The average small business owner ranks their level of happiness at 8 (on a scale of 1 to 10, with 10 being the happiest).
Even the most enthusiastic small business owners have concerns about the likelihood of success as an entrepreneur. And it makes sense — there is so much misinformation floating around about small business failure and success rates, it’s hard to know what to pay attention to and what to ignore. The short answer is that success is not that simple. So in order to understand what percentage of entrepreneurs are successful, let’s take a step back to consider what success means for different types of businesses and look at the most recent data available.
Measuring Small Business Success in Happiness
One of the most overlooked statistics when it comes to measuring entrepreneurial success is happiness. Likely, in part, because the answer is subjective. Is someone successful if they’re wealthy but miserable? Is someone successful if they’re happy but not making a profit? But who better to ask than business owners themselves?
As a part of our 2019 State of Small Business Survey we asked respondents about their happiness as small business owners on a scale of one to 10, with 10 being the happiest. Results show that business owners are very happy, with the average score at 8. Fifty-three percent of business owners answered nine or 10. These answers were consistent regardless of business size, profitability number of years in operation, or any other factors.
Small Business Profitability
One of the most important factors to measure a business’s success is profitability. Profitability for businesses in operation for up to three years was significantly lower than older businesses. Businesses in operation for at least eight years reported the highest percentage of profitability at 78%.
Businesses were more likely to be profitable the longer they were business and it’s not hard to see why — start-up costs can be difficult to manage, and it can take time to build up a client or customer base. Start-up costs can be mitigated to an extend by choosing forms of small business financing with minimal rates such as an SBA loan, or by using funding that doesn’t require paying back, like Rollovers for Business Start-ups (ROBS).
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Longevity of Small Businesses Nationally
Another factor that’s commonly looked at as an indicator of small business success is longevity of the business. But the accuracy of this indicator is dependent on the business owner’s goals. For example, the business owner might have a 5-year plan that involves selling or unwinding the business for a profit. However, most businesses do plan to be in operation for at least a year.
The Kauffman Early Start-up Survival Rate, which looks at varying indicators for new employer establishments reports that as of 2017, nearly 80 percent of new businesses were still in operation after one year. However, according to the Bureau of Labor Statistics business survival rate drops to just over 50 percent in the fifth year of business.
These numbers might sound intimidating, but it’s important to remember that these statistics are looking at businesses of every industry, in every location across the country, that used a variety of funding methods. And as we mentioned and will discuss further, funding methods can have a lasting impact on a businesses ability to succeed.
Business Owners Can Find Success Focusing on Cash Flow
Information about how many business owners are successful — whether in terms of profitability, length of time in business, or happiness — is useful to know, but what aspiring business owners should focus on to make an impact on their own future success is the challenges faced by businesses. The top challenge faced by companies at any business stage, but most common for those in their first three years of operation, was lack of capital/cash flow.
While there’s no silver bullet solution for cash flow (running a business is expensive), small business owners should consider all of their financing options before making a commitment. For example, many business owners are eligible for equity financing, but they don’t realize it. Choosing equity financing can help small business owners avoid making monthly debt payments — or significantly decrease the size of those payments — which are especially difficult to manage in the first couple years of business when there’s often more money going out than coming in. By focusing on this top business challenge, entrepreneurs can significantly impact their own rate of success.
Is the Risk Worth the Reward?
With small business longevity and survival rates what they are, many would say that starting a small business is risky. But, while there’s inherent risk in any business venture, we’ve seen first hand that a small business’s success comes down to preparation, planning, and choosing the right business for you. Not only do small business owners have extremely high chance happiness in their new career, but taking the right steps to build a solid foundation for the business can also lead to financial success.
Ready to pursue your happiness? Ready to be your own boss? Tired of how things are in your corporate office? Ready to pursue your passions? If you answered yes to any of these questions, it might be time to start your small business journey. Learn how you can get the money you need for your small business with our online financing tool or talk to one of our funding experts today.