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Why are start-up survival rates not higher?

Six in ten new businesses don’t last five years and only 11% are still going strong after 15 years, according to new research.

A report from the Institute of Innovation and Knowledge Exchange (IKE) has investigated the factors driving start-up growth and long-term success.

Its findings show that most new enterprises do not grow and nearly 60% fail before five years. Survival rates across a five-year period showed 10% failing in the first year, 25% by the second, 40% by the third and by year four almost half the businesses had closed.

Survival rates per sector show that 51% of property businesses survived for five years, following by IT and communications, with 49% surviving. The most business deaths occurred in the accommodation and food sectors, where nearly 65% failed by their fifth year.

The report also studied how many jobs were created 15 years after enterprises were formed. In 1998, 239,600 businesses were established; 15 years later 26,200 of those firms were still operating, an 11% survival rate.

Across the 15-year period, enterprises with four or less employees were particularly hard hit. However, major gains to net employment came from those enterprises that started up at birth with more than 20 employees. The report found that managing growth was a particular problem - the main losses occurred when smaller start-ups tried to expand to 20-plus employees.

The report concludes that larger teams in bigger start-ups have better survival rates, are more innovative, become successful exporters, have greater business longevity and drive employment growth.