Small business statistics in 2021

Key insights + statistics

  • There are 30.7 million small businesses in the United States. (Oberlo)
  • More than 50% of small businesses fail in their first year. (Oberlo)
  • 66% of small businesses face financial challenges. (SEMRush)
  • 46% of the private-sector workforce works for a small business. (The Small Business Administration)
  • Women own 12.3 million small businesses. (99Firms)
  • LGBT-owned small businesses represent less than 1% of small businesses. (Guidant Financial)

 

Why do small businesses fail?

In the United States, small businesses, mom-and-pop shops, and entrepreneurs are the backbone of our economy. But these businesses often operate with less than fifty employees and depending on a variety of economic factors, they can be susceptible to failure. Lack of cash flow, lack of market interest, and strong competition are some of the top reported reasons small businesses fail. Despite these risks, thousands of small businesses are started every day and every day, more and more Americans choose to be their own bosses. There's a lot of reward that comes with being a small business owner, but there's also a lot of risk.

With data from the Small Business Administration, Guidant Financial's report on small businesses, and other publicly available sources, The Zebra has compiled these resources to provide a complete picture of entrepreneurship in America. 

 

Table of contents

  1. Small business statistics in 2021
  2. Small business statistics through the years
  3. Small business failure statistics
  4. Small business industry statistics
  5. Small business revenue statistics
  6. Small business demographics
  7. Statistics around the decline of small businesses
  8. Cybersecurity statistics for small business websites
  9. Small business lawsuit statistics
  10. Small business loan default statistics
  11. Small business insurance coverage
  12. FAQs 

 

2021: Updated small business statistics

In June 2021, The Zebra, a small business insurance comparison site, conducted a national survey of former and current small business owners in order to better understand the struggles, goals, and motivations behind becoming an entrepreneur. Small businesses are a vital pillar of the American economy, yet so many fail each year. The coronavirus pandemic last year was especially difficult for small businesses that did not have an online presence. Our research team looked further into what makes operating your own business so difficult. 

  • Over one-third (32.8%) of small business respondents identified "lack of capital" as the #1 reason why the business had to close.
  • Other factors included strong competition (19.6%), unsustainable growth rate (18.75), and lack of market interest (17.5%) as other factors for business closure.
  • Only 1% listed COVID as the cause of their business failure.
If you had to close your business, what were some attributing factors_.png

The survey further revealed that marketing plays a large role in the day-to-day concerns of small business owners:

  • The overwhelming majority of participants (81.4%) responded that their primary form of marketing was word-of-mouth — telling family and friends personally about their new business. This was followed by social media (49.3%) and a company website (37.4%).
  • 41.2% decided if they would focus more money on marketing efforts. 
  • Of those with a website to promote their company, 15.5% only used safe passwords to protect against cybercrimes. Only 6.6% had set up a VPN. 

Our 2021 survey allowed for broad insight into common motivations and reasons for longevity for small business owners:

  • 57.8% of our respondents were open for less than 5 years. Only 5% survived longer than 30 years. 
  • 81.7% of our small business owners opened their business to be their own boss. Only 16% intended their business to be a financial legacy for their family.
  • If given the opportunity to change something about their business, our respondents cited: "Different partners", "better cash flow", and "better business education" as the top responses.  

 

The reality of small business in America

The following statistics come from large data reports generated by the Small Business Administration’s Office of Advocacy, Oberlo, and 99Firms.

  • From 2019-2020, applications for new businesses increased by 24%
  • As of 2020, 69% of all startups are home-based.
  • 50% of all small businesses are run out of the owner's home.
  • In May 2020, 57% of small business and medium business owners said they will continue to offer remote work options in the long term. 
  • Because of remote work, small business owners report a 19% increase in employee availability and a 7% increase in life satisfaction.
  • 73% of small businesses will be expected to be remote by 2028.
  • On average, 50% of businesses view marketing as their main strategy for growth.

 

Failure statistics - why does it happen?

According to Oberlo, SEMRush, and 99Firms: 

  • 50% of small enterprises fail in their first 12 months of being open.
  • 42% of small businesses fail because of a lack of demand in the market for their product.
  • Over two-thirds (66%) of small businesses significantly struggle financially. 
  • Across the United States, over 543,000 new businesses open every month.
  • 25 - 45% of businesses are no longer able to stay open after a significant financial crisis.
  • Only 25% of small businesses survive 15 years or more.

 

Small business industry statistics

The following statistics come from large data reports generated by the Small Business Administration’s Office of Advocacy, Oberlo, and 99Firms.

  • Small businesses account for 1.5 million jobs annually and drive about 44% of the economic activity in the United States.
  • There are 30.7 million small businesses in every industry, from hospitality to construction.
  • Over 280,000 of those small businesses are exporters, contributing to the local, national, and global economy.
  • While most small businesses are still run by men, women own 12.3 million small businesses.

 

Small businesses and revenue

For further insight, review the full reports from Oberlo, the Small Business Administration’s Office of Advocacy, and Guidant Financial.

  • The COVID-19 pandemic and the subsequent lockdown forced almost one-third of all small businesses in the United States to close down permanently.
  • Over 98% of small businesses employ fewer than 100 employees and 89% employ fewer than 20 employees.
  • 47% of the private-sector workforce is employed by a small business.
  • Small businesses employ more than 59.9 million people
  • 23% of small business owners list lack of capital or cash flow as their number one challenge.

 

The demographics of small business

Consider the full report by Guidant Financial for more context regarding the following statistics:

  • Women make up 26% of small business owners, increasing by 10% year over year.
  • LGBT-owned small businesses represent less than 1% of small businesses
  • 34% of all female small business entrepreneurs have at least a bachelor’s degree.
  • 71% of small businesses run by women are profitable while 80% of small businesses men-led are profitable.
  • 36% of Black small business owners opened a small business because they were ready to become their own boss, and 17% were disillusioned with corporate America. 
  • 42% of Black entrepreneurs report they are very happy as small business owners.
  • 49% of small business loans from banks go to white-owned businesses, while only 3% of loans went to Black-owned businesses.

 

The decline of small businesses in America

Forbes and Inc.com are both the sources of the following statistics:

  • The number of small businesses fell 52% while their payroll expenses dropped 54% in the months of April, May, and June of 2020.
  • During the coronavirus pandemic, companies that experienced profit declines of up to 87% were forced to close.
  • More than 40% of 25-to-34-year old Americans said a fear of failure kept them from starting a company
  • Over the past 30 years, new business creation has declined by almost 50%.
  • In 2019, 30% fewer small businesses started than in 1970.
  • The founding and creation of tech start-ups in the US are on the decline.

 

The importance of small business website cybersecurity

These statistics come from reports by SEMRush, 99Firms, Guidant Financial, Top Digital, and Fundera. 

  • More than 80% of small businesses today are using technology to promote products
  • By 2040, almost 95% of all consumer purchases will be made on an eCommerce website.
  • Medtech start-ups return an average net profit margin of 12.1%, making them in the top ten of the most profitable small businesses.
  • In 2019, 64% of businesses had a website.
  • 70% of consumers learn about a new business online, either through a website or social media.
  • About two-thirds of small businesses are completely online.
  • 43% of all cyberattacks target small businesses.
  • 60% of small businesses that become victims of a cyber attack are forced to go out of business because of loss of revenue and security.

 

Small businesses and civic lawsuits

For further information, consider the full reports by SmallBizDaily, Forbes, RocketLawyer and Practical Business Knowledge.

  • 36% to 53% of small businesses are sued every year.
  • 43% of all small businesses are threatened with a lawsuit every year.
  • About 45% of small businesses are currently involved in litigation.
  • 90% of all businesses experience a lawsuit at some point in their lifespan.
  • There are around 12 million contract lawsuits filed every year against small businesses.
  • The average liability suit costs at least $54,000.
  • Over 75% of small business owners are concerned that they’ll be targeted for a lawsuit.
  • A small business earning $1 million a year would typically have $20,000 in litigation fees.

 

Loan defaults in small businesses

The following statistics are taken from reports by 99Firms and Fundera.

  • The average small business bank loan amount is $633,000.
  • Major financial institutions approve only 26.9% of small business loans.
  • 43% of small business owners have applied for a loan from a small business lender.
  • Only 48% of small business owners claim they have all the funding they need but 29% fail due to lack of cash flow.

 

Small business insurance: what you need to know

The purpose of business insurance is to protect against accidents, lawsuits, natural disasters or other unexpected events that could put your business at risk. Given that 43% of all small businesses are threatened with a lawsuit every year, small business insurance is a necessary purchase. There are many different types of coverage available, including general liability, workers compensation, commercial property, professional liability, cyber liability, and commercial auto insurance, and the size of your business will influence how much you pay. If your business is conducted entirely online, you may be able to add an endorsement to your current homeowners policy that can cover your needs. If clients regularly visit your place of business — for instance, a home daycare or a massage therapy center operated from your home — then an endorsement is not likely to be enough. You’ll need to procure a separate commercial insurance policy to be properly covered. If you're looking for a policy, we've partnered with Progressive to provide customized quotes for your small business. 

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FAQs

Question: What's the success rate of a small business?

Answer: According to the Bureau of Labor, the rate of failure increases as time goes on. About 20% of businesses go under after their first year, 50% by their fifth year, and after 10 years only a third of new businesses remain. 

Q: What is the percentage of small businesses in the United States?

A: According to the Small Business Administration's Office of Advocacy, nearly all (99.9%) of all American businesses are small businesses.

Q: What is the average lifespan of a small business?

A: About 550,000 small businesses close each year. According to the New York Times, the average life span of a small business is only 8 and a half years. 

Q: What are the most successful small businesses?

A: According to the U.S Chamber of Commerce, the top five most profitable small business industries are: 

  1. Home improvement services
  2. Cleaning services
  3. Tutoring services
  4. Personal training and fitness instructors
  5. Delivery services

 

Resources

 

Methodology

This study was conducted for The Zebra using Google Consumer Surveys. The sample consisted of no less than 1,000 completed responses per question. Post-stratification weighting has been applied to ensure an accurate and reliable representation of the total population. This survey was conducted in June 2021.

Copyright © 2021 InsuranceZebra, Inc. All rights reserved. For inquiries regarding this content, please contact our team at statistics@thezebra.com.

Taylor Covington
Taylor Covington LinkedIn

An in-house quantitative researcher for The Zebra, Taylor collects, organizes, and analyzes opinions and data to solve problems, explore issues, and predict trends. In her hometown of Austin, Texas, she can be found reading at Half Price Books or eating the world's greatest pizza at Via 313.