Twenty-Six Years In, Firms That Started With One to Four Employees Still Close More Than Twice as Often

Census business data, 2010 to 2023: the number of people a company starts with stays attached to its odds of closing for decades.

The size a firm started at

Most closure statistics sort businesses by how old they are or how big they are now. The Business Dynamics Statistics also publish a third cut: how many employees a firm had in its first year. A firm that opened with three people and grew to forty stays in the one-to-four group for life. A closure here means every location the firm ran stopped having employees, and the rate is the share of firms that closed in the year to March. Sorted that way, the youngest firms show what everyone expects: at one year old, 23.4% of the firms that started with one to four employees closed in 2023, against 13.1% of those that started with five to nine. What nobody tells you is how long that gap lasts.

Firms that opened with one to four people still close more often a quarter century later.

Twenty-six years later, the gap is still there

An earlier piece here found that surviving 26 years cuts a business’s odds of closing a long way. Split by starting size, the cut is not the same for everyone. From age one to 26 and older, the closure rate fell 59% for firms that started with one to four employees and 69% for firms that started with five to nine, and the smaller starters had the smaller fall in every year from 2010 to 2023. At 26 and older the rate drops at every step of starting size: 9.7% for one to four, 4.1% for five to nine, 3.4% for 10 to 19, 2.5% for 20 to 99 and 1.3% for 100 to 499. That is 383,644 firms in the one-to-four group alone.

Not one year’s quirk

The gap at 26 and older is there in every year from 2010 to 2023. From 2014 to 2023 the rate for the one-to-four starters ran from 7.1% to 9.7%, and for the five-to-nine starters from 2.9% to 4.1%. The ranges never meet. In every year from 2015 to 2023, a firm 26 years or older that started with one to four employees closed more often than a four-year-old firm that started with five to nine. And for the smaller starters the rate flattens out after about 11 years: from 2015 to 2023, the age bands from 11–15 to 26+ sat within 1.2 points of each other in every year.

What to take from this if you started small

If your business opened with you and a couple of people, the national numbers say time alone does not buy the safety it seems to. The risk drops hard in the first years and then levels off, and it levels off higher than it does for firms that started with five to nine. That is worth knowing before you decide the business is past the dangerous part. The data do not say why, so do not read it as a verdict. Read it as a prompt: whatever a bigger start gives a firm, whether it is more money, more customers or more people who know how the work is done, ask which of those your business still runs short of, and build it on purpose.

Four limits worth holding. The data cover employer firms only, so businesses with no employees are not in them. Initial size is the firm’s employment in its first year in the data, so firms founded before 1978 have no starting size and are left out. A closure means every location stopped having employees, so a business that was sold and kept running is not counted as closed. And the file shows who closed, not why: it does not show that starting bigger keeps a firm open, only that the firms that started bigger closed less often.

Published by The Lonely Entrepreneur — the community and coaching platform for entrepreneurs who are building alone. lonelyentrepreneur.com

This article is for educational purposes and is not a substitute for professional financial or legal advice.