Business Life Cycle Trends

Startups are always exciting, but what gets capital investment firms excited is trends in business life cycles.  A new post on Polus Capital by Founder, Alan Ying, looks at what he calls the “infant mortality phase.”
Startup-Survival-Rates

The chart above shows data from the U.S. Census Bureau, and the Bureau of Labor Statistics.  The chart was compiled by Scott Shane for a really interesting article at Small Business Trends focusing on startups.  The full chart is located here.

“One take-home message I get from the data are that only around 40% of ANY businesses survive to five years.” explains Ying. “The data don’t differentiate from B2B versus consumer-facing, or business services versus industrial or consumer services.”

What Ying refers to as the “infant mortality phase” is when a company’s ongoing viability is in doubt on a year-to-year, even month-to-month basis.

For example, if it takes 5 years to lose 60% of businesses.  It then takes another 10 years to lose another 10%. That’s a 12% annual failure rate during the first 5 years, and only a 1% annual failure rate for the next 10 years.

While these data don’t show anything about revenue, evidence from Polus Capital suggests the vast majority (>90%) of the businesses that generate $5M-$15M revenue are more than 5 years old.

From an investment standpoint, companies older than 5 years are a statistically much less risky on the downside – they just don’t go out of business frequently.

So, are you in the “infant mortality phase?”

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