443 businesses (i.e., net new businesses established that year). This chart shows how many businesses of the original 2015 cohort remain year over year through 2022. As of 2022, of the 18,443 Transportation and warehousing businesses established in 2015, only 46.8% remain in existence. After 7 years, less than half remain.

Professional, scientific, and technical services

In 2015, the Professional, scientific, and technical services (a consultancy as an example) cohort had 95,879 businesses (i.e., net new businesses established that year). This chart shows how many businesses of the original 2015 cohort remain year over year through 2022. As of 2022, of the 95,879 Professional, scientific, and technical services businesses established in 2015, only 43.2% remain in existence. After 7 years, less than half remain.

Accommodation and food services

In 2015, the Accommodation and food services cohort had 47,077 businesses (i.e., net new businesses established that year). This chart shows how many businesses of the original 2015 cohort remain year over year through 2022. As of 2022, of the 47,077 Accommodation and food services businesses established in 2015, 51.40% remain in existence. After 7 years, more than half remain.

Analyzing the Data

Keep in mind that the Bureau of Labor Statistics has success-rate data since 1994 and we reviewed a relatively small slice of data from 5 different 2015 business cohorts. With that said, the two industries where the majority of businesses succeeded and are still in business after 7 years are real estate and food, both essentials. You have to sleep somewhere and you have to eat.

This is the type of analysis that can be accomplished for those entrepreneurs looking to start a new small business and wondering what to do or where to start. In addition to business success rates, the Bureau of Labor Statistics also shares data on jobs gains and losses by establishment age, jobs gains and losses (as a percent of employment) by establishment age, Number of private sector establishments by age, Private sector employment by establishment age, and more.

How to find more data

As mentioned above, we reviewed a relatively small slice of data from the Bureau of Labor Statistics. By reviewing the Establishment age and survival BED data for nation by major industry data, you can review this type of data for additional industries dating back to 1994. A more historical view can help you understand the success rates of businesses in certain industries.

Even industries that appear to produce successful businesses when viewing data over a few years are challenged to produce successful businesses that survive for the long haul. Understanding success rates after the first year and after five years can be beneficial as well. Let’s take a second look at the Real estate and rental and leasing industry by diving deeper into the data:

• only 21.7% of the 2000 Real estate and rental and leasing cohort remains in existence today.
• only 35.1% of the 2010 Real estate and rental and leasing cohort remains in existence today.
• 2% of the 2017 Real estate and rental and leasing cohort remains in existence today.
• 7% of the 2021 Real estate and rental and leasing cohort remains in existence today.

Zooming in and out on the metrics helps to understand this industry even more and should also aid in decision-making. After five years, approximately 35% of businesses in this industry don’t exist anymore. After just one year, approximately 16% of businesses don’t exist anymore.

In the years following the financial crisis, not surprisingly, the Real estate and rental and leasing industry saw the lowest cohort numbers since data has been recorded. In 2010, only 19,358 businesses in this industry were started as opposed to 2006, right before the financial crisis, when the highest-ever number of businesses was started with 34,990. Demystifying the numbers can help entrepreneurs understand trends and why businesses can fail.

Many factors go into business failure. Whether it’s a pandemic, changing consumer tastes, government regulations, or a financial crisis, it is critical that small business owners do everything that they can to ensure their survival by preparing.

Key factors to establishing a business that survives

While future events are impossible to predict, there are many tactics to give your business a higher likelihood of success. Sometimes the difference between businesses that succeed and businesses that fail is the level of commitment and the level of due diligence in the following areas:

• Business goals: Establish your business goals beyond the thought of “I want to start a business”. Why do you want to start a business? Whether it is financial freedom, being your own boss, or making a lot of money, whatever your reason is, it’s important to have that clearly defined as you embark on your small business As the data tells us, not many businesses survive over the long term so you need to have a strong sense of purpose to keep you going.
• Business plan: Business plans are important because certain lenders will require one as part of the loan approval process. Having a comprehensive business plan can be a foundational asset for your business as it details the pathway for how to structure, run, and grow your business. It is a way for small business owners to think through key elements of running their business. Such as the market need you want to address and the new product or service you plan to bring to market to capitalize on the market need. Even if you don’t have an immediate need for a loan, you can still prepare a business plan so you can move quickly when you do need one. For more information on all the components of a business plan, read our comprehensive article on How to Write a Business Plan for a Loan Application.
• Marketing plan: there are a lot of variables when figuring out your marketing plan. Essentially, which marketing channels will you use to communicate with your customers and prospects? For example, there are several social media channels all with different audiences and use cases. Doing your due diligence here can set you up for success. If you have a business service, LinkedIn might be a good choice. If you have a restaurant, Instagram might be a good choice. There are many marketing tactics to consider such as an email newsletter, direct mail, blogging, and more.
• Business model: How does your business plan on making money? This is part of your business plan but important enough to call out here as well. Will you charge a subscription or offer volume-based pricing? Think through all the different pricing options for your products and services. Also, what methods of payment will you accept? For additional information, read our article titled How to Minimize Credit Card Machines Charges for Your Small Business.
• Cash flow: Cash flow is the money that comes in and goes out of a business and typically small business owners use cash flow to operate their business. Generating positive cash flow is the goal of every business owner. For a closer look at cash flow, review our article titled Smart Ways to Increase Cash Flow with Small Business Financing.
• Small business funding: there is an array of small business funding From small business loans to a business line of credit to business credit cards. Understanding all the funding options at your disposal is important. Having access to funding can help your business pay for everyday expenses to navigate through a recession. For new businesses, lenders will typically use the business owner’s credit profile for making approval decisions. Once the business has its credit profile established, lenders will then use that for approval decisions. Even if there is no immediate need for funding, it’s smart to build a strong credit profile for your business so it’s easier to get approved when the need arises.
• Right team: Choosing the right team to help you grow your business is key. You can’t be an expert in every possible aspect of business and as an entrepreneur, you likely don’t have time to execute everything that’s required. Figure out where you have gaps and bring in the right people to help plug them. Initially, this can be establishing partnerships with vendors and then bringing resources in-house when you have the cash flow to cover salaries.

Summary

The data tells us that many business initiatives fail over time. The bottom line is that businesses that are built for success and longevity are well-planned and thoroughly researched before being started. In addition, as we saw with real estate industry data, external factors play a role in the success rates of businesses. Planning for the inevitable unexpected event is another factor for success.

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