20+ Must-Know Startup Statistics [2023]: Average Time to Reach Profitability At A Startup - Zippia (2024)

Research Summary. Startup companies are typically founded by eager entrepreneurs looking to bring a unique product or service to market. Big names such as Facebook, Amazon, Apple, and Netflix began as startups. However, achieving profitable startups can be harder than it may seem:

• Startups take 3-4 years to be profitable, on average.

• Only 40% of startups actually turn a profit.

• The United States has 63,703 startups across the country, as of 2021.

• About 90% of startups fail. 10% of startups fail within the first year.

• The average small business requires about $10,000 of startup capital. However, only 0.05% of startups raise venture capital.

• 44% of startups fail because they run out of cash.

For further analysis, we broke down the data in the following ways:
Failure | Success | Industry | Founder

General Startup Statistics

Startups work like any other company. However, they hold a heavy emphasis on speed and growth. The goal for most startups is to build on their idea as quickly as possible, starting with a minimal viable product that they will test and revise until it is ready for market.

During their testing time, building a customer base becomes increasingly significant to increase market share. It’s a difficult process, no matter what industry you’re competing with, as indicated by the statistics below:

• Globally, there are around 305 million startups created in a year.

  1.35 million of these startups are tech-related.

• Virtually no startup business is profitable in the first year of business.

  In their lifetime, only 40% of startups are actually profitable. 30% of startups will break and fail, and the last 30% will continue to lose money.



• As of 2016, startups in the United States experienced growth of 75.62% on average.

  Companies that spend more on sales and marketing generally grow faster than those that spend less.

• It is estimated to take between 3 to 4 years for a startup business to be profitable.

  Most earnings in the first year of business are used for expenses and reinvestment. In the second year, a small draw may be taken after paying debts, but the rest should be invested back into the business.

Startup Statistics by Failure Rates

Due to the cutthroat nature of the startup industry, it’s common for many startups to fail. However, not all failures happen quickly. Many times, organizations can operate for many years without failing. However, the statistics around startup failure are not for the faint of heart. If you’re looking to start your own business, it’s important to know the facts.

• More than 9 out of 10 of all startups fail.

  By the end of their second year, 30% of startups will fail. By the end of the 5th year, 50% of all startups will fail. By the end of the 10th year, 70% of startup businesses will fail.

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• 47% of startups fail due to lack of financing or investors, making this the main reason why these businesses fail.

  In 2022, 44% of startups failed due to running out of cash, 21% failed due to poor timing, and 21% failed due to disharmony among the team or investors. An additional 33% blamed the COVID-19 pandemic for their closure and 12% chalked it up to poor marketing.

  Here are the top reasons why startups said they failed in 2022:

  Most Common Reasons for Startup Failure in 2022

  Reason for Failure	Percentage of Failed Startups
  Lack of Financing/Investors	47%
  Running Out of Cash	44%
  COVID-19 Pandemic	33%
  Poor Timing	21%
  Disharmony Among Team/Investors	21%
  Legal Challenges	19%
  Lack of Business Model	16%
  Burnout	16%
  Economic Uncertainty	14%
  Poor Marketing	12%
  Product Not User Friendly	9%
  Market Competition	7%
  Pricing/Cost Issues	7%
  Lack of Product Demand	7%
  Losing Focus	7%
  Failure to Pivot	7%
  Failed Geographical Expansion	7%
  Financial Market Downturn	7%
  Not Having the Right Team	5%

• 30-40% of investors lose their whole initial investment in startups.

  In addition, 75% of venture-backed startups will never return that cash to their investors.

Startup Statistics by Success Rates

Don’t let the statistics scare you. Not all startups fail, and chances are, if you can get past some initial hurdles, you can set your business up for success. It’s important to set goals, do your research, and find enjoyment in your work. When you hit bad times, don’t quit. Keep persevering and fighting, especially if you believe in your product or service.

• While 90% of startups survive at least one year, only 50% of startups survive past the first five years of business.

  Paying attention to customers is a significant part of staying profitable and successful. The main challenge for any startup is generating new business, but it’s important to have a plan in place to maintain the success of the customers you already have.

• Founders of a previously successful business have a 30% chance of success with their next venture.

  Founders who have failed a business previously still have a 20% chance of success. First-time founders have an 18% chance of success.



• 82% of successful business owners report they have the right qualifications and backed-up experience to run a company.

  This truth remains, even if the startup company has limited cash flow.

Startup Statistics by Industry

Although many startup statistics are similar across industries, there are absolutely industries where startups succeed at a higher rate than others. Consider the following statistics:

• The highest five-year survival rate for new businesses is mining, at 51.3%.

  As of 2017, the United States healthcare startup industry was the strongest, bringing in $36.3 billion in revenue along with Inc. 5000 companies.

• The information industry has the highest failure rate nationally, with 25% of those businesses failing within the first year.

  40% of these businesses will fail within the first three years, and 53% in the first five years.

Startup Statistics by Founder

The startup sector, unfortunately, has a diversity gap. This isn’t surprising, given how wide the diversity gap is within tech. However, defining a diverse team can significantly improve your growth. Similarly, a gender balance can significantly improve a company’s performance. The benefits and gaps of diversity are demonstrated in the statistics below.

• Male entrepreneurs own 14.8 million of the small businesses in the United States.

  By comparison, female entrepreneurs only own 9.9 million small businesses in the United States.



• Companies with a female founder performed 63% better than their counterparts with all-male founding teams.

  See Also

  Y Combinator Acceptance Rate [ An Entry Guide For African Startups]

  However, only 53% of American startups have at least one woman in an executive position in their business.

• 25% of all new businesses in the United States are started by immigrants.

  Businesses founded by immigrant entrepreneurs created 42% more jobs in America than ones started by their U.S.-born counterparts.

Startup Statistics FAQ

1. How long does the average startup last?

   The average startup lasts between two and five years. On average, 90% of startups survive one year. 69% of small businesses survive two years. However, only 50% of startups will survive five years.

2. How long should you give a new business to succeed?

   Although all businesses and industries are different, giving your business seven to ten years to succeed is recommended. The first three years are typically where you find your direction and establish your business as a real company.

3. When should a startup company expect profit?

   A startup company should expect to see profit 18 to 24 months after launch. This highlights the importance of a business plan, and having extra funds within the first few years of creating a startup. That way, the company will be able to endure the period of time where it won’t be very profitable.

4. What percentage of startups succeed?

   Only about 10% of all startups will succeed. However, on average, 25% of venture-backed startups will succeed. For many of these companies, a lack of profitability, combined with a lack of funding, ultimately brings them down.

5. How many startups are profitable?

   Only 2 in 5 startups are profitable. while 1 in 3 break even, and another 1 in 3 lose money. This means that those with profitable startups are actually in the minority.

6. How many startups fail in the first five years?

   50% of startups will fail in the first five years of their business. Around 10% of these will fail within the first year, but the majority end up failing when they don’t reach profitability after the first few years.

Conclusion

Starting a startup is an exciting venture for many entrepreneurs. Dreaming big and having your own company and staff work on a product you believe in can be incredibly rewarding. However, along with the dream of the startup business comes the harsh and often risky reality. These businesses are more vulnerable to risk and failure.

Don’t let these statistics scare you. If you’re passionate about your idea and your company and can find seed funding, you can likely make it work. Many companies who begin as startups can graduate to larger companies by being acquired, opening additional officers, or beginning to generate more income and hire more employees.

Learn from your mistakes and the mistakes of others and learn how to appreciate your competition and place in the marketplace.

References

1. Netshop. “How Many Tech Startups Are Created Each Year?” Accessed on September 27, 2021.

2. Failory. “Startup Failure Rate: Ultimate Report + Infographic” Accessed on September 27, 2021.

3. Small Business Trends. “Startup Statistics – The Numbers You Need to Know.” Accessed on September 27, 2021.

4. Statista. “Rate of Startup Growth in the United States from 2000 to 2016.” Accessed on September 27, 2021.

5. LinkedIn. “How Soon Should a Startup be Profitable?” Accessed on September 27, 2021.

6. Fundera. “What Percentage of Small Businesses Fail? (And Other Need-to-Know Stats).” Accessed on September 27, 2021.

7. Embroker. “106 Must-Know Startup Statistics for 2021.” Accessed on September 27, 2021.

8. AdvisorSmith. “What Percentage of Small Businesses Fail?” Accessed on September 27, 2021.

9. Findstack. “The Ultimate List of Startup Statistics for 2021.” Accessed on September 27, 2021.

10. Skynova. “Why Startups Failed in 2022.” Accessed on February 20, 2023.