New firms are believed to have high closure rates and these closures are believed to be failures, but two U.S. Census Bureau data sources illustrate that these assumptions may not be justified. The Business Information Tracking Series (BITS) showed that about half of new employer firms survive beyond four years and the Characteristics of Business Owners (CBO) showed that about a third of closed businesses were successful at closure. The CBO also made it possible to compare results of models of business survival and business success, but because of non-response bias logit models were used. Similar to previous studies, firms having more resources – that were larger, with better financing and having employees – were found to have better chances of survival. Factors that were characteristic of closure – such as having no start-up capital and having a relatively young owner – were also common in businesses considered successful at closure. Hence, few defining factors can be isolated leading to true failures. The significant proportion of businesses that closed while successful calls into question the use of "business closure" as a meaningful measure of business outcome. It appears that many owners may have executed a planned exit strategy, closed a business without excess debt, sold a viable business, or retired from the work force. It is also worth noting that such inborn factors as race and gender played negligible roles in determining survivability and success at closure.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
Åstebro, T. and I. Bernhardt, 1999, Bank Loans as Predictors of Small Start-up Business Survival, Working Paper, Department of Management Sciences, University of Waterloo.
Audretsch, D. and T. Mahmood, 1995, 'New Firm Survival: New Results Using a Hazard Function', The Review of Economics and Statistics, 97–103.
Bates, T. and A. Nucci, 1989, 'An Analysis of Small Business Size and Rate of Discontinuance', Journal of Small Business Management 27, 1–8.
Bates, T., 1995, 'A Comparison of Franchise and Independent Small Business Survival Rates', Small Business Economics 7, 377–388.
Bates, T., 1990, 'Entrepreneur Human Capital Inputs and Small Business Longevity', The Review of Economics and Statistics 25(4), 752–756.
Everett, J. and J. Watson, 1998, 'Small Business Failure and External Risk Factors', Small Business Economics 11, 371–390.
Greene, W., 1993, Econometric Analysis, Second Edition, New York: Macmillan Publishing Company.
Hamilton, L., 1992, Regression With Graphics: A Second Course in Applied Statistics, Belmont, California: Duxbury Press.
Headd, B., 2001, Business Success: Factors Leading to Surviving and Closing Successful, Discussion Paper, CES 2001-01. Washington, D.C.: Bureau of the Census, Center for Economic Studies.
Headd, B., 1999, The Characteristics of Business Owners Database, Discussion Paper, CES 99-8. Washington, D.C.: Bureau of the Census, Center for Economic Studies.
Holmes, T. and J. A. Schmitz, 1996a, 'Managerial Tenure, Business Age, and Small Business Turnover', Journal of Labor Economics 14, 79–99.
Holmes, T. and J. A. Schmitz, 1996b, 'Nonresponse Bias and Business Turnover Rates: The Case of the Characteristics of Business Owners', Journal of Business and Economic Statistics 14n2, 231–241.
Jennings, P. and G. Beaver, 1997, 'The Performance and Competitive Advantage of Small Firms: A Management Perspective', International Small Business Journal 15, 63–75.
Maddala, G. S., 1992, Introduction to Econometrics, Second Edition, New York: Macmillan Publishing Company.
Morel d'Arleux, C., 1999, 'Entrepreneurs' and Managers' Visions of Success in Small Firms: A Comparative Analysis', Presentation at the Babson Conference on Entrepreneurship.
Phillips, B. and B. A. Kirchhoff, 1989, 'Formation, Growth and Survival; Small Firm Dynamics in the U.S. Economy', Small Business Economics 1, 65–74.
Robb, A., forthcoming, The Role of Race and Gender in Business Survival, Discussion paper (in press), Washington, D.C.: Bureau of the Census, Center for Economic Studies.
Robb, A., 1999, New Data for Dynamic Analysis: The Longitudinal Establishment and Enterprise Microdata (LEEM) File, Discussion Paper, CES 99-18. Washington, D.C.: Bureau of the Census, Center for Economic Studies.
U.S. Bureau of the Census, 1997, 1992 Characteristics of Business Owners, Washington, D.C.: Government Printing Office.
Watson, J., and J. Everett, 1996, 'Do Small Businesses Have High Failure Rates?', Journal of Small Business Management 34(4), 45–62.
Watson, J. and J. Everett, 1993, 'Defining Small Business Failure', International Small Business Journal 11(3), 35–48.
Williams, M., 1993, 'Measuring Business Starts, Success and Survival: Some Database Considerations', Journal of Business Venturing 8, 295–299.
About this article
Cite this article
Headd, B. Redefining Business Success: Distinguishing Between Closure and Failure. Small Business Economics 21, 51–61 (2003). https://doi.org/10.1023/A:1024433630958
- Business Owner
- Business Success
- Plan Exit
- Exit Strategy
- Business Outcome