50 Reasons Why Some Businesses Fail While Others Succeed
THREE-PART SERIES: Part One
George Meszaros – Cofounder – Success Harbor 50 Reasons Why Some Businesses Fail While Others Succeed
Read Part 2 here and Part 3 here.
Why is it that so many businesses fail while so few succeed?
One of the great mysteries of entrepreneurship is why businesses fail. Some people start one successful business after another while others fail to succeed.
Why some businesses fail while others succeed?
The worst part about a failing business is that the entrepreneur is unaware of it happening until it is often too late. It makes sense 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.
One thing for sure, a business almost always fails because of the entrepreneur.
“It’s not the plan that is important, it’s the planning.” Dr. Graeme Edwards
There are over 28 million small businesses in the United States, according to the SBA.
It’s an impressive number. The sad reality is that only about 50% of them survive. What’s worse is that only about one-third survive 10 years or more. The life of an entrepreneur is unforgiving. It is a constant challenge. There are many moving parts. Anyone of them could put you out of business.
Businesses fail for many reasons. The following list includes some of the most common reasons:
1 – Lack of planning – Businesses fail because of the lack of short-term and long-term planning. Your plan should include 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 to-do lists with dates and deadlines. Failure to plan will damage your business.
2 – Leadership failure – Businesses fail because of poor leadership. The leadership must be able to make the right decisions most of the time. From financial management to employee management, leadership failures will trickle down to every aspect of your business. The most successful entrepreneurs learn, study, and reach out to mentors to improve their leadership skills.
3 – No differentiation – It is not enough to have a great product. You also have to develop a unique value proposition, without it you will get lost among the competition. What sets your business apart from the competition? What makes your business unique? It is important that you understand what your competitors do better than you. If you fail to differentiate, you will fail to build a brand.
4 – Ignoring customer needs – Every business will tell you that the customer is #1, but only a small percentage acts that way. Businesses that fail lose touch with their customers. Keep an eye on the trending values of your customers. Find out if they still love your products. Do they want new features? What are they saying? Are you listening? I once talked to the CEO of a training company who told me that they don’t respond to negative reviews because they are unimportant. What? Are you kidding me?
5 – Inability to learn from failure – We all know that failure is usually bad, yet it is rare that businesses learn from failure. Realistically, businesses that fail, fail for multiple reasons. Often entrepreneurs are oblivious about their mistakes. Learning from failures is difficult.
6 – Poor management – Examples of poor management are an inability to listen, micro-managing – AKA lack of trust – working without standards or systems, poor communication, and lack of feedback.
7 – Lack of capital – It can lead to the inability to attract investors. Lack of capital is an alarming sign. It shows that a business might not be able to pay its bills, loan, and other financial commitments. Lack of capital makes it difficult to grow the business and it may jeopardize day-to-day operations.
8 – Premature scaling – Scaling is a good thing if it is done at the right time. To put it simply, if you scale your business prematurely, you will destroy it. For example, you could be hiring too many people too quickly, or spend too much on marketing. Don’t scale your business unless you are ready. Pets.com failed because it tried to grow too fast. They opened nationwide warehouses too soon, and it broke them. Even the great brand equity that they had built couldn’t save them. Within a few months, their stock went from $11 to $0.19.
According to a study of about 3200 high growth internet startups done by Startup Genome, about 70% of the startups in their dataset scaled prematurely.
9 – Poor location – Poor location is a disadvantage that might be too much to overcome. If your business relies on foot traffic, location is a strategic necessity. A poor location might make your customer acquisition costs too high.
10 – Lack of profit – Revenue is not the same as profit. As an entrepreneur, you must keep your eyes on profitability at all times. Profit allows for growth. According to Small Business Trends, only 40% of small businesses are profitable, 30% break even, and 30% are losing money.
11 – Inadequate inventory management – Too little inventory will hurt your sales. Too much inventory will hurt your profitability.
12 – Poor financial management – Use a professional accounting software like Freshbooks. Keep records of all financial records and always make decisions based on the information you get from real data. Know where you stand all the time. If numbers are not your thing, hire a financial professional to explain and train you to understand, at least the basics.
13 – Lack of focus – Without focus, your business will lose its competitive edge. It is impossible to have a broad strategy on a startup budget. What makes startups succeed is their ability to quickly pivot, and the lack of focus leads to the inability to make the necessary adjustments.
14 – Personal use of business funds – Your business is not your personal bank account.
15 – Overexpansion – It is easy to make the mistake of expanding your business into too many verticals. Before you enter new markets make sure you maximize your existing market.
16 – Macroeconomic factors – Entrepreneurs can’t control macroeconomic factors. Common macroeconomic factors are business cycles, recessions, wars, natural disasters, government debt, inflation, and business cycles. Your business can still succeed in bad times. Hyatt, Burger King, FedEx, Microsoft, CNN, MTV, Trader Joe’s, GE, HP are only a few examples of wildly successful companies that started during a tough economy.
17 – No succession plan – Future leaders should be identified in advance. Without an effective succession plan, your business is unprepared to fill openings created by retirements, unexpected departures, or death.
18 – Wrong partner – It’s no secret that it is easier to succeed in business with the right partners. The wrong business partner will, at the very least hurt, or, at worst, destroy your company.
THREE-PART SERIES: Part Two of “50 Reasons…” will appear in the next issue of the Southern Oregon Business Journal
| George Meszaros george@successharbor.com |
| www.successharbor.com |
This is a good list. And I believe there is also another reason why most businesses fail – lack of desire to make/grow it.
Government policy
Great List! Very enjoyable read! However, there is another thing that might be of consideration; The CEO having self-awareness and being willing to change their management style and adjusting to situations, in short – CEO adaptability.