Web Design

Your content goes here. Edit or remove this text inline.

Logo Design

Your content goes here. Edit or remove this text inline.

Web Development

Your content goes here. Edit or remove this text inline.

White Labeling

Your content goes here. Edit or remove this text inline.


Are you thinking about starting your own small business? Well, you’re not the only one! According to Oberlo, the number of small businesses in the US has reached 32.5 million as of 2022.


If you’re considering starting a small business yourself, you may be wondering what your odds are of success. So in this blog post, we’ll talk about the percentage of businesses that went belly up within the first five years. For good measure, we’ll also discuss the factors that led to such failure, as well as the actions you can take for your business to avoid the same fate.

What Percentage Of Small Businesses Fail?

According to the US Bureau of Labor Statistics, approximately 20% of small businesses fail within the first year of its establishment, and only around 50% will remain standing after five years. The table they compiled even shows that this has been the case since 1994.


To get a glimpse of the bigger picture, let’s take a look at the data they compiled from March 2017 to March 2021:


As you can see, among the businesses that opened in March 2017, only 79.1% were left standing by March 2018. By 2019, only 86.7% of the survivors were still open (which is 68.6% of the total number of businesses that opened in 2017). And by March 2021, only around 55.5% were still up and running.


Thus, we can surmise that the percentage of businesses that fail within five years are as follows:

  • First Year: 20%
  • Second Year: 30%
  • Third Year: 40%
  • Fourth Year: 50%

Why Do New Small Businesses Fail?

So why do so many new businesses fail? There are lots of reasons, but some of the most common include lack of capital, poor management, competition, and inadequate marketing. Let’s take a closer look at these and other factors.

Lack of Planning

One of the most common reasons why small businesses fail is because they lack a well-thought-out plan. A business plan is essential for any new business, as it will help to guide your decision-making and ensure that you are on track to achieve your goals.

Insufficient Capital

Another common reason for small business failure is insufficient capital. Starting a new business can be expensive, and if you do not have enough money to cover all of your costs, it can quickly become difficult to keep your business afloat.

Poor Location

The location of your small business can also be a major factor in its success or failure. If you are located in an area with little foot traffic or few potential customers, it will be much harder to generate sales and make a profit.

Bad Marketing

Marketing is another important aspect of any successful business, but it is often overlooked by new small businesses. If you do not have a solid marketing strategy, it will be very difficult to let people know about your products or services and generate interest in your company.


Many small businesses are started by people who have no previous experience running their own company. While this is not necessarily a bad thing, it can make it more difficult to navigate the challenges that come with starting and running a business.

Poor Management

Another common issue that can lead to small business failure is poor management. If you do not have effective systems and processes in place to manage your employees, finances, and operations, it will be very difficult to keep your business organized and running smoothly.

Unsustainable Business Model

Many small businesses fail because their business model is simply not sustainable in the long-term. If your costs are too high or you are relying on too few customers, it will eventually become impossible to keep your business afloat.

Lack of Customer Service

Another important aspect of any successful business is good customer service. If your customers are unhappy with the products or services that you provide, they will likely take their business elsewhere.


Competition is yet another significant factor that can lead to small business failure. If there are already many businesses offering similar products or services in an area, it can be very difficult for a new business to establish itself and become successful. It is important for any new business to carefully research the competition before starting up in order to ensure that it has a chance of being successful.

Economic Downturns

Unfortunately, even the best-planned and managed businesses can sometimes fail due to factors beyond their control, such as economic downturns or recessions. During these times, consumer spending typically decreases, which can lead to decreased sales and profits for businesses across all industries

How to Prevent Your Small Business From Failing

No one wants their small business to fail, even if the statistics show that many do. And while there’s no guaranteed way to prevent your business from failing, there are things you can do to lower the risk.


So to help you out, below is a list of things you need to do to prevent your small business from failing. Follow these tips and you’ll be on your way to a successful launch!

Have a Detailed Business Plan

One of the most common reasons why businesses fail is because of a lack of a solid plan. Without a clear idea of what you want to achieve and how you’re going to get there, it’s very easy to get off track.


A detailed business plan can help prevent this by providing a roadmap for your business. It can help you stay focused and make sure that your business is heading in the right direction.


It can also help you raise money from investors, as they’ll be able to see that you have a well-thought-out plan in place. So even if you don’t have any intention of seeking investment, a business plan is still a valuable tool.

Know Your Target Market

Before you start a business, it’s important to do your research and identify your target market. This will help you determine what products or services to offer, how to price them, and how to reach your potential customers. Without this crucial step, your business is more likely to fail.


When you know your target market, you can also tailor your marketing efforts to appeal to them. This means you’ll know where to advertise, what type of messages to include, and which channels will be most effective. As an added bonus, you’ll be able to create a brand that resonates with your target customers, too.

Don’t Be Afraid To Spend Money On Marketing

Speaking of which, when starting a business, it’s important to think about how you’re going to market your product or service. Without effective marketing, your business is likely to fail.


There are a number of ways to promote your business. It’s important to choose the right mix of marketing tactics to reach your target audience.


In addition, marketing can be costly. However, there are a number of ways to save money on marketing, such as by using free or low-cost methods like social media marketing. With careful planning, you can create an effective marketing campaign that doesn’t break the bank.

Keep Your Overhead Costs Low

Anyone who has ever started a business knows that there are a lot of costs associated with getting the business off the ground. From the cost of renting office space to the cost of advertising and marketing, there are a lot of ways that businesses can quickly rack up expenses.


However, it’s important to keep your overhead costs low in order to increase your chances of success. That’s because the less money you have to spend on keeping your business running, the more money you will have available to reinvest in growing your business.


Additionally, by keeping your overhead costs low, you will be able to price your products or services more competitively, which can help you attract more customers. So if you’re looking to start a new business, be sure to keep an eye on your overhead costs.

Build a Strong Online Presence

For businesses in the 21st century, having a strong online presence is a must. In today’s interconnected world, more and more people are doing their shopping and business research online. If you’re not there, then you’re missing out on a huge potential customer base.


Furthermore, having a well-designed website and social media profile can help you to build trust with potential customers, as well as give them an idea of what your business is all about. Having a strong online presence can also help you to connect with other businesses and establish yourself as an industry leader.

Offer Something Unique

When starting a new business, it’s important to offer something unique that sets you apart from the competition. Without a unique selling proposition, your business is likely to fail.


There are many ways to create a unique selling proposition, but the most important thing is to focus on what makes your business special. Ask questions like “What do you offer that no one else does?” and “What can you do better than anyone else?”


Once you’ve identified your unique selling proposition, you need to make sure that it’s communicated clearly to potential customers. Only then will they be able to see why your business is worth their attention.

Assemble a Great Team

At the same time, it’s important to assemble a team of qualified and motivated individuals who will work together to help the business succeed. A good team can provide the skills, knowledge, and experience necessary to get the business off the ground, as well as the dedication and drive to see it through the tough times. Having a strong team in place from the beginning can make all the difference in whether a business succeeds or fails.


Of course, no team is perfect, and there will always be bumps in the road. But with a good team in your corner, you’ll have a much better chance of weathering the storms and emerging victorious. So if you’re serious about making your new business a success, start by assembling the best team possible.

Focus on Customer Service

When customers are unhappy with the service they receive, they’re likely to take their business elsewhere. By providing excellent customer service, you can help ensure that doesn’t happen, increasing your new business’ chance of success.


Now there are a few key things to keep in mind when it comes to providing great customer service. For example, make sure that your employees are properly trained and that they have the tools and resources they need to do their jobs well.


You should also always be responsive to customer feedback and complaints, and take action to resolve any issues. Finally, remember that customer service isn’t just about handling problems; it’s also about creating a positive experience for your customers from start to finish.

Be Willing to Change and Adapt

Every business owner knows that there is always room for improvement. Whether it’s finding new ways to attract customers or streamlining your operations, being willing to change and adapt is essential for any business to thrive.


That being said, this can be especially challenging for new businesses. Without a track record to fall back on, new business owners often have to rely on their own instincts to make decisions. This can be a recipe for disaster if you’re not open to change.


Being willing to listen to feedback and make changes accordingly can be the difference between a successful business and a failed one. So if you’re starting a new business, be sure to keep an open mind and be willing to change course if necessary.

Set Realistic Expectations

Finally, it’s important to set realistic expectations for your business. Otherwise, you’ll be setting yourself up for disappointment and your business could end up failing.


One of the most important things to keep in mind is that businesses take time to grow. They don’t usually become overnight successes. It’s important to be patient and to keep working hard even when you don’t see results right away.


Additionally, you need to be realistic about the amount of money you’ll need to start and run your business. Make sure you have enough savings or access to capital to cover all of your expenses. If you’re not prepared financially, your business is more likely to fail.

Take the Necessary Steps to Keep Your Business Up

Starting a new business can be scary, especially with the failure rates shown by the statistics above. By understanding why businesses fail in the first place and taking the right steps, you’ll be able to avoid being part of that 50%.

WHat Percentage of small businesses fail - SMBCompass.com - Infographic
By SMBCompass.com
A Step by Step Guide to Starting and Growing your HVAC Company

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!