Data on Small Business Survival Rates - They're Higher Than Commonly Believed

Over the last couple of months we've been researching the risks and returns associated with small business ownership, and the trade-offs between entrepreneurship and employment at larger firms.  Related to this, the SBA has an interesting research paper with the title "Volatility and Asymmetry of Small Firm Growth Rates Over Increasing Time Frames". 

If the snappy title of this report did not catch your eye, you missed some very interesting data on small business survival rates.  Key quote from the report:

Survival rates over the five-year period were similar for the different size classes, except the smallest. The survival rate for establishments with 4–7 employees was 75.3 percent; this rate slowly rose to 84.2 percent for the 512–1,023 size class. Even small size classes had relatively high five year survival rates, 61.4 percent for one-person establishments and 70.1 percent establishments with two to three persons.

The rule of thumb you often hear on small business survival is that 50% fail in the first few years.  This data obviously shows that the survival rates are much higher than common wisdom.  This data also probably understates the success rates somewhat because some small businesses that don't survive are still successful.  For example, companies that are acquired or merge often are successful even though they don't survive in a statistical sense.

With other data pointing to decreased small business volatility, we are starting to see a broader picture of better than commonly believed small business ownership risk/return ratios.