By Andrew Miller
Today, we’re going to dive into a common business myth.
You’ve probably heard that “nine out of ten restaurants fail in their first year.”
The line shows up in business articles, investor decks, and it’s often told to anyone thinking about starting one. It’s usually traced back to an American Express commercial from the early 2000s.
But there’s no data behind it.
It’s just a number that kept getting repeated because it sounded right and nobody checked.
So in 2014, someone finally decided to check it out. Two UC Berkeley statisticians, Tian Luo and Philip Stark, ran survival analysis on twenty years of Bureau of Labor Statistics records covering 81,000 full-service restaurants in the western United States.
Independently owned restaurants failed in their first year 17% of the time. That was slightly better than the 19% first-year failure rate for other service businesses in the same records.
The research paper they published opens with the question directly: do nine out of ten restaurants fail in the first year? No.
The longer odds are real, but they are ordinary. In the same data, the median restaurant lasted about four and a half years. That’s a little longer than the median for other service businesses.
Restaurants were not the death trap the number implied. They were roughly average.
Set against the myth, the picture flips. A restaurant startup is not walking into a 90% death sentence. Instead, it’s a challenging business with first-year survival odds better than plenty of service businesses nobody bothers to warn people about.
The number stuck around because a frightening statistic travels further than a dull one.
Explaining how 83% of restaurants make it through the first year doesn’t set off warning bells. However, warning that nine out of ten fail does.
Spreading panic is exactly how an unverified number outran two decades of government data.
All these years later, and it’s still the first thing most people repeat about the restaurant industry.
P.S. The odds might be against you. The funding doesn’t have to be. Signet can get your business funded in as little as 24 hours. Let’s talk.