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The Truth About the 90% Failure Rate

One of the reasons we wanted to create Soup to Nuts is because we know that starting a business is really hard work, especially if you’re trying to do it on your own.  In fact, it’s so tough that lots of ideas don’t even get out of the starting blocks, and of those that do, plenty of them don’t make it past their first, second or third birthdays.

The truth is out there

What are the chances of making once you’ve taken the crazy decision that you’re going to go for it?  Well, like an episode of X Files, the truth is out there.. somewhere.  But until you can find the truth the internet is awash with opinions and pseudo-science to advise you on how to stay out of the 90% that fail.  You will be hard-pushed to find any statistical evidence or research that supports the 9 out of 10 startups bombing, but if you do find any, please let us know.

For some years now, most journalists have realised that this stat is something of an urban myth, a bit like the fact that we eat 8 spiders in our sleep, and have started to quote numbers like 70%, 80%, ‘three quarters’ of businesses fail.  Whatever the number, the consensus view tends to be that more startups fail than succeed.

The startup journey looks something like this...

Inception

It all starts with an idea, and how can you get going on it except by Starting up? don’t feel like everything has to be perfect right away, start cooking your ideas and exploring them from the start, that way you can grow and shape what your doing so that people really love it and it works for you.

Conception

Once you’ve started jumping on your idea the exciting ride begins as you start having conversations, gaining traction, perhaps your building a platform or making sales – this stage coincides with launching the brand or company

Grow

When you hit that sweet spot it’s time to leverage, scale up and grow, sometimes the hardest part about this phase is doing it fast enough and making all your time as effective as possible

Refine

So what are you going to do if it hasn’t worked out first time? Failure is a state of mind – use market misses as opportunities to refine, retarget, reclarify, research and test or decline moving forwards in the same direction – either way there are plenty of ways to save the day

 So how do we define failure?

It’s nigh on impossible to measure the number of startups that fail at ideas stage, but this is where the wisdom of serial entrepreneurs, VCs and investors may come into play and may at least be partly responsible for the anecdotally high failure rate which has become so widely quoted.

Once a company is registered it becomes slightly easier to track whether the company is still solvent at least.

According to the Office for National Statistics, the 5 year UK business survival rate for companies started in in 2009 was 41.7%. This varies by sector, with accommodation and food having the lowest survival rate at 33.4%.  In the US, the statistics are similar with 46.3% of companies started in 2009 still being in existence five years later.

However, this of course does not necessarily mean that the company is fully operational.  In the same vein, the closure of a company does not necessarily mean it was a failure.  The company may have been closed for reasons other than business failure per se.  There are many unknowns, but if you take the 5 year business survival as a proxy for failure then this would put the odds of success somewhere between 40% and 50%. 

We’ll take those odds, thank you

So what’s the knowledge we can take away with us from this statistical jungle? Keep your ears to the ground, feet on the floor and don’t stick your head in the sand – reach out if you need help in getting things right.

Statistic of One

When all is said and done, does it really matter which statistic you believe? We’d rather focus on doing everything we can to make sure you have the support you need to make it work.  Your startup can only have one of two outcomes

  • success
  • an opportunity to learn for your next startup

But then we’re typically optimistic entrepreneurs – can you tell?