What Percentage of Businesses Fail in Their First Three Years?

From the U.S. Bureau of Labor Statistics, we collected data about the number of businesses in each industry that were born in 2021, 2022, and 2023, respectively, as well as how many of those businesses survived until 2024. This exercise by the LLC Attorney team aimed to determine the percentage of businesses that fail in each industry and which industries have the highest success rate.

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Business Survival Rates

Overall, approximately 81% of businesses survive their first year, with 70.5% lasting an additional year and 63% still existing after three years. This information may be reassuring to entrepreneurs who were misled by earlier studies. In 2013, Forbes reported that 8 out of 10 businesses fail within the first 18 months. However, the official data from the U.S. Bureau of Labor Statistics shows it is actually very close to the inverse of that!

What Percentage of Businesses Fail in the First Year?

All industries considered, about 19% of businesses do not survive their first year. The Information industry has the most businesses that fail in their first year, which is about 26%. Conversely, only about 14% of Accommodation and Food Industry businesses fail in their first year.

Businesses With the Highest Success Rate

The industry with the highest business success rate after three years is Agriculture, Forestry, Fishing, and Hunting. More than 72% of these businesses last more than three years, which is 9% more than the national average. The industry with the second-highest three-year new business survival rate is Arts, Entertainment, and Recreation. Over 69% of these businesses last more than three years, which is 6% more than the national average. The industry with the third-highest three-year survival rate of new businesses is Accommodation and Food Services. 68% of these companies last more than three years, which is 5% more than the national average.

Industries With the Lowest Business Success Rate

The industry with the lowest three-year business survival rate is, by far, the Information industry. Only about 54% of Information companies last three years. This is 9% less than the national average survival rate of new businesses. The second-riskiest industry in terms of businesses failing is the Transportation and Warehousing industry. Only about 57% of these businesses last more than three years, which is about 6% less than the national average. The third-riskiest industry in terms of businesses failing is the Administrative and Waste Services industry. Only about 58% of these businesses last more than three years, which is about 5% less than the national average.

New Business Survival Rate in Large Industries

We did not find a correlation between an industry's size and new businesses' projected survival rate. The biggest industry in terms of new businesses established each year is the Health Care and Social Assistance industry. Between 150,000 and 200,000 companies are established every year within this industry. Just over 63% of them survive more than three years, which aligns with the national average. The second-largest industry in terms of new businesses established each year is the Professional, Scientific, and Technical Services industry. The number of companies established annually in this industry falls within the 140,000 to 200,000 range. 58% of these businesses survive more than three years, which is a full 5% lower than the national average.

Meanwhile, Utilities is the smallest industry. Only 1000 to 2000 utility companies are established annually, and about 62% survive three years. This is 1% lower than the national average. The second-smallest industry is Mining, Quarrying, and Oil & Gas Extraction. Between 1600 and 2200 of these businesses are established annually, and 59% survive three years, 4% lower than the national average. The third-smallest industry is Agriculture, Forestry, Fishing, and Hunting. Between 6000 and 6500 of these businesses are established each year, and it is actually the most successful, with over 72% of them surviving three years.

Why Do Businesses Fail?

Stanford Law studied why businesses fail, reviewing 101 failed companies and ranking the most common challenges.

Market Expectations

One of the top reasons businesses fail is that there is an expectation for a larger market than what exists. For example, starting a new pizza place in a small town with half a dozen pizzerias may not be advisable. Those restaurants are successful, with each having a loyal customer base. It might be wiser to start a Mexican restaurant instead.

Insufficient Funding

The second most common reason businesses fail is that they do not receive enough funding for sustainable long-term success. Entrepreneurs may have enough to open the doors to the public but incorrectly predict how much revenue would be driven, and eventually, they run out of cash.

Not Hiring the Right People

Having a skilled team is essential for the success of a new company. This applies to employees in entry-level positions who lack adequate skills, as well as founders and managers who have excessive control or are unwilling to adapt to unexpected changes.

Some other reasons why a business might fail include:

• Not having a business plan
• Poor marketing
• Lack of innovation
• Prioritizing profits over customer satisfaction
• Not using valid data to aid with business decisions
• Having a location that is not ideal

Now that you know the truth about the businesses with the highest success rate, perhaps you are looking to start your company. LLC Attorney can help you establish an LLC or corporation in as little as five minutes, providing you with the expertise and guidance you need on the legal side so you can focus on turning your dream business into a reality.

The Percentage of Small Businesses That Survive Three Years (By Industry)