The Popular Belief “80% Startups Fail Within The First 18 Months” is a Complete Lie
According to GEM’s Global Report, a staggering 100 million businesses are launched globally, every year. However, it is believed that 80% of these startups fail within the first 18 months. This statistic takes the wind out of the glorified startup world’s sails.
The truth is that it’s not a truth. It’s a complete lie. The original study citing this statistic is not to be found throwing serious doubts on its verity. But, this belief gained notoriety due to its unwarranted exploitation by CEOs, investors, shark tanks, and business managers to discourage many budding entrepreneurs who are bubbling with great (or bad) ideas.
Then, there is another data from the US Census Bureau that reports 400,000 new businesses are started every year in the USA, but 470,000 are dying. Now, somewhere something is amiss. How can more businesses fail than businesses started? Even a child will be able to look at these numbers and pooh pooh the statistics.
According to the U.S. Bureau of Labor Statistics, about 50% of all new businesses survive 5 years or more, and about one-third survive 10-years or more.
Even David Birch, former head of a research firm specializing in studying small business data, has come to the same conclusions that 85% businesses survive the first year, 50% the next five years, and 35% the next ten years.
The chart below shows a more promising data that is collected from different countries.
Don’t all these above numbers show that the original statement is a proverbial lie?
One should understand that not all businesses when close shop, necessarily mean they fail. Businesses close for different reasons. Some businesses are reborn under another name while some businesses get closed because their entrepreneurs lose the vision and move onto another venture.
However, the truth remains that half of the startups still go belly up in the first five years. This just goes to show that entrepreneurship is not a cakewalk. It’s not that entrepreneurs are not passionate or neglect their dreams. But, there are many reasons including absence of market need, lack of funds, lack of a professional team, an absence of a profitable business model, inability to scale up at the right time, and more that stop these startups from reaching the pinnacle.
So while the popular belief that 80% startups fail within the first 18 months is a complete lie, there is still a small percentage that fails the first year, and subsequently. So entrepreneurs need to work on their dream and fuel it with passion and perseverance. Because with every year that a startup stays in business, it increases its chances to survive and succeed.
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