Startup Failure Statistics: Why Do They Fail? (2024)

Avatar photo
by Team
Last updated: April 14th, 2024

Startups often take more risks, look to venture capitalists for funding, and plan to grow their business quickly. As a result, failure rates among startups are higher than those of small businesses.

Jump to

To extract meaning from startup failure statistics, it first becomes necessary to distinguish startups from other business ventures. What, exactly, makes a startup special as a business endeavor? According to Investopedia, a startup is a new business in the first phases of development.

That definition leaves room for interpretation, so let’s add a few more elements to craft a working definition that will help distinguish some of the key statistics.

While a startup may be in the early phases of development, it separates itself from a traditional new business in terms of funding and revenue. Startups typically get all or most of their funding from loans, investors, and seed funding They do not fund their efforts primarily through traditional revenue streams — like selling goods or services (although that typically remains a long-term business model).

Eventually, a startup aims to generate positive cash flow, but while the company is still in the “startup” phase, most of its money is not acquired through sales. This remains most pronounced for early-stage startups. By the time a company reaches the late stages, it might transition into a self-sustaining cash flow business model. That’s the most important defining factor, but a few more common trends emerge among startup ventures.

In most cases, startups focus on a single product or service. In this effort, they often innovate and even pioneer. In fact, many startups chase brand new markets — or they at least aim for major market disruption. One reason startups often rely on venture capital is that the startup phase includes a lot of research and development. Finding new and better ways to solve problems drives the philosophy of most startup endeavors.

The last common thread appeals to the idea of scalability. Most startups chase business models that can grow extremely rapidly.

Here’s an example. If you open a food truck, your sales are capped by how much food you can sell out of that truck in a day. There are clear physical limitations. If you make an app that helps people find really good food trucks, your sales are capped by the number of people who use your app. In the second example, your market potential is orders of magnitude larger from the start. Startups don’t have to chase scalability, but they often do.

Startups vs small businesses

With those definitions in place, we also have to cover the essentials of a small business.

Small businesses have a clear definition. Any business with fewer than 500 employees fits this category. As a result, the vast majority of startups are also small businesses, but there are millions of small businesses that do not fit the startup mold.

The underlying point is that statistical reports don’t always clarify which type of business is targeted in the data. In this article, startups and small businesses are not interchangeable.

Startup failure statistics 

Whether you’re running a business or are toying with an idea, it’s important to know your chances of success. Failed startups are common, but these statistics showcase just how hard it is for companies to survive beyond their first year.

90 percent of startups fail

To be specific, 90 percent of startups are defunct within 5 years of forming. Compare that to small businesses, where 70 percent fail within 10 years of opening.

More specifically, 10 percent of startups fail in the first year, and startup failure rates are highest for first-time founders.

75 percent of venture-backed startups fail

You might assume that venture-backed startups are less likely to fail. After all, venture capital firms are known for investing in innovative ideas. However, even companies with full bank accounts aren’t immune to failure. In fact, they fail at a higher rate than traditional businesses.

20.4% of small businesses fail in the first year

One in five businesses closes in the first year. While many factors contribute to a company’s downfall, lack of cash flow is usually one of them.

Once businesses make it past the first year, their odds of survival diminish. According to the U.S. Bureau and Labor Statistics, 31.1% of businesses launched in 2013 closed by their second year, 50.5% closed by their five-year mark, and 65.3% failed by the ten-year mark.

2022 saw the highest rate of first-year failures since 2008

The U.S. Bureau and Labor Statistics has startup statistics dating back to 1994. When you look at the failure rate of businesses in the first year, most years hover around 20%. However, 23.2% of owners who launched a business in 2022 failed by 2023. That’s the highest rate of first-year failures in 15 years.

In 2008, the failure rate of first-year businesses was 24.8%.

The average cost of launching a startup is $30,000

With such a small price tag, it’s easy to see why the startup model stays popular despite the failure rate. Low-overhead ventures are considerably easier to fund, allowing investors and entrepreneurs to explore many ideas — even radical ideas — at a high rate.

That’s why venture capital firms in Silicon Valley receive more than 1,000 proposals each year, and it’s why winning funding from those firms remains challenging, even when the proposal is cheap. Most firms report accepting 1 percent or fewer of the proposals they receive.

Interestingly enough, the leading reason startups cite for shuttering is a lack of funds.

All of this points to some simple conclusions. The low cost of entry allows for more risk in startup ventures. Even if launch costs are low, maintaining and growing the business quickly becomes too expensive for startup owners alone.

Two-thirds of startups never turn a profit

In stronger terms, two-thirds of startups never deliver a positive return for a single quarter in their existence. That same number fails to exit with a profitable valuation. Thus, the vast majority of startups create financial losses over their lifetime for all business owners.

A follow-up statistic reflects this fact. Roughly 56 percent of startups make fatal marketing mistakes. They may go out of business because they lack funds, but more often than not, these businesses lack funds due to poor marketing.

Even while they often generate revenue, they do not create enough value to self-sustain or to sell or merge in a profitable state.

Which industries are more prone to failure?

Starting a business is tough in any industry, but research suggests some sectors are more likely to fail within a ten-year period.

Research from the U.S. Bureau and Labor Statistics shows an average of 34.7% of businesses survive long enough to celebrate their ten-year anniversary. However, the survival rates of some industries are less than others. Here’s a look at five industries with the lowest 10-year survival rate.

  • Mining: Just 24.5% or a quarter of all mining businesses survive for 10 years.
  • Information Industries: 29.1% survive for 10 years.
  • Wholesale trade: 30.1% survive for 10 years.
  • Professional, scientific, and technical services: 30.9% survive for 10 years.
  • Management of companies and enterprises: 33%

Which industries are more likely to survive?

Using the same data from the U.S. Bureau and Labor Statistics, you can also see which businesses are more likely to stay open. Businesses focusing on agriculture, forestry, fishing, and hunting have the highest survival rate among those that opened in March 2013 over a ten-year span. The survival rate of this type of company hovered around 50%.

Here’s a closer look at the companies with the best survival rate. These top five industries have a 41-50% chance of surviving for a decade:

  • Agriculture, forestry, fishing, and hunting: 50.5% of businesses survived a full decade.
  • Utilities: 45.7% of businesses survived a full decade
  • Manufacturing: 43.6% of businesses survived a full decade
  • Real estate, rentals, and leasing: 42.4% of businesses survived a full decade
  • Retail trade: 41.7% of businesses survived a full decade

Which states have the highest business failure rate?

While first-time business owners are scattered throughout the U.S., certain states have a higher rate of business failure. By weighing factors like survival rates and average employment from the U.S. Bureau of Statistics, Trademark Engine was able to rank all 50 states to see which ones are more likely to see successful businesses versus failed businesses.

Top 5 states with the highest business failure rate

  • Missouri
  • Rhode Island
  • Kansas
  • Vermont
  • Wyoming

What’s behind the failure rate?

While it’s difficult to pinpoint a leading cause of business failure in any state, research shows that several states on this list, including Missouri and Kansas, see one out of five businesses close their doors in the first year. According to research and interviews with former business owners in these states, this early-stage failure rate stems from a lack of funding and support from the state.

Which states have the highest business survival rate?

Which states are at the top of the business-survival food chain? Research shows California takes first prize. The states with strong survival rates seem to be on either side of the coast, with two on the Pacific coast and the other three closer to the Atlantic Ocean.

Top 5 states with the highest business survival rate

  • California
  • Massachusetts
  • Pennsylvania
  • Washington
  • West Virginia

What’s behind the survival rate?

California, known for its high tax rates and rigorous regulations and environmental standards, might not spring to mind when you think of a business-friendly state, but 86.8% of its startup founders will still be in business after one year.

With its diverse customer population, strong state laws that aid companies, and a number of investors that reside in the innovative Silicon Valley, the Golden State boasts many business-aiding factors within its borders.

Massachusetts’s first-year survival rate for businesses is 81%. Massachusetts’s startup success is likely due to its educated workforce and economic incentives that encourage entrepreneurship.

Why do startups fail?

What is it that pushes a business to close? Is it one thing or a combination of many things? Research from CBInsights shows the biggest reason for a business to shutter is a lack of cash or their inability to raise enough capital.

Still, there are additional reasons beyond lack of funds, many of which are problems that stem from a lack of business planning. From failed marketing strategies or a lack of a target audience to production issues, poor product pricing, or sheer lack of business knowledge, here’s a look at the most common reasons a company fails:

  • 38%: Lack of funds
  • 35%: No market need
  • 20%: Got outcompeted
  • 19%: Flawed business model
  • 18%: Regulatory/legal challenges

Lack of funds

Startups often fail due to a lack of money or poor money management. From difficulties getting enough startup funding to not generating enough money to cover costs, many new businesses collapse from financial struggles.

Further research shows owners of failing companies aren’t keeping a close eye on their bottom line or are relying too heavily on credit cards. Many aren’t sure how much money they’re generating or spending, quickly leading to shortfalls and, eventually, the end of the business.

No market need

Some entrepreneurs get into the business without doing their due diligence. While you might assume you have a great idea for a product or service, if there’s no demand for it, your business fails before it starts. Market research is crucial to the planning stages of a business.

Got outcompeted

It’s not easy to enter an already saturated market, which is evident in the number of businesses closing because they simply can’t compete with larger, more experienced companies. Competitor research should be included in your planning stages and not overlooked.

Flawed business model

Sometimes, a business folds due to problems within. Lack of management, inadequate resources, poor product-market fit, or a weakly structured company can cause a business to close.

Regulatory/legal issues

A percentage of businesses aren’t able to thrive due to regulatory or legal issues. In some cases, these rules cripple the company to the point they aren’t able to continue.

Ask a hundred experts, and you will get a hundred different answers. Yet, we can identify an underlying trend that can help form startup strategies and aim for better success.

Poor planning

The idea covers a lot, but poor planning occurs when a startup does not have a clear revenue plan from the beginning. In almost every case, this manifests as some form of a poor product-market fit.

A great example comes from the failure of 99dresses. This company tried to create an online dress exchange so users could get low-price, second-hand dresses.

It failed because the business model overestimated revenue from exchange fees. Technical difficulties killed participation, and there were no alternative revenue sources to keep the company running while addressing technical challenges.

Failed marketing

No matter how good the product or service is, if you can’t reach customers, the business will collapse.

This was seen clearly in the case of Lieferoo UG. This Pakistani company tried to apply the Uber model to logistical services. While the concept worked, sales never took off, and the startup founders attribute it to poor marketing strategy.

Production issues

While you could chalk production issues up to poor planning, this represents a more specific issue. You might have a great idea and solid marketing, but unexpected production issues delay your launch, and the company never survives the delay to become a successful business.

The story of Zume makes this clear. The company was founded in 2015 and raised over $100 million over the course of its life. The goal was to create pizza-making robots that would revolutionize the industry. Zume was never able to mass-produce robots to the quality needed by their target audience, and it killed the business.

The most expensive business failures

Most of the statistics listed show how common it is for new startups to fail. Sometimes, that failure impacts only the owner; sometimes, it renders dozens of people out of work. Usually, a business failure coincides with a loss of money, but when a larger, venture-backed startup fails, a lot of money can be lost. Take a look at the three most expensive business failures, according to Statista, each ranked by the amount of money lost when the business went under.

Here’s a quick rundown of these companies with the highest failure rate:

Quibi ($1.75 billion) was a short-form video-sharing platform with big investments up front, but, ultimately, experts say the tech startup couldn’t keep subscribers happy, and it shut down after just six months.

LeSports ($1.7 billion) a sports streaming platform in China, started strong, but its rapid growth, lack of funds, and customer complaints are said to have caused its demise.

Katerra ($1.5 billion) planned to create prefabricated home-building materials that could be assembled into structures on-site. The company raised $2 billion in venture capital but filed for bankruptcy due to financial struggles.

This demonstrates the inherent risk in the startup model. Startups fail more often and much faster than other journeys through entrepreneurship, but the layers run deeper.

How do some startups succeed?

Startup success comes primarily in three ways: disrupting an industry, successful marketing, and/or an effective exit strategy. Let’s look at each one to see how they work, and remember that any combination of these three common reasons can lead to startup success.

Industry disruption

Industry disruption is a term that describes when a business has a new take on a product or service that has been around for a long time. It allows a new company to break into a competitive market and turn a profit, establishing a strong growth rate.

One of the best examples of a successful American startup is Uber. Taxi services have been around for hundreds of years, but Uber took the concept to a whole new level.

Uber was founded in 2009 and became the world’s most valuable startup in less than 10 years. That happened because the company innovated the idea of taxi services through the concept of ride-sharing. With a functioning app, you could get a ride quickly, even in cities around the world, for a competitive price. Uber made taxi services faster, easier, and cheaper.

For many, the Uber experience was superior to the traditional method. This is industry disruption.


Not every startup is going to revolutionize their industry. Plenty of startups focus on solving specific or a niche market need, but they can still improve their chances of success. In these cases, marketing often drives success.

With great marketing, a startup can generate profitable sales, again overcoming competition.

The case study for marketing stems from the story of Mint Mobile.

The successful startup opened its doors in 2015 in one of the most competitive industries imaginable: mobile services. By 2023, the company was generating more than $100 million in revenue each year.

Mint didn’t revolutionize cellular services. The company offers the same essential services as any other provider. Instead, a focus on cheap but effective marketing (such as through social media) helped lure customers away from established industry giants, and it worked.

Exit strategy

For a startup, an exit strategy usually means merging with another company or being acquired completely. One way or another, the goal of an exit strategy is to make money through mergers and acquisitions, regardless of how many years old the business might be.

A great example here is Mojang. If you have ever heard of Minecraft, this is the company that originally developed the game.

It was founded in 2009 by a single person, Markus Persson. As his project grew, he hired more people and expanded the team. In 2014, Microsoft purchased the whole company and its intellectual property for $2.5 billion.

That’s an extreme exit strategy, but it shows how a startup can make great money even if they never sell a single product (although Mojang did sell millions of accounts for Minecraft).


What are the signs of poor financial management that startups can look for?

If your cash flow runs low or if you can’t pay your bills, these are indicators that your business is in financial trouble. Monitor your financial health by tracking revenue and expenses regularly.

Do 90% of startups fail in the first year?

Yes. Stats show just 10% of startups survive their first year, leaving 90% to fail.

What do successful startups have in common?

Successful startups have founders who are passionate about an idea and have a strategic business plan in place. They’re focused on finances, building a solid ecosystem, and growing a company at a sensible pace.

How old are successful startup founders?

Research suggests a business’s success rate is best when the owner is 45 years old. While tech startup owners tend to be a bit younger, usually in their early 30s, small business owners with the intent to earn a living as business owners are generally in their mid-to-late 40s.

Do startups usually offer healthcare?

Some startups offer healthcare, but since many startups have fewer than 50 employees, business administration doesn’t usually offer healthcare to employees.

What marketing strategies do startups use?

When you first open, you may need to rely on DIY marketing efforts, like social media. Build a company page on platforms like LinkedIn, and set a monthly budget for marketing just as you would any business expense.

Why do people keep investing in startups?

Venture capitalists can afford some level of high-risk investment. Many firms are willing to see nine businesses fail in a row to get to one success. Because most startups chase scalability, that one success often pays for the nine business failures with room to spare.

Which industries see the most failure?

Tech startups easily see the highest failure rate. In fact, of all startup categories, the five with the worst success rates are all heavily tied to technology: Cryptocurrency mining, Information industries, Wholesale trade, Scientific and technical services, and Enterprise management.

Market research can help avoid failed startups in these areas. Not that fintech startups often fall within those industries, but healthcare startups see a slightly lower failure rate.

What are the stages of a startup?

Startups are usually divided into three stages: early stage, growth stage, and late stage. The early stage focuses on planning, while the growth stage is marked by securing funding. Movement into the late stage isn’t necessarily defined but is usually marked by revenue growth or employee expansion.

How do startups grow?

Growth usually comes from a combination of expanding sales and seeking external financial support, such as venture capital.

Can startups succeed without venture capital?

Yes. As long as the startup has a working business plan for the funds available, it is possible to succeed without any significant external startup funding.

Find out how to start an LLC in your state

Click on the state below to get started