The failure rate of businesses with employees can vary a great deal depending on their industry, economic conditions, management practices, and market dynamics. Unfortunately, statistics can be challenging to pinpoint precisely due to various definitions of “pitfalls” and the dynamic nature of entrepreneurship.
Grim chronicles: the statistics speak
Several studies and sources do offer insights into business survival rates and failure statistics. According to data from the US Bureau of Labor Statistics (BLS), about 20% of newly founded businesses fail during the first two years of operation. By the end of the fifth year, roughly 50% of businesses no longer exist, and by the tenth year, approximately 70% have failed.
According to Statista, about 20% of new businesses fail during the first two years, 45% during the first five years, and 65% during the first ten years.
The Small Business Administration (SBA) provides statistics on business survival rates based on industry and size. Their data suggests that about half of all new enterprises survive five years or more, and about one-third survive ten years or more.
Finally, a study conducted by Harvard Business School found that about 75% of venture-backed startups fail.
Failure rates can vary significantly by industry. Some industries, such as food services and accommodation, have higher failure rates due to factors like high competition, low barriers to entry, and economic sensitivity. Others, such as finance and insurance, may have lower failure rates. What all industries have in common is challenges with individual performance, which are easy to overcome with a simple timecard calculator.
What percentage of businesses have employees?
There is a misconception that small businesses do not have a strong impact on the US job market. This couldn’t be farther from the truth. Most small businesses do not have employees – 80%, or four-fifths of the total. Still, small businesses have 61.6 million employees in total, which comprises just under 46% of the country’s workforce. This statistic is astounding, considering that fewer than a fifth of small businesses have staff.
16% or 5.4 million small businesses have from one to 19 employees. Small businesses with 20 to 499 employees are on the other end of the spectrum. Around 650,000 entities fall into this category.
Pitfalls and reasons businesses fail
Common reasons businesses with employees fail include lack of market demand, inadequate capital, poor management, fierce competition, regulatory challenges, and economic downturns. When it comes to staffing in particular, defining the team’s purpose is one of the most crucial aspects. Without a clear purpose, the employees will lack direction and get confused.
Lack of a clear purpose
Define the team’s purpose as early as possible and think through all of the potential objectives and goals. Consider both short-term and long-term objectives and targets when creating a plan for your employees. Be realistic about what you can achieve in a given amount of time. Setting overly ambitious targets or goals leads to frustration at best and failure at worst.
Planning doesn’t have to be excruciatingly painstaking. While the plan doesn’t need every single possible detail, it should have an executive summary and an analysis of each project or initiative’s potential opportunities and risks. The summary gives an overview of the employees’ goals, mission, and strategies.
Not considering cooperation and collaboration
Not considering how the employees will actually work together is another common mistake. It is important to identify responsibilities and roles. Establish who will be doing what clearly and who will be held accountable if something goes wrong. When hiring staff, making sure they understand their roles is critical. Each employee should know how their contribution will or won’t impact the company’s overall success.
Lack of a communication plan
When you start a business, you’re tempted to dive right in and start working on initiatives. Founders often overlook the communication plan. It should outline the decision-making process, how employees will communicate with each other, and who will be responsible for communicating with suppliers, customers, etc.
Poor or no understanding of one’s role in the company
Finally, each employee should comprehend their individual role at the company, especially what they will be held accountable for. Without this understanding, employees will start feeling disconnected from their work, and engagement will plummet.
