The Most Risky Industries to Start a Business
New business creation has surged in recent years, as the COVID-19 pandemic and its economic effects have sparked heavy interest in entrepreneurship: applications for new businesses in the U.S. have exceeded 400,000 in all but two months since July 2020. However, entrepreneurship remains an inherently risky endeavor. Only around half of all businesses survive their first five years after opening, and only around one-third last for a decade. While risk is unavoidable in any new business, entrepreneurs in certain industries can expect greater likelihood of survival. Researchers calculated a composite risk index based on the most recent one-, two-, three-, four-, and five-year survival rates for establishments in each industry, then ranked industries accordingly.
The Most Risky Industries to Start a Business
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The U.S. economy thrives on entrepreneurship and small business growth, and fortunately, new business creation has surged in recent years.
The COVID-19 pandemic and its economic effects have sparked heavy interest in entrepreneurship. Strong government stimulus and low interest rates early in the pandemic gave more entrepreneurs the resources to start new businesses. Many of the millions of workers who left their jobs in the Great Resignation have pursued new enterprises in their efforts to increase their earnings or find work better aligned with their lifestyle and interests.
As a result of these trends, official statistics demonstrated high levels of new business activity. Prior to the start of the pandemic, applications for new businesses in the U.S. averaged around 300,000 per month, but since July 2020, new business applications have exceeded 400,000 in all but two months. Projected business formations arising from new business applications are at their highest levels since before the Great Recession.
The average size of remaining businesses grows as startup businesses fail
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While recent economic conditions have encouraged more people to start new businesses, entrepreneurship remains an inherently risky endeavor. The chances of long-term success are fairly low: only around half of all businesses survive their first five years after opening, and only around one-third last for a decade. It’s important to note though that the impact of startup closures on startup employment are not as drastic. For example, while only half of all businesses survive the first five years, more than 90% of those initially employed by a given cohort of business startups remain employed five years later. This percentage doesn’t fall below 50% until nearly three decades after opening. And over time, the surviving businesses grow to employ more people.
The chances of remaining in business increase rapidly with age
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For entrepreneurs who can stick out a business’s challenging first few years, the chances of long-term survival do increase substantially. The one-year survival rate for businesses increases from 79.6% to 85.6% from the first year in business to the second and to more than 90% after the fifth. Past a decade in business, the one-year survival rate hovers around 95%.
Over 20 percent of businesses fail within the first year in the most risky industries
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Risk is unavoidable in any new business, but entrepreneurs in certain industries can expect greater likelihood of survival early on. Real estate and rental and leasing businesses have the highest first-year survival rates at 88.4%, which may have to do with factors like the long time horizon for real estate investments or the predictable income available from leasing and rentals. Other industries that rank highly for survival rates include agriculture, forestry, fishing, and hunting at 87.7% and retail trade at 87.6%.
On the flip side, other fields may be even riskier for new businesses than the overall average. Topping the list is mining, quarrying, and oil and gas extraction, a category that is capital-intensive, meaning they are expensive to launch and maintain, and that has volatile markets, meaning that income can be unpredictable. Businesses in mining, quarrying, and extraction have a one-year survival rate of 74.4% and a five-year survival of 41.5%—figures that are substantially lower than rates in other industries.
The data used in this report is from the U.S. Bureau of Labor Statistics. To identify the most risky industries to start a business, researchers at HireAHelper calculated a composite risk index based on the most recent one-, two-, three-, four-, and five-year survival rates for establishments in each industry.
Here are the most risky industries to start a new business.
10. Construction
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- Composite risk score (higher = more risk): 47.1
- 1-year survival rate: 82.9%
- 2-year survival rate: 71.8%
- 3-year survival rate: 65.4%
- 4-year survival rate: 63.6%
- 5-year survival rate: 58.6%
9. Finance and insurance
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Photo Credit: Zivica Kerkez / Shutterstock
- Composite risk score (higher = more risk): 49.4
- 1-year survival rate: 84.7%
- 2-year survival rate: 73.2%
- 3-year survival rate: 64.7%
- 4-year survival rate: 61.0%
- 5-year survival rate: 56.7%
8. Arts, entertainment, and recreation
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Photo Credit: Ysbrand Cosijn / Shutterstock
- Composite risk score (higher = more risk): 60.0
- 1-year survival rate: 81.1%
- 2-year survival rate: 70.6%
- 3-year survival rate: 63.6%
- 4-year survival rate: 62.0%
- 5-year survival rate: 57.4%
7. Transportation and warehousing
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Photo Credit: Vitpho / Shutterstock
- Composite risk score (higher = more risk): 65.9
- 1-year survival rate: 83.8%
- 2-year survival rate: 68.7%
- 3-year survival rate: 61.3%
- 4-year survival rate: 61.1%
- 5-year survival rate: 53.0%
6. Management of companies and enterprises
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Photo Credit: fizkes / Shutterstock
- Composite risk score (higher = more risk): 70.6
- 1-year survival rate: 83.8%
- 2-year survival rate: 69.9%
- 3-year survival rate: 60.8%
- 4-year survival rate: 59.1%
- 5-year survival rate: 51.4%
5. Wholesale trade
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Photo Credit: iJeab / Shutterstock
- Composite risk score (higher = more risk): 74.1
- 1-year survival rate: 82.5%
- 2-year survival rate: 69.3%
- 3-year survival rate: 61.3%
- 4-year survival rate: 57.3%
- 5-year survival rate: 52.5%
4. Professional, scientific, and technical services
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Photo Credit: SeventyFour / Shutterstock
- Composite risk score (higher = more risk): 76.5
- 1-year survival rate: 82.9%
- 2-year survival rate: 69.1%
- 3-year survival rate: 60.8%
- 4-year survival rate: 58.0%
- 5-year survival rate: 52.3%
3. Administrative and waste services
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Photo Credit: Andrey Popov / Shutterstock
- Composite risk score (higher = more risk): 89.4
- 1-year survival rate: 79.1%
- 2-year survival rate: 66.6%
- 3-year survival rate: 59.7%
- 4-year survival rate: 56.7%
- 5-year survival rate: 50.9%
2. Information
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Photo Credit: Bojan Milinkov / Shutterstock
- Composite risk score (higher = more risk): 92.9
- 1-year survival rate: 79.2%
- 2-year survival rate: 65.2%
- 3-year survival rate: 56.1%
- 4-year survival rate: 54.2%
- 5-year survival rate: 48.3%
1. Mining, quarrying, and oil and gas extraction
Updated
Photo Credit: Mark Agnor / Shutterstock
- Composite risk score (higher = more risk): 100.0
- 1-year survival rate: 74.4%
- 2-year survival rate: 62.5%
- 3-year survival rate: 52.5%
- 4-year survival rate: 53.0%
- 5-year survival rate: 41.5%
Originally published on hireahelper.com, part of the BLOX Digital Content Exchange.
