50% of the firms created in 2006 have died: all the factors influencing firm’s survival

There is a lot of controversy around survival rate of startups. A survival rate of 25% after 7 years is often mentioned although there’s no evidence around it; other authors speak of a 90% survival rate.

The discrepancy is so huge that real actual figures are very valuable.

Such figures have been published last week by the French statistical institute INSEE (Link to the original source – in French only). In 2006 a total number of 286000 firms have been created. Five years later half of them are still alive.

The study goes beyond the mere survival rate and gives some great insights :

• Firms in the retail and construction sectors are the ones with the lowest odds of survival (45% and 47% respectively)
• Transport et B2B services have the highest odds of survival (61% and 58%)
• The capital used to start the company influences positively the survival of the firms. Two thirds (2/3) of the firms are created with less than 16000€ capital and 1/3 with less than 4000€
• 44% of firms created with 4000€ or less are still alive after 5 years
• 60% of firms created with more than 40000€ are still alive after 5 years
• 66% of firms created with more than 160000€ are still alive after 5 years
• Founders with a Master degree or a PhD have twice as much chances to survive as founders with no degree at all
• The survival rate of companies vs. self-employed is 50% higher

Advice for your market research and your business plan (be it in Brussels, Belgium or elsewhere)

If you are about to start your firm make sure that you use all leviers increasing your odds of success: start a B2B services company for instance, with a capital of at least 40000€ and ensure that you or your co-founders have a Master degree or a PhD … do you really think it’s as simple as that?

Actually the INSEE study is purely descriptive and doesn’t look beyond the figures. I’m challenging these figures because they are not completely relevant. The first question that arises is why half of the firms went down. Did they close because they went bankrupt or did they close because of factors that had nothing to do with the profitability of the business ? Further, has transport the highest survival rate because upfront investment and exist costs are high, motivating founders to remain in business ? Or is transport objectively more profitable than other sectors ?

Last but not least, what does capital actually say about firms’ survival? Is capital an antecedent of survival or only an indicator of other variables that have a real impact? In other words, can’t a higher capital only be a sign that the founders are older and have had the time to gather more money? Being older, is that not a sign that they are more mature and more experienced which in turns plays a role on survival?