We read about wildly successful startups and unicorns 1startups valued at over $1 billion all the time.
But while launching a successful startup seems deceptively easy, that’s really not the case, especially nowadays.
The thing is:
These figures beg the question:
What percentage of startups fail?
We’ve collected all the latest facts and statistics to provide you with a comprehensive answer.
But before digging deep into every interesting stat, let’s have a look at some important figures first.
And now that I’ve whetted your appetite, let’s explore the most important new trends.
What does the global startup scene look like?
Here are the key recent developments that help explain what percentage of startups fail in 2020 and beyond.
What percentage of startups become successful? Only 1 in 10 survive in the long run.
To make matters even worse:
The failure rate progressively increases over time. You might think you’re in the clear if your small business has been around for a couple of years, but the Bureau of Labor Statistics (BLS) shows that’s not the case.
(Source: Small Business Trends)
Crippling cash flow issues also affect a startup’s profitability. As a result, over half of all startups operate at a loss.
But there’s a light at the end of the tunnel:
Having a co-founder will significantly increase your chances of success.
In case you were wondering:
“Is the European startup scene better than the North American one?”, you now have your answer.
Clearly not. The failure rate of novice European entrepreneurs, in particular, is quite alarming.
In addition, the latest figures show convincingly North America remains a better breeding ground for startups.
But not everyone agrees.
Most failed startups tend to have several things in common:
First, insufficient competence can result in emotional pricing and a lack of planning.
Second, inexperienced founders often buy the wrong inventory or make bad decisions.
Third, poor advice from friends and family, in addition to family commitments, piles on the considerable pressure of running your own company and impacts what percentage of business startups fail.
But what factors lead to success?
(Source: Preferred CFO)
Most startups fail due to money-related issues. Sound financial planning is absolutely crucial when running a business. However, many entrepreneurs underestimate the potential difficulties. The volume and timing of sales are particularly difficult to project, which can cause significant cash flow problems down the road.
As bright as Latin American startups’ prospects are, it’s not all smooth sailing, as the high percentage of startups that fail at the first hurdle demonstrates. The possibility of failure is all too real, especially early on.
Strapped for cash as they are, some national governments across the region are unable to offer adequate assistance and infrastructure.
Still, a majority of Latin American residents believe starting your own business is a good career choice.
Failure rates vary significantly across various industries. Plumbing, construction, and local trucking have the lowest success rate of startups. The mining and manufacturing industries are especially challenging, as is, perhaps somewhat surprisingly, the information industry.
Here’s the key takeaway:
The finance insurance industry offers the best chance to launch a successful startup.
You might think you’ve come up with the most amazing product in the world, but if nobody wants to buy it, you’re left in the lurch.
Here’s the thing:
A sound understanding of the market and your target audience is indispensable.
And if you’re not sure about all the ins-and-outs of your chosen niche, you should hire a seasoned professional to help guide your new venture.
You should also pay special attention to the peculiarity of each region’s startup scene.
North Americans are famous for their entrepreneurial spirit and can-do attitude. So, how does that affect what percentage of startups fail in the region?
What percentage of American startups fail? While the vast majority go under, successful ones have enjoyed robust growth. Venture capital investment has also grown in recent years.
It still amounts to a tiny percent of overall startup funding, especially during the crucial launch phase. The main problem, though, is that three-quarters of venture-backed startups go bust.
It may come as a bit of a surprise, but startups are massively popular in Latin America and the Caribbean.
The region’s largest and most populous country, Brazil, is also the most entrepreneurial country in the world, with 13.8% of the adult population engaged in various business enterprises. It also boasts the most successful startup south of the Rio Grande. These are some truly impressive startup success rate statistics.
(Source: Startup Heatmap Europe)
How about that? More than half of startup owners in Europe are not tempted by the lucrative North American startup market, even though most are aware of what is the percentage of first-time startups that fail on the Old Continent. They’re not afraid to fail, either, as a safe majority would have no qualms about giving it another go.
Access to the world’s largest market and a talent pool to match are significant reasons to feel confident about the future. No less an authority than Forbes has suggested that the future of startups lies in Europe.
(Source: People Per Hour)
Canada offers particularly fertile ground for startups. Not only does it boast one of the most livable cities in the world in Vancouver, but the British Columbia metropolis is also the perfect location to launch a startup.
And it’s not just Vancouver. The startup scene in Toronto has flourished in recent years as well.
Forget about Silicon Valley:
North of the border is where it’s at.
(Source: Small Business Trends)
Can we create a profile of the typical US startup owner?
A middle-aged, middle-class, white male working from home.
Contrary to what Hollywood will have you believe, your average startup owner doesn’t resemble Mark Zuckerberg.
Here’s the deal:
Experience counts. It also leads to a lower entrepreneur failure rate.
India is one of the fastest-growing economies in the world. It is projected to average astonishing annual GDP growth of 7.7% between 2021 and 2024. So, let’s see how the red-hot economy affects startups on the sub-continent.
The Indian government is serious about its commitment to startups3defined as entities aged seven or less and headquartered in India, which have an annual turnover of no more than INR 250 million and protection from hackers.
The Startup India initiative, which the government’s Department of Industrial Policy and Promotion launched in 2016, aims to support entrepreneurs and create a robust startup ecosystem.
And up to half of India’s 1.3 billion people are considering taking advantage of the government initiative and launching their own startup! Smashing stuff!
We began this exploration of startup failure rate around the world with some pretty depressing statistics.
There’s no point in sugar-coating it:
Yes, the vast majority of startups fail.
Yes, three-quarters of venture-backed startups fail.
Yes, less than half of startups turn a profit.
Yes, yes, yes…
But that’s not the whole truth:
The entrepreneurial spirit remains very much alive and kicking not only in its traditional North American and Western European heartlands but in developing economies in Latin America and India as well.
Latin America and India are among the most entrepreneurial regions globally!
And now that you know what percentage of startups fail and why, you too can feel at least a bit more positive about setting out on an exciting quest for your very own billion-dollar unicorn.
After all, the journey is half the fun. I’ll see you there.