Belmont University

Success Rate Urban Myth Even Passed on by Academics

My friend Rhonda Abrams blogged last week about an interview she heard with a professor from a "distinguished university" (that may have been the problem right there):

I recently heard a professor from a distinguished university say on the radio that 90 percent of new businesses fail.

To me, that's like hearing fingernails scraping on a blackboard. I've looked at statistics of business births and deaths closely, and I know of no credible study showing anything close to a 90 percent failure rate.

She is correct.

Credible studies show success rates five years out (the normal time line for such studies) to be around 50% +/- 5%. And as I've said many times, smaller studies of those who have gotten trained and educated in the process of starting and growing a business find success rates as high as 80-90%.

This urban myth is perpetuated by the histrionic media who loves find evidence of doom and gloom even when it isn't real, and by ignorant and uninformed "experts" who are too lazy to do the research needed to find out the truth.

(Thanks to John Russell for passing this along).


Posted by Jeff Cornwall on October 23, 2006 08:10 AM |

Comments

Jeff,

Credible studies show success rates five years out (the normal time line for such studies) to be around 50% +/- 5%. And as I've said many times, smaller studies of those who have gotten trained and educated in the process of starting and growing a business find success rates as high as 80-90%....

If, as I suspect, the criteria for success is survival, then the 50% number will be an overly optimistic take, not accounting for the opportunity costs of forgone employment alternatives, the risks undertaken, and the long hours involved.

That said, whether the number is 50% or 90%, we are all better off because some are driven to take those risks.

Regards, Don

PS: Preview function doesn't work as it loses all text.

Birdied by: Don Lloyd | October 23, 2006 11:07 AM

Great post! It's very irresponsible for media and academics for give the 90% failure stat without proof or qualification.

Can you provide links to the studies that show ~50%? I'd love to take a read.

Birdied by: Greg Galant | October 23, 2006 04:08 PM

Thanks for clarifying the statement. Entrepreneurs venture into business because of their drive to succeed. This kind of news (without any relevance) would only dampen their business drive.

Birdied by: elaine | October 24, 2006 01:09 AM

Do you have anything more credible than «Credible studies»? Something I could use in an upcoming community event (where I want to try to convert geeks into enterpreneurs)?

Birdied by: John Lenton | October 24, 2006 08:53 AM

Probably the most widely cited are studies by David Birch, the economist who left MIT to form his own research firm. Also, there are studies conducted by the SBA Office of Advocacy. All are pretty consistent in their findings.

Birdied by: Jeff | October 25, 2006 06:02 AM

Thank you.

Birdied by: John Lenton | October 25, 2006 02:54 PM

Tap it in and Comment, Please

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