A lot of IHers have shared in this community their projects and personal failure stories. While there is a lot of positivity and enthusiasm across IH, in the end, most projects won’t do it and that’s not something entrepreneurs should fear/feel ashamed of.
Failure in businesses/startups has become a more present topic in social networks and communities of entrepreneurs, with people being more open to sharing their mistakes.
The well-known @levelsio has tweeted about failure a few times; Udemy’s co-founder @gaganbiyani has recently made a viral Twitter thread sharing the behind scenes of his food startup Sprig; and Baremtrics’ founder @Shpigford has even created a massive Gsheet showing all of his 59 projects, most of which (+60%) had shut down.
All this has motivated us on Failory to carry out a research to find out the actual percentage of startups that fail. I thought some of you could find it useful ;)
The best source around the failure of businesses (not startups, more on that below) comes from the Bureau of Labor:
20% failure rate until the end of the 1st year
30% failure rate until the end of the 2nd year
50% failure rate until the end of the 5th year
70% failure rate until the end of the 10th year
Not all businesses are startups. For this research, we considered startups those businesses which had these two characteristics:
A design agency is a business. You’ll probably be delivering similar services other design agencies do and, if you want to grow, you’ll have to hire more staff which will increase your costs at a similar rate your expenses will.
If you build a design-related SaaS, instead, you’ll probably be solving an issue in a new way and you won’t need to increase costs (actually yes, but not in the same proportion) to gain new clients and increase your revenues.
You can’t expect a 20% failure rate in you’re first year if you’re trying something completely new.
The regularly quoted number, whose source is the Startup Genome project, is that 9 out of 10 startups fail.
With “scale-ups” we refer to those startups in the growth-stage. These have already gone through the early stages, so they have generally validated their businesses and have found their product-market fit.
It’s reasonable to think, then, that their failure rates will be much lower. Harvard Business School lecturer Shikhar Ghosh, on this article on WSJ, shares that 75% of venture-backed startups (which are 0.05% of all the startups) never return cash to investors.
When we investigated on YCombinator, we found out a shocking lower failure rate: 20%. Over the last 15 years, they have invested in more than 2200 companies and it seems like only 400 are officially inactive.
Would love to hear your thoughts on these numbers and talk further about startup failure down in the comments.
If you want to read the full research, you can find it here. It also includes some investigation on the industries with higher failure rates, the most common causes of failure (spoiler: lack of product-market fit is the main one), and the implications these rates have on entrepreneurs & investors.