By: Scott A. Shane
As a professor of entrepreneurship, I am often asked about the survival rates of new businesses. Students, entrepreneurs, reporters and many other people want to know how many new businesses live and die.
Here are the facts: According to U.S. Census data, only 48.8 percent of the new establishments started between 1977 and 2000 were alive at age five.
The survival patterns are remarkably similar across different cohorts of start-ups. In the figure below, I have plotted the survival curves for the average of the 1977-1988 and the 1989-2000 cohorts of new establishments. Despite the remarkable differences in the United States economy over those two periods, the patterns are almost identical.
Source: created from data contained in the Longitudinal Business Database, U.S. Census. Five-year survival of the 1977-2000 cohorts of new establishments.Lately, a lot of people have also been asking me if businesses started during recessions are more or less likely to fail than businesses started during expansions. As you can see from the figure below, the answer is “neither.” New establishments started during both periods have the same five-year survival rates.
Source: created from data contained in the Longitudinal Business Database, U.S. Census. Five-year survival of the recession and expansion cohorts of new establishments, 1977-2000.With the caveat that the current recession might be different than the ones covered by the data, these numbers carry with them two messages:
1. Half of the businesses started in the United States live five years or less.
2. Starting in a recession won’t affect your business’s odds of survival.
