Originally Posted: August 7, 2019
Let’s start with a few discouraging statistics. The federal Small Business Administration says that about 30 percent of all new businesses fail within their first two years. Fifty percent are gone within the first five, and two-thirds don’t make it past their 10th anniversaries. Those numbers make it plain: Failure is an even more integral aspect of business than is success. Beyond that, a rise in the number of failing businesses is counter-intuitively a sign of a healthy economy.
“A huge percentage of startups fail, and we should be happy about that,” says Cullum Clark, an economist at Southern Methodist University. Not for the failure of any one, he adds, but for having a system that provides for so many experiments to take place.
An adjunct professor and director of the Bush Institute’s Economic Growth Initiative, Clark explains that a drop in the number of failing business ventures would signal a downturn in the number of people taking chances on potential product or service innovations. That could be disastrous. “We need a lot of businesses to be started,” he says. “Cities that don’t have a healthy start-up environment—it causes them to have a dying economy.”
One of the other benefits of seeing so many business ventures launched is that it forces those that do manage to survive past their 10th year (and beyond) to perform so much better. The likelihood of failure, coupled with the pressure of competition, is a strong motivating factor. “If a business is lucky enough to survive through a number of mistakes, then it might actually become a very formidable player that is actually able to, if you will, prevail over competitors and become dominant in an industry,” Clark says. READ MORE