Ask any entrepreneur and he or she will likely tell you that starting a business isn’t easy. It takes long hours, lots of dedication and often a lot of money to get a business up and running. Given the obstacles, it’s not surprising that half of the businesses with employees don’t survive even five years, according to the Small Business Administration.
If you’re thinking about starting a business, it’s important to know that some types of businesses are harder to start and keep afloat than others. Using U.S. Department of Labor data on survival rates of establishments, GOBankingRates identified which industries have lower survival rates, making them more difficult to start and maintain.
Click through to find out which businesses are challenging to start and why startups fail.
Mining, Oil and Gas Extraction Companies
Five-Year Survival Rate: 40.4 percent
Less than half of mining, oil and gas extraction businesses survive past five years, according to the Bureau of Labor Statistics. And only 28.5 percent of companies in this industry survive at least 10 years. Plus, the oil and gas extraction industry was one of the least profitable industries in 2017, according to data from financial information company Sageworks.
Why Mining, Oil and Gas Extraction Companies Are Hard to Start
Oil and gas extraction businesses require a significant amount of start-up capital — hundreds of millions to even billions of dollars, according to Rigzone, an online resource for news and data on the oil and gas industry. You need funding to buy land and equipment. And labor costs are high in this industry because salaries are relatively high, according to the U.S. Department of Labor data.
Five-Year Survival Rate: 44.3 percent
The information industry includes publishing companies, telecommunications companies and software publishing companies. About 44 percent of companies in this industry that were started in 2013 were still in business as of 2018. And only 25 percent have survived 10 years, according to the U.S. Department of Labor.
Why Information Companies Are Hard to Start
Starting an information industry business can be tough because there are a lot of barriers to entry, according to investment management firm PIMCO. For example, telecommunications companies need to get federal transmission licenses, which are scarce. Plus, this industry is dominated by large conglomerates, which makes it hard for start-ups to compete, according to PIMCO.
It also can be hard to make a profit in this industry. For example, radio and television broadcasting companies and newspaper and book publishers were among the least profitable industries in 2017, according to data from Sageworks. And labor costs can be high. According to the U.S. Department of Labor, the average hourly earnings in the information industry are among the highest of all industries.
Professional, Scientific and Technical Services
Five-Year Survival Rate: 46.4 percent
Companies in this industry specialize in providing legal, accounting, engineering, computer systems and scientific research services. These sort of services require a high level of training and expertise, according to the U.S. Department of Labor. Less than half of companies that provide legal, scientific and technical services survive past five years. Only about 29 percent make it to 10 years.
Why Professional Services Companies Are Hard to Start
A professional services company might actually be a relatively easy business to start. This industry has a higher number of firm births — or startups — than many other industries, according to the Small Business Administration. But given that about an equal number of professional, scientific and technical services companies close in a year as open, keeping a firm in this industry afloat could be a challenge.
One of the biggest problems facing this industry is delinquent accounts — in other words, getting paid, according to the NFIB Research Foundation. Tax issues also are a problem in this industry.
Five-Year Survival Rate: 46.5 percent
Wholesalers sell goods or raw materials to businesses. Basically, they’re middlemen between manufacturers and retailers. Less than half of wholesale trade companies survive five years, and less than one-third survive 10 years, according to the U.S. Department of Labor.
Why Wholesale Trade Companies Are Hard to Start
There are several reasons starting a small business in the wholesale industry and staying in business can be a challenge. There’s a lot of competition in the industry, according to the NFIB Research Foundation. Wholesale distributors also have trouble getting paid by retailers that are hurting from weak sales.
Transportation and Warehousing Companies
Five-Year Survival Rate: 50.1 percent
Only about half of transportation and warehousing companies survive years, and one-third stay in business for 10 years, according to the U.S. Department of Labor. The transportation industry includes both transportation of passengers and cargo, whereas the warehouse sector includes storage for goods.
Why Transportation and Warehousing Companies Are Hard to Start
There are a variety of costs associated with starting a transportation company, according to Apex Capital, which has a trucking startup program. On top of the vehicles you have to buy, there are insurance costs, registration fees, various taxes, fuel, maintenance and the list goes on. Employment regulations, environmental regulations and the cost and frequency of lawsuits also are problems for this industry, according to the NFIB Research Foundation.
Healthcare and Social Assistance Companies
Five-Year Survival Rate: 55.1 percent
The survival rate among healthcare and social assistance companies is slightly higher at the five-year point than the national average. However, less than half of healthcare companies survive beyond five years. About 43 percent make it 10 years, and less than a quarter last 20 years.
Why Healthcare Companies Are Hard to Start
Healthcare is one of the fastest growing industries. However, the barriers to entry in this industry are high, according to investment management firm PIMCO. There’s a lot of regulatory red tape. Plus, to be a healthcare provider, it typically takes years of specialized education.
And not all healthcare and social assistance companies are big money makers. For example, continuing care retirement communities and assisted living facilities are among the least profitable industries, according to data from Sageworks.
Accommodation and Food Services Companies
Five-Year Survival Rate: 55.3 percent
This industry includes restaurants and lodging such as hotels and motels. Like healthcare companies, slightly more than half of accommodation and food services companies survive at least five years. But the survival rate drops quickly after that point. Only 38 percent of companies in this industry last 10 years.
Why Accommodation and Food Services Companies Are Hard to Start
The costs of building hotels can be high, and it can be tough for new companies to build brand awareness, according to investment management firm PIMCO. The costs of opening restaurants also can be high — from the site to the equipment to the labor, according to Modern Restaurant Management magazine. And don’t expect to get rich quick with a restaurant. Data from Sageworks show that restaurants and eating places were among the least profitable industries in 2017.
More on Starting a Business
- 20 Best and Worst Cities in America to Start a Small Business
- Powerful Ways to Build Your Entrepreneurial Skillset
- 30 Cities Where Small Business Owners Are Thriving
- Watch: How One Millenial Turned His Photography passion Into a Profitable Business
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