Analyzing and learning from startup statistics can put you on the right track to having a successful business. Evaluating topics like what kinds of people start a business, what situations are typical for new entrepreneurs, what kinds of risks and threats are common and what businesses are more or less likely to succeed can prove useful in your own business journey.
Here are a few interesting startup statistics — and the valuable insights that we can learn to help your business grow and thrive!
Most Businesses Are LLCs or S Corporations
When deciding to start a business, it’s important to choose the right business entity for your company. According to stats from the National Small Business Association, 35 percent of small businesses are LLCs and 33 percent are S Corporations. These options are often a good fit for small businesses, because they offer personal liability protection, flexible ownership structures and certain tax advantages — without the additional complexity, tax liabilities and regulatory compliance of a C Corporation. A C Corporation is likely the right choice for startups that intend to grow to a large size, offer publicly traded shares (such as an Initial Public Offering or IPO) or have more than 100 shareholders.
You Don’t Need Advanced Degrees to Start a Business
Most small business owners have not graduated from a four-year university. According to Small Biz Trends, 33 percent of small business owners have a high school diploma or GED, and 18 percent have an associate’s degree — making up a total of 51 percent of business owners who have less than a four-year university degree. Twenty-nine percent of small business owners have a bachelor’s degree, 16 percent have a master’s degree and only 4 percent have a doctorate degree.
These startup statistics are an optimistic sign that entrepreneurship is open to a wide variety of people, whether or not you have the conventional qualification of a four-year college degree. Sometimes people who do not have the opportunity or the academic focus to go to college discover that they have the skills and personal strengths needed for starting a business.
If you have a bachelor’s degree, master’s degree or higher and you want to be an entrepreneur, that’s great — there’s nothing wrong with using your academic skills and credentials to build a business! But don’t assume that every entrepreneur needs to go to college. Sometimes people who struggle in school thrive in business — the skills and characteristics that you need to thrive as an entrepreneur are often separate from and unrelated to the world of academics.
For example, entrepreneurship tends to reward persistence, courage, stamina, creativity, inventiveness, hustle and interpersonal relationship-building skills. Some of these skills are involved with earning a degree, but many of them are not. Whether or not you go to college, you can still be a great entrepreneur.
Startups Fail for a Variety of Reasons
Business owners tend to be calculated risk takers — they are aware of the possibility of their business failing, but they believe in their vision and they are confident that with hard work they will succeed. However, before you start a business, it’s important to learn some lessons from businesses that failed. CB Insights analyzed postmortems of failed startups to determine the reasons why these companies did not succeed.
According to CB Insights research, these are the top five reasons why startups fail:
1. No market need (42 percent): Is your company addressing a problem that has enough market demand? Do customers need what you are selling? Or are you offering a solution to a problem that not enough prospective customers are aware that they have — or worse, a problem that not enough people are willing to pay for?
2. Ran out of cash (29 percent): Some startups burn through too much cash before they’re able to get their product off the ground. Whether you’re seeking venture capital funding, or starting a business with your own funds and “bootstrapping” the company’s growth, it’s important to manage your cost structure and avoid running out of money.
3. Not the right team (23 percent): Some small businesses fail because the founder has not created the right team of senior leaders to drive the company’s growth. You might need to hire C-level officers such as a CTO (Chief Technology Officer) or COO (Chief Operating Officer) to take on certain responsibilities. Make sure that your core leadership team has diverse strengths and skill sets to complement each other. For example, if the founder is great at designing the product, find a Head of Marketing who is great at building relationships with customers.
4. Got outcompeted (19 percent): Don’t ignore your competitors. Unless you have a durable competitive advantage (build a “moat” around your business), you will likely see competitors entering your market and trying to take away your customers. Pay attention to what your competitors are doing well, and try to counteract their competitive strengths before it’s too late.
5. Pricing/cost issues (18 percent): Try to find a sweet spot in your pricing strategy. Price your product or services highly enough to ensure a viable profit margin, but not so high that you’re driving customers away.
Many Small Businesses Survive for Several Years
The failure rate of small businesses is often overstated and misunderstood. Startup statistics from the Bureau of Labor Statistics show that 50 percent of new businesses survive for five years or longer, and 33 percent survive for 10 years or more. When you think about how long most people last at a typical job, a 50 percent failure rate over five years is not too bad. If your business can survive for 10 years, wouldn’t you consider that to be a pretty successful chapter of your life?
Don’t assume that your business has to last forever to be a success. Some small business owners go into business for a particular short-term goal — perhaps they lost a job or spotted an opportunity in the market, or maybe they wanted to provide for their family while waiting for a longer-term career move. Some small businesses fail due to lack of sales or poor cash flow or a bad fit with their target market, but other small businesses end naturally because the owner decides to sell the business or transition to a different career. Not every end of a small business is a “failure” or a sad story. Sometimes the end of a business is the start of a new one, or the beginning of a new stage of life.
Are you ready to start a business, form an LLC or reorganize your current business structure with incorporation services? Talk to Incfile today! Our incorporation experts can help you evaluate your options with state-specific advice.