We previously wrote a blog post titled “80% of startups fail in the first 18 months, will yours fail too?” Until someone asked us to send the source of the statistic, which we then found doesn’t exist!
Hundreds of articles were written about this topic, backed by the non-existing statistics.
The whole internet is divided into two sides. The first is spreading the fact that 80% of startups fail in their first year (I used to be on that side, too). The other side is talking about how this fact is BS! Today, I declare that I was fooled by different statistics, but surely they were no near to 8 out of 10.
- 80% of entrepreneurs starting a business fail within the first 18 months. (Forbes)
- 50% of startups fail after operating for four years. (Statistic Brain)
- 66% of small businesses will fail within 10 years. (Tutsplus)
- 50% of small businesses fail after five years. (Small Business Trends)
- 3 out of 10 new companies “fail to survive” for more than 24 months. (Wasp Barcode)
- Only 33% percent of startups reach their 10 year anniversary. (Credit Donkey)
- Only 1 out of 5 new businesses survive past their first year of operation. (USA Today)
- Fewer than 50% of businesses survive more than 5 years. (Fundivo)
You can read about why these statistics are not fair or give a balanced viewpoint from here (URL)
So before you take the number of the statistic as a fact, you need to know few things first:
Each and every statistic had a specified direction, the methods they use to conduct research. You have to dig into the methods in use to know first the backstory about the final number in the head line.
Some of the stats are based on a wrong- actually there is no right or wrong, it depends on you- indicators.
Like; Acquired companies are considered failed startup.
It’s considered a statistical error. You choose an unbiased group to interview.
Ex: When asking a group of loyal customers about their satisfaction to service, or asking a group elective candidate supporters about their opinion to the other opponent.
So, the big question is, what is the startup failure rate?
Actually, nobody knows. It depends on too many factors. But what we are pretty sure about is that this is a harsh game, you have to always work work work.
I don’t want to dive deep today in something everyone likely wrote about before. I just want to tackle another thing I realized, that I and all other people who followed this fake analysis was due to some cognitive bias. Let’s tackle it today, and be more conscious in the future.
This kind of cognitive bias affects how you react to the decision making process.
What is Cognitive Bias (CB)?
Without going into too complicated details, CB is a mental shortcut to make brain decisions faster. It’s a survival instinct but not good for innovation. It’s a type of bias that tends to let people favor some information over others to confirm their beliefs. This makes you generate your own filter-bubble, you would never be able to see the full picture!
I always remember those who smoke cigarettes to tell me about the benefits of smoking without mentioning the great harm it causes. You believe that startups’ failure rates are high, so you start searching for what confirms your beliefs.
We all have confirmation bias, but being consciously aware of this bias will help us think properly and have better critical thinking when processing information. Think about all startup information we know and think is true!