Startup Failure Statistics 2022
Technology has boosted the variety of startups that each year are trying to take on market leaders in the pursuit of being the next big player on the block. However, it is not easy to transition from a startup to a company with millions in annual revenue and hundreds of employees.
On this page, we will highlight the startup failure statistics that showcase the difficulty of starting a new business. You will get an idea of how many startups fail and the common problems that lead to those unfortunate circumstances. Also, read until the end for answers to commonly asked questions about why startups fail.
Top 10 Why Startups Fail Statistics and Facts for 2022
90% of all startups fail eventually
Most startups begin with less than $5,000 in the bank
70% of startups in the United States are launched from home
A quarter of startups do not get the funding they were seeking
Cash flow problems lead to the downfall of 82% of startups
63% of all startup failures are in the IT industry
75% of venture capital invested startups fail
79% of startups begin with insufficient funds
Only 40% of startups are profitable
Half of all European startups fail during the first 3 years
General Why Startups Fail Statistics
In this section, we will share a few of the general stats why startups fail to give you the lay of the land. These interesting stats can help uncover a few trends that new business owners can expect when launching their own startup.
Around 90% of all startups fail
This is arguably the most daunting statics that indicates the difficulty of succeeding with a new startup. However, these statistics reflect the success rate of startups in the long run. They might be successful for a few years before market conditions or other circumstances pose challenges too difficult to overcome.
Some businesses might launch several startups during their career before they have a successful one for the long term.
Around 40% of startups are profitable
On the surface, a business might look successful, but in reality, it takes a lot of work for functional companies to become profitable. It can take years of business growth and generating new customers before profitably enters the equation.
Startups that want to improve their odds of success need to reinvest all the money they generate back into the business. This helps with improving the necessary infrastructure to facilitate growth.
Around a third of startups have lower than $5,000 to begin with
The low starting funds are a big reason why many businesses fail. They do not anticipate the required amount of money that it will take to have a healthy cash flow. Eventually, startups run out of money and they have to shut down until more money is secured.
Additionally, 58% of businesses start off with less than $25,000 in the bank. Lack of funds can be managed if the expenses are kept low, but that does not facilitate fast growth.
Source: Small Business Trends
80% of Indians feel that starting a business in their local area presents a good opportunity
This statistic highlights that Indians are orientated towards local-based businesses instead of digital ones that open up the market to larger areas. Indian startups have raised $42 billion in 2021 and the country is expected to have a GDP growth of 7.7% between 2021 and 2024.
Therefore, India is a booming economy where a lot of new businesses are spearheading the growth. As of Jan 2022, there are 83 unicorns in India with a total valuation of $277.8 billion.
Around 70% of US-based startups are launched from home
The internet has made it easier than ever before for anyone to start a business from home. You can store products in the garage and handle all sales online. However, the large percentage of home-based businesses indicates the lack of professionalism among new business owners.
The high percentage of startup failures is a result of insufficient business experience to navigate the choppy water of the first few years.
Source: Small Business Trends
Business founders require 2-3x more time than they originally expected to validate their business idea
Validating a business idea involves showing that it can be profitable and meets market demand. However, new business owners underestimate the amount of work and time that is required to validate ideas.
Longer track history and larger sales volumes are an important part of validation. However, these cannot be rushed, which means business growth is slower than most entrepreneurs anticipate.
66% of small businesses outsource tasks to other small businesses
It is important for the new business to cut costs and outsourcing tasks is one way of getting the most bang for the buck. However, bigger firms might charge more, while smaller businesses could offer better value.
This means that many small businesses outsource jobs from each other in the pursuit of growth. Outsourcing is easier for small businesses because they do not have to commit to employees that are more expensive to maintain.
The share of small business owners that work overtime is 81%
This statistic indicates that it takes a lot of work to launch and maintain a business. Many business owners need to work overtime for years to ensure the long-term success of their venture. That’s because they fill many roles until they have the funds to hire more employees or outsource the work.
82% of startups are self-funded
This indicates that most entrepreneurs struggle to secure outside funding to grow their startup. Many new business owners may spend years saving funds to launch their idea and realize that they need more money to sustain growth.
However, the number of business funding sources is increasing, which means that entrepreneurs can increase their chances of success. The best way to secure funding is to showcase an idea that is profitable and meets the market needs.
Source: Small Biz Trends
25% of businesses did not secure the funding they were looking for
The inability of so many startups to not get the funding they needed is a large contributor to the overall failure rates. It means that businesses need to make ends meet by cutting costs and potentially reducing the quality of the end product. This can lead to a downward spiral of getting bad reviews and less business.
Securing funding is a business skill that requires practice. Knowing where to look for funding and how to ask is part of the puzzle. The business must also have a good risk profile to be worth the investment for banks and venture capitalists.
European Startup Failure Statistics
Now let’s turn our attention to the statistics that highlight the startup failure rates in Europe. These might provide insight into the differences between Europe, the United States, and the rest of the world.
In Europe, 50% of startups fail during the first 3 years
Half of all startups in Europe failing is a sign of the difficulty facing business owners. The rise in inflation and higher fuel prices will surely increase the problem of starting a new business and making it successful in the long term.
The first few years of a company are traditionally the phase where businesses fail. If they can make it to year 5, then the chances of long-term success are much higher.
A survey taken in Jan 2020 shows that 65% of people in the UK want to start a business
With around two-thirds of the population wanting to start their own business, it highlights the cultural shift from just a few decades ago. In previous years the traditional road to success was to get in with a good company and climb the corporate ladder.
Nowadays, starting your own business is arguably the best road to success for many people. This could be fueling the high startup failure rates since not everyone is equipped to create a successful business.
Source: Micro Biz Mag
The rate of first time Europeans that fail is 82%
The large number of first-time startup business owners that fail is unsurprising. A lot of trial and error is required before mistakes are ironed out. Typically, the first few businesses a new entrepreneur launches provide the function of learning the ropes. Each mistake made is an opportunity to learn, which can be avoided in the future.
The failure rate of business owners that launch their 4th and 5th companies will be much lower. This highlights the importance of practice and understanding what can go wrong.
$100 Billion worth of capital was poured into 98 new European startups
This statistic indicates that a lot of investment is happening in European startups. This facilitates growth and reduces the odds of them going under during the first few years. The investment allows mistakes to be masked since adding money to the equation reduces the chances of them going bust.
However, pouring money into a business model that is not successful will not work. Solid business practices are required for long-term success regardless of how much backing is provided.
Source: State of European Tech
Statistics on the Reasons Why Startups Fail
This section provides a few statistics that indicate why startups are likely to fail. These provide a clear picture of the problems that business owners need to avoid so they can increase their chances of success.
Cash flow problems lead to 82% of business failures
It is unsurprising that cash flow is the number 1 reason why startups fail. After all, when the money runs out is when businesses need to declare bankruptcy and close the doors. In reality, the problems that lead to a lack of cash flow might provide a clearer picture of why the startup has failed.
It might be because of a lack of sales, outdated products, or poor brand image. Digging deeper into the numbers also helps businesses to figure out why they have failed and what amends they can make in the future.
79% of businesses that fail have started out with insufficient funds
Most business owners feel that they did not have enough money to launch a successful business. For new business owners, getting hands-on money may feel like it is the biggest hurdle to success.
The top sources of funding include savings, bank loans, and investments from loved ones. Also, investment groups may provide funding for a share of the company. Usually, to secure funding the business must provide proof of concept and profitability.
Source: Preferred CFO
Lack of a market leads to many startup failures
Business owners believe that the product or service they are providing will be in-demand. However, market research is required to figure out the specific products that customers want to buy. Otherwise, you are leaving it to luck and that is no way to run a business.
To reduce the startup failure rate, business owners need to figure out what market they are getting into and if there is a gap. It might take tinkering with the product to offer something that people will buy in hordes.
Startup Failure Rates and Statistics
Now we will explore the startup failure rates for various industries. This will help you understand the chances of business success in different marketplaces. The differences in the startup failure rates between industries can provide insight into what factors can improve the chances of success.
The information industry has the highest startup failure rate at 63%
The speed of development in the information industry is transforming the world. There are a lot of opportunities for entrepreneurs to provide new technologies and meet the constantly changing needs of modern businesses.
However, navigating uncharted waters is resulting in a high failure rate. As businesses compete in the same markets, many fail to attract enough customers to grow. Also, some businesses become obsolete within a few years of launching because the technology is developing so fast.
In the second place, the construction industry has a failure rate of 53%
The high failure rate of the construction industry is partly due to the lack of maintaining a healthy amount of capital. Projects can become delayed or require more money than initially projected. This leads to large negative balances that eventually cause a business to collapse.
Startup Success Statistics
To balance the failure statistics on this page, let’s take a peek at a few stats that highlight startup successes. This can provide a balanced overview of why startups fail and how they can avoid being forced to close their doors.
The biggest number of startup searches occurred in 2020
This indicates that many people were interested in learning more about how to start a new business in 2020. Since the start of the pandemic people may have put off the idea of investing in a new business to reduce the risks.
Overall, 35% of people either do not want to start their own business or are unsure. This means the majority of people would like to create something of their own given the opportunity.
Source: Micro Biz Mag
There are 1,000 unicorn companies in the world
Unicorns are another term for successful startups that have reached a valuation of $1 billion. Compare this to 2013 stats where only 39 companies in the world could be classed as unicorns. Also, according to Statista, there will be more unicorns in the coming years.
The rise in inflation has something to do with more companies hitting the $1 billion mark. However, it does show that more companies are getting bigger than just a decade ago.
Source: CB Insights
32 Decacorns exist worldwide
Decacorns are successful startups that have received a valuation of $10 billion. Therefore, they are 10x bigger than unicorns. Technology-based companies are the ones in the best position to grow to valuations of above $10 billion. That’s because they have highly profitable models that are scalable.
Hectocorns are 10x bigger than Decacorns and they have a valuation of $100 billion. There are only 2 Hectocorns at the time of writing: SpaceX and Bytedance.
Source: Exploding Topics
5.4 million applications were filled in 2021 in the pursuit of launching a new business
The go-getting attitude of Americans means that millions of new business applications are being filled each year. The growth of venture capital is allowing new businesses in the United States to enjoy strong support.
The global venture capital market was worth $211.3 billion in 2021 and most of those funds go towards early-stage funding for global startups.
75% of venture-backed startups fail
This statistic indicates that having venture capital does not immunize businesses from failure, but it does increase the chances of success. The 75% failure rate compared with the 90% one indicates that venture capital has a positive effect on the chances of success.
Money is one factor, but some venture capitalists might provide expert advice or a support network for new business owners. This offers a competitive edge compared to other startups.
Bottom Line on Startup Failure Statistics
Overall, the statistics above indicate that many startups fail because they don’t secure funding, do not anticipate the amount of time required for proof of concept, and have cash flow problems. Money is the fuel that makes a business go and even grow. New business owners underestimate the effort required to launch a successful business and do not analyze the market correctly.
However, the number of opportunities to secure funding is growing. Venture capital firms are pouring billions of dollars into businesses worldwide. Therefore, startups have the opportunity to grow quickly with the right presentation.
What is classed as a startup failure?
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