Factors that Contribute to the Survival of Small Businesses

We don't want to start a business by thinking about its failure. As Ayn Rand said in her book The Fountain Head, "you don't start by giving up." But are there factors that can improve your chance for success?

SBA has a study entitled "Redefining Busines Success: Distinguishing Between Failure and Success" by Brian Headd that looked at the characteristics that result in better chances of survival. The study also looked at the factors that were characteristics of closure.

The study showed that

66 percent of new employers survive two years or more, 50 percent survive 4 years or more, and 40 percent survive six years or more

According to the results of the study, the factors that can improve the likelihood of survival are as follows:

• Being an employer firm
• Having starting capital of more than $50,000
• Having a college degree = higher education give the business owner increased resources to use for the business
• Starting a business for personal reasons = gives owner increased motivation to keep the business going

Other factors also seem to improve chances for a business survival, though to a lesser extent:

• Previously owning another business
• Multiple owners
• Being home-based at startup = because costs can be kept low

On the negative side, the factors that can contribute to the failure of a busines are:

• Being relatively young owners
• Being in services or retail trade
• Not having any startup capital
• Being in an urban/suburban area

The study concludes that "having the resources to be or get larger and the motivation to persist leads to survival."

You can read this interesting SBA study (in PDF version)