Americans may be ambivalent about business, but they love entrepreneurship. Something about the act of starting a company and venturing into uncharted corners of the marketplace appeals even to the terminally cautious.
Since 1986 nearly 750,000 start-ups have joined the ranks of tax-paying, employee-hiring businesses every year. Add in roughly 140,000 new ventures that take over existing companies, and you get nearly 900,000 enterprises opening (or reopening) in a typical year -- and that's not even counting the millions of people who launch solo ventures. This population of youthful upstarts is where most of the employment-generating "gazelles" can be found. (See "The Age of the Gazelle," [Article link].) So there's a reason for our fondness for entrepreneurs: We can thank them for the millions of new jobs added to the economy since 1990.
On the other hand, there are the business deaths. We don't mean the 800,000-plus "terminations" that take place in a typical year. Most of those business closings are voluntary. We're talking about companies that go under with loss to creditors. In 1994 Dun & Bradstreet counted over 70,000 of them. Those failing companies left nearly $30 billion in unpaid bills and threw thousands of people into our unemployment lines.
Before you get nervous about your customers or suppliers -- or your own business, for that matter -- it's worth looking at where and why all that failure is taking place. Here's what an analysis of the statistics tells us:
In a free-enterprise economy, businesses fail for any number of reasons. They're hit by broad economic trends. (That's why California looked so bad in 1994.) They're in sluggish or troubled industries. (Failures in fishing are high.) They're threatened by global competition. (It's tough to be a clothing manufacturer right now.)
But most often, maybe, they're pushed out of business by more aggressive or just more successful upstarts. We celebrate those upstarts. We just don't always pause to mourn the companies they shove out of the way.
* * *Risky business: Giving up the ghost
Hundreds of thousands of companies shut their doors every year. Only a fraction of them are what Dun & Bradstreet defines as "failures," businesses that terminate with loss to creditors.
| 1990 | 1991 | 1992 | 1993 | 1994 | |
| Business terminations | 844,000 | 821,000 | 819,000 | 801,000 | 803,000 |
| Business failures | 60,747 | 88,140 | 97,069 | 86,133 | 71,520 |
| Average liability | $923,996 | $1,098,539 | $971,653 | $554,438 | $410,477 |
Sources: The State of Small Business: A Report of the President, 1994, U.S.Government Printing Office, Washington, D.C., 1995; Business Failure Record, 1994, Dun & Bradstreet Corp., Wilton, Conn., 1995.
* * *The riskiest time in a business's life
Percentage of total failures, by age of company
1ñ5 years 40%
6ñ10 years 27%
More than 10 years 33%
Source: Business Failure Record, 1994, Dun & Bradstreet Corp., Wilton, Conn., 1995.
* * *The riskiest industries . . .
Number of failures per 10,000 listed companies, 1994
Coal mining 251
Misc. businessservices 189
Holding companies, investment offices 179
Fishing, hunting, trapping 156
Apparel manufacturing 146
U.S. average 86
* * *and the safest
Number of failures per 10,000 listed companies, 1994
Tobacco products 0
Pipelines (except natural gas) 0
Membership organizations 3
Depository institutions 3
Funeral services, crematoria 3
Note: Excludes private-household employers.
Source: Business Failure Record, 1994, Dun & Bradstreet Corp., Wilton, Conn., 1995.
* * *The riskiest parts of the country . . .
States with the highest number of failures, 1994 (per 10,000 listed companies)
California 163
Arizona 116
Washington 114
Maryland 106
Nevada 106
U.S. average 86
Source: Business Failure Record, 1994, Dun & Bradstreet Corp., Wilton, Conn., 1995.
* * *and the safest
States with the lowest number of failures, 1994 (per 10,000 listed companies)
North Dakota 35
Mississippi 37
Iowa 40
Delaware 41
Wyoming 42
* * *Despite failures and terminations, the business population keeps growing
| Year | New | Successor | Terminations | Year-end |
| companies | companies* | total | ||
| 1990 | 769,000 | 146,000 | 844,000 | 5,636,000 |
| 1991 | 726,000 | 138,000 | 821,000 | 5,679,000 |
| 1992 | 737,000 | 138,000 | 819,000 | 5,735,000 |
| 1993 | 780,000 | 136,000 | 801,000 | 5,850,000 |
| 1994 | 807,000 | 137,000 | 803,000 | 5,991,000 |
*Successor companies are existing businesses taken over by new or existing companies.
Source: Adapted from The State of Small Business: A Report of the President, 1994, U.S. Government Printing Office, Washington, D.C., 1995.
* * *Research assistance for this article was provided by Mary Furash.