Small Business Failure Statistics: How Many Small Business Fail and What Can You Learn From Them?
Updated: Feb 12
There’s a lot that small business owners can learn from the failures of other businesses, particularly when those businesses were very successful previous to their demise. While statistics aren’t always the final word (or number), they definitely help to paint a clearer picture of how businesses perform. If you’re looking to discover some of the main causes of business failure and how to avoid them, you’ve come to the right place. Keep reading for insights into business failure statistics, and more.
Small Business Failure Statistics
When speaking about business failure statistics, there are several angles to look at the topic. Are you interested in business failure statistics according to how long a business has been around? Maybe you’re interested in small business failure rate according to industry. Below, we provide small business success rate statistics according to both of those factors, and then dig into the causes of business failure.
Why do so many small businesses fail?
There are too many reasons for small business failure to list in one place, but there a number of reasons that small business fail which are reported more frequently than others. It should also be noted that business owners almost never attribute a failure to one factor; more often, there are several causes for a small business’s downfall. Here, we’ll touch on a few of the more common causes of small business failure.
Common causes of business failure:
No market demand
Not enough money
Lack of effective marketing
1. No market demand
It’s all good and dandy to be confident in the usefulness and attraction of your business’s product or service. But if there isn’t a real demand for what you’re selling, your business is bound to fail. In fact, 42% of failed businesses site this as the reason for their crash. The service may have an objectively positive impact on one part of a market, but if it’s too niche and doesn’t address a more widespread demand in that market, there simply won’t be enough people out there spending their cash on your concept.
What can be done?
Study the state of the market, research where the demand exists, and come up with a plan to fill an existing gap. Is there enough of a customer base? Is your product or service scalable (learn more about scaling up)? Is it profitable? The answer should be yes across the board.
2. Not enough money
In the last year alone, more than 44% of businesses that have applied for funding did so because they needed help meeting operational expenses. Add to that the fact that 29% of startups reportedly fail because of a lack of cash and it becomes clear that a shortage of money has a serious impact on small business failure rates.
What can be done?
Statistics illustrate just how hard for many small businesses to get approved for business loans. In recent years though, fantastic innovations have been made in the field of fintech. Those developments have opened up financial possibilities that were out of reach for small businesses just a few short years ago.
3. Lack of effective marketing
The days of spinning signs and sticking flyers underneath windshield wipers are gone (or at least one can hope!). While those are effective strategies to market a lemonade stand or a hotdog cart (not to knock either one of those), they’re not effective when it comes to marketing a business that you want to grow into a real money-maker.
What can be done?
First and foremost, any and every small business will want to incorporate social media marketing into their overall marketing strategy. That in-and-of-itself will help business owners avoid becoming part of small business failure rate statistics.