The Survival Rate for Small Businesses is on the Rise
Starting a new small business is always a risky proposition. Even for entrepreneurs who think they have a surefire hit idea can sometimes be dissuaded by the rate of failure, which was made even worse by the recession of 2008. However there is reason to be hopeful as a new study found that the survival rate of small businesses in the U.S. is not only trending upwards but setting records.
As Jared Lindzon of FastCompany recently highlighted, this year’s Kauffman Main Street Entrepreneurship report brings some great news for entrepreneurs. The first exciting stat is that 48.73% of small businesses now remain in operation past their fifth year. That’s up from 45.95% in 2015. Better yet that figure is the highest the index has seen in its 30 years of existence while the lowest was in 2011 (42.9%).
The Kauffman study also took a look at what types of people are opening small businesses (defined as operations with less than 50 people). Over the past 20 years one group that has helped to drive the growth of small businesses has been immigrants. This year’s report found that 20.6% of small business in the U.S. had foreign-born owners, which is nearly double the 10.9% from 1996. Additionally the rate of business ownership among immigrants was 7.1% compared to 5.8% for those who were born here.
Also on the rise is the number of businesses owned by minorities. The latest report found that 28.3% of all small businesses in the U.S. had non-white owners. In fact the percentage of Asian-owned businesses has grown from 3.8% in 1996 to 6.2% this year, while businesses owned by Latinos has exploded to 14% from just 5.6% two decades ago. Unfortunately one demographic that hasn’t changed much is the number of female entrepreneurs. Over two-thirds of American businesses today are still owned by men, which is only down slightly from 1996 when men owned 68.5% of small businesses.
Interestingly, as the Wall Street Journal notes, over half (53.1%) of small business have four or less employees. That figure is actually up from 49.5%, suggesting that although businesses are surviving there aren’t as many breakouts as there once were. To that point Jason Wiens of Kauffman told WSJ, “That does give us some reason for concern. We get the biggest bang for the buck from firms that start small and grow fast.” However he was quick to add, “But we do need a range of businesses in the economy.”
Overall this latest Kauffman Main Street Entrepreneurship report holds plenty hope for entrepreneurs. Even if the lack of “breakout” potential might put a damper on the excitement of some, the record survival rate alone should offset any potential disappointment. Additionally many will be happy to see that diversity among entrepreneurs is increasing as well. Bottom line: now could be a great time to take the plunge and open your own small business.