New Business Failure Rate an Urban Myth

For years and years, whenever I’d mention to someone that I’d like to start a business, I’d get quoted the infamous “80% of all businesses perish within 5 years” parable.

Well, that piece of “wisdom” never quite sat well with me… and now it seems it’s actually an urban myth!

Entrepreneur.com, in an article titled “Failure to Launch?“, reports:

…approximately half of all new businesses were still operating after four years. Headd and other researchers have had similar findings. “To my knowledge, none of them nor myself have run into a substantiated finding [showing] 9 out of 10 fail the first year,” Headd says.

So for some reason this urban myth has been passed on, year after year, person to person, discouraging people from entrepreneurship. The article sums it up quite nicely:

At any rate, it seems clear that some people simply want to believe that entrepreneurship is harder than it really is.

If I were a cynic I’d say that “The Man” has passed on this “wisdom” in order to stifle competition and keep the worker bees content… But I’m no cynic ;-) so I think this urban legend is probably just an expression of peoples’ fear of uncertainty.

So there you go folks. Yes, it’s not easy to start something, but it’s also not as hard as you think. My advice is then to get out there and just do it!

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4 comments
  1. Alain P said:

    I heard the same thing many times. It might nto be true for most business but I think it is for restaurants! If they arent part of a big chain that has done some business research, they often fails in less than a year, at least in my area!

  2. Gary Wainwright said:

    Two questions for you, did this revelation result in you ‘getting out there and doing it’ as you advise? Secondly, where do you get your information from, I can not find any statistics for business failures that include sole traders.

  3. Fred said:

    Gary: First, I had already started to “get out there and do it” before having the revelation, but it certainly wouldn’t have hurt to have known it in advance. :)

    Second, I linked to all the sources in my post; hopefully they’ll point you in the right direction. By the way, what is a “sole trader”? D you mean sole proprietor perhaps?

  4. It certainly applies to restaurants. How to end up with a million dollars in only twelve months? Start with two million dollars and open a restaurant.

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