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Top 20 Reasons Why Most Businesses Fail

The worst part of an entrepreneurship is business failure. Watching your hard work, your dream, your many hours of sleepless night just dashed into the thin air. It’s a mystery, its heart breaking, and it’s frustrating worst still you may be rendered broke. But what really causes many businesses to end abruptly? What are the key indicators of business failure? What should new entrepreneurs do to increase their likelihood of success?

The worst part about failing businesses is that the entrepreneur is unaware of it happening until it is often too late. This is true because if the entrepreneur really knew what he was doing wrong, he might have been able to save the business. Some entrepreneurs live in a land of denial while others are unaware of their mistakes.

A recent statistics, according to the SBA reviled that there are over 28 million small businesses and startups in the United States. This is an impressive number, isn’t it? The sad reality about this is that only about 50% of them survive. Worse still, only about a third survive 10 years or more. The life of an entrepreneur is unforgiving, it’s a constant challenge and many moving parts. Any one of them could put you out of business. 

 While it is true that some entrepreneurs start one successful business after another, some also start one failed business after another. A point to note is this, every failed business could have been successful is one or two things were done correctly (and vice versa). What are these things that maybe were not done that leave the business clashing?

Businesses fail for many reasons. The following list includes some of the most common reasons:

     1. Lack of planning 

This is top on the list because it all begins with planning. Most businesses fail because of the no planning or inadequate planning (lack of short-term and long-term planning). Your plan should say precisely and accurately your goals or vision (for example where your business will be in the next few months to the next few years). Include measurable goals and results. The right plan will include specific how-to-do list with dates and deadlines.

The biggest mistake many entrepreneurs make as they start their ventures is that they don’t sit down and write a business plan. The goal of a plan is to keep it short and concise. It’s not a business school project. Writing a 50,000 word business plan to academics, leave it to them. Let them waste their time!! You can do a great business plan in just a few pages (one, two or three are enough). Failing to plan will destroy your business.

     2. Leadership failure 

While it is true that good planning is needed to start a business, good leadership is imperative to keep the business running. Some businesses fail due to poor leadership. A good or successful leadership must be able to make the right decisions most of the time, open to dialogue, communicate well especially with other team members, level headed, and able to handle emotional situations. From employee management to financial management, leadership failures will trickle down to every aspect of your business.

     3. Poor Marketing Strategies

It is no news that to stay in business, you must make sale. Marketing is one golden area of every business. Creating a good brand is the first challenge of marketing and getting it to your customers is the next challenge. You must have a good business marketing strategy to be able to overpower your competitors. With the advent of online marketing and social media marketing, a well planned and executed marketing plan boast the growth of your business. On the other hand, poor marketing strategies will quickly put you out of business.

     4. No differentiation 

Having a great brand (product or service) is never enough; you also have to develop a unique value proposition, without you will get lost among the competition. What makes your business unique? What sets your business apart from the competition? It is vital that you understand what your competitors do better than you. This way, you will be able build brand that is unique; better, customer can find different and can pull them to you. If you fail to differentiate, you will fail to build a better brand.

     5. Ignoring customer needs 

The customer is the king or key. This is what every business or entrepreneur will tell you but in reality, only a small percentage acts that way. Entrepreneurs that fail are those who lose touch with their customers. Your customer is a huge source of information business can use to keep track of their business progress. Keep an eye on the trending values of your customers. Ask them if they still love your products? What are they saying? Are you listening? Do they want new features?

On one of my research study on business customer’s relationship, I talked to the CEO of a training company who reviled me that they don’t respond to negative reviews because they are unimportant. What? Are you kidding me? I was so disappointed. Negative reviews to me are better than positive. The positive are only there to let you know that you are on track, that’s great. On the other hand, the negative let you know where you are failing and what you should do to put you company back on track to success. Note that customers who give you negative review are potential loyal customers, the want the best from you and are ready to stay to get that best because they believe that you can deliver better.

     6. Profit 

This is probably the first thing people think about when measuring success. Is the business making money? This is fairly common sense; no matter how big your starting resources are, if there is no money left after you have paid your monthly operating expenses and debt, your chances of success begin to dwindle. The worst scenario is the event you can’t meet up with your bills and debts. But on the other hand, if have some leftover then things are looking pretty good and your business is in the path of growth. According to a study on Small Business Trends, only 45% of small businesses are making gain, 27% are break even, and 33% are losing money.

     7. Inability to learn from failure 

Like I said at the beginning, some entrepreneur starts one successful business after another; some also start one failed business after another. Those that fail the second time are simply because he didn’t learn any lesson from the first failure. We all know that failure is usually bad, yet it is difficult to find businesses that learn from failure. Realistically, businesses fail for multiple reasons and these are events that could have been avoided. Those businesses that succeed do not do anything extraordinary; they just did what those that fail failed to do.  Often entrepreneurs are oblivious about their mistakes. Learning from failures is difficult.

     8. Poor management 

The management of your resources (time, budget, team members, investors,) is imperative. Your resources should be managed according to your target goal. No matter huge or large your starting resources maybe, if not properly manage, it will soon get exhausted or runs dry. Good examples of poor management are an inability to listen, poor communication, lack of trust, micro-managing, working without standard or systems, and lack of feedback.

     9. Lack of capital 

Capital or money is important for the daily running of the business. Lack of capital is an alarming sign or weakness in the backbone of the company. Lack or insufficient money shows that a business might not be able to meet up with its bills, loan, and other financial commitments. Lack of capital makes it difficult if not impossible to grow the business and it usually jeopardizes the day-to-day operations. It may also lead to an inability to attract investors.

     10. Premature scaling 

Scaling is a good thing if it is done at the right time. In simple tense, if you prematurely scale your business, you will destroy it. For example, you could be hiring too many people too quickly, or creating branches faster than your business resources can support or spend too much on marketing. Don’t scale your business unless you are ready. An example of a business that failed due to poor scaling is Pet.com. They failed because it tried to grow too fast, opening warehouses nationwide too soon, and it broke them. Surprisingly, the great brand equity that they had built couldn’t save them. Within a few months, their stock drops from $11 to $0.19.

     11. Poor location 

Poor location is a disadvantage that might be too much to overcome. It’s one thing entrepreneurs fail too often to achieve. The location of your business is strategic to its success. No matter how good your brand maybe, if for example it is not accessible, it will fail. Most often, startups go for the available ant not a suitable location. Therefore they start with a business that is dome to fail. If your business relies on foot traffic, for example, location is a strategic necessity. A poor location might make your customer acquisition costs too high.

     12. Inadequate inventory management 

Too little inventory will hurt your sales and too much will hurt your profitability. Therefore an adequate inventory is all a business required.

     13. Employee satisfaction

This is another key indicator of business success. Generally, a work environment that rewards employees for their hard work is great in attracting and retaining quality employees. If workers know they are appreciated, there will release their full potential and are much more likely to go the extra mile when needed. Employees are an indispensable part of your business. They are the face that greets your customers. Imagine the face of an employee who has not been paid his wages for months in front of a customer! Do everything within your power to make sure that face is a smiling one.

     14. Poor financial management

As it is with every management aspect of your business, finances should be properly managed. Use professional accounting software like Freshbooks. Keep records of all financial dealings and always make decisions based on the information you get from real data. At all times, know the level or your financial standings. If you not good with numbers, hire a financial professional or get yourself trained, at least the basics. Never use your business as you bank, it’s not!

     15. Lack of focus 

Without focus on your goals and objectives, your business will lose it’s the competitive edge. Having a broad strategy on a startup budget is impossible. Thus, startups succeed due to their ability to quickly pivot. The lack of focus leads to the inability to make the necessary adjustments.

     16. Personal use of business funds 

Your business is not your personal bank account. Deviating business funds for personal use is disadvantageous to the success of your business.

     17. Overexpansion 

Just as it is true to poor scaling, it’s easy to make the mistake of expanding your business into too many verticals. Know when to conquer new territories and before you enter new markets make sure you maximize your existing market.

     18. Macroeconomic factors 

Common macroeconomic factors are business cycles, inflation, wars, recessions, natural disasters, government debt, and business cycles. These are beyond the control of entrepreneurs. Your business can still succeed in bad times. Burger King, Hyatt, FedEx, CNN, MTV, Microsoft, GE, HP, Trader Joe’s are examples of wildly successful companies started during a tough economy.

     19. No succession plan 

Have a plan for the future leaders, identified and train him in advance. Without an effective succession plan, your company is unprepared to fill openings in created by unexpected departures, retirements, or death.

     20. Wrong partner 

It’s no secret that it is easier to succeed and grow in business with the right partners. On the contrary, wrong business partner will, at the very least hurt, or, at worst, destroy your business.

     Conclusion

Few places are more forgiving than the business world where everything adds up. In the event that your customers prefer your competitors, your employees would rather work for someone else, your partners would no longer believe in each other or the business. And that is why businesses fail.

While it is true that most businesses fail, it remains also true that many of them succeed. Businesses that succeed are not the result of magic. Entrepreneurs who lead businesses to success understand that it takes a carefully planned and executed strategy. A little luck also helps.

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