Just about anyone can start a business.
Once you fill out a few forms, get the necessary permits or licenses, offer a legitimate product or service, and advertise it a little bit, it’s safe to say you’re a business owner.
Running a successful business, though, is an entirely different story. Several factors affect the success of a business that can be internal or external. In this article, we’ll share the latest data that you need to know before opening a small business, the main reason they fail, and a few pro tips on how to run and maintain a successful business.
Here’s a table of contents to help you navigate the important information you need to know:
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2021 Business Success and Failure Statistics
In the United States roughly 1 in every 12 businesses both new and old close each year. On the flip side, more than 4 million were opened in 2020 alone which is the biggest surge the US Census has reported in over a decade.
According to the U.S. Census Bureau, the overall number of business applications dropped in early 2020 as the Coronavirus pandemic emerged, then sharply increased mid-2020 and continued to rise (adjusting for seasonality) through Q1 of 2021.
But, the census data also shows the number of planned wages (WBA) and high-propensity (HBA) business applications is up nearly 45% in January of 2021 compared to December of 2020 — and that’s with seasonality factored in. That’s good news.
And even though the failure rate for new businesses is somewhere around half, with about 50% calling it quits after the first five years, it does mean that 50% are surviving past the five-year mark. The outlook depends on how you view the proverbial glass — half full or half empty.
Statistic 50 percent of new businesses survive past the five year markThe Bureau of Labor Statistics says that almost 80% of new businesses make it through their first 12 months. Although that might surprise you, it’s definitely a much better statistic to focus on.
The specific numbers change depending on the industry, so keep that in mind. Some industries, like healthcare and social assistance, have a much higher-than-average survival rate. Others, like construction and transportation, have rates that are lower.
Why Businesses Fail
There are, of course, a myriad of reasons why a business might fail. According to research, though, there are a few that are more common than others. This is the best way to improve customer experience.
If you build it, they will not come. The presence of a marketing strategy is one of the telltale signs of whether or not a business will make it. Marketing spans everything from finding customers to upselling them on new products and services later.
Poor customer service.
With new businesses popping up literally overnight, price and product aren’t enough to differentiate you from the competition. How you treat your customers is. Invest in training your customer service team (or yourself if you’re the only employee) on the best practices to delight your customers.
No plan for scaling.
People start businesses for many different reasons. Some want to make ends meet with a side gig, others want to replace their full-time job and be their own boss. Whatever your reason is, decide upfront whether you want your business to scale beyond just you as an employee. Sometimes, marketing is unpredictable. Businesses go viral for doing great work and aren’t prepared for the influx. Knowing in advance whether you’ll meet the moment or let it pass can save you from FOMO, or even having to close your business because you lacked the preparation needed to scale.
A great service or product will get you nowhere if there’s zero need for it. Due diligence and market research are essential in the early stages of starting a business. Determine who would buy the product, how often, and why. This helps you not only find your niche but adequately plan inventory and forecast sales, too.
No money: Launching and building a business is expensive. You need capital, investments, loans, and/or revenue to get you through the lean times. A detailed budget can help you keep track of revenue and expenses.