Most businesses fail. Depending on which studies you read and believe, somewhere between three and four fail in the first seven years.
The U.S. Small Business Administration (SBA) says 50% fail in the first YEAR!
Those are not very good odds, are they?
And yet, according to a new Kauffman Foundation Study, more than 500,000 new businesses are launched in North America every month. That’s over 6 million start-ups each year!
Entrepreneurs must be a very optimistic bunch, indeed.
But do you know why so many just don’t make it?
I’m sure you’ll agree that knowing the most common reasons businesses fail is excellent information. If we know the pitfalls, we can do a much better job of planning around them and working to avoid them.
Based on the SBA, Entrepreneur Magazine and a few other reputable sources, here’s what I compiled as the Top Ten Reasons for Business Failures.
However, I don’t fully agree with them. And I will tell you why.
By the way, these are not ranked in any particular order.
- Insufficient Capital (money)
[Yeah, if you have a ton of money you can afford to make a lot of mistakes.] - Poor Management and Lack of Experience
[Makes sense.] - Poor Location
[Hard to argue with this one. You either got it or you don’t.] - Poor Inventory Management
[Could this really be in the top ten?] - Over-Investment in Fixed Assets
[Yes, renting and leasing is often a better option.] - Poor Credit Arrangements
[When you can prove you don’t need the financing, you can get great terms.] - Ineffective Marketing and Promotion
[(See #10) All business requires sales.] - Overexpansion or Unexpected Growth
[Growing too fast can be as bad as too slow—sometimes worse.] - Competition
[Gee, if it weren’t for those darned competitors.] - Low Sales
[Yes, I can see why this would make the top ten.]
You might be nodding your head at this list. It does seem somewhat reasonable.
But I think these are only SYMPTOMS of business failures.
And, I will tell you why I think so, with MY ‘Top Ten List of Reasons Businesses Fail’.
Many business experts are like doctors who treat symptoms instead of the true root causes of disease and disorders.
Usually, by the time the symptoms of these business failures become evident, it’s too late to do much about them.
I think it’s much more cost-effective to be proactive and address these issues ahead of time so they don’t sneak up and bite us.
So here’s my list of reasons. Again, these are not in any order of importance.
- Not Being Clear on Your Core Values, Mission and Vision
This is your foundation—the bedrock of your business. And yet, less than 1 in 40 businesses ever take the time to figure out who they are, why they exist, what they stand for and what the business will look like in 3-5 years. - No Clear Business Model
What business are you really in? Believe it or not, most people I talk with don’t really know. Your business model is your vehicle to take you to where you want to go. It has to be the right vehicle. It has to be dependable and cost effective. Otherwise, you will run out of gas or break down on the commercial highway. - Unclear on Target Market
Knowing who you serve and how you can find your prospects is critical. Business owners need to clearly identify their niche. It has to be big enough and be able to afford what you have to offer. Identifying and then elegantly serving this niche is an area that is often underestimated. - Not Clear on USP
Your Unique Selling Proposition is how you differentiate yourself from all the others in your field. It needs to set you apart from the herd, making it clear what you do and how you do it better than others. - No Written Strategic Plan
Few people would argue against having a well-thought-out plan and then following and revising that plan as you go along. But hardly anybody does. - Inadequate Systems and Controls
You can’t change what you don’t measure. And most businesses I’m familiar with have few—or no—meaningful metrics. You would never think of driving your car without looking at the instruments and gauges in your dashboard giving you feedback as you progress. You need a dashboard for your business, too. - Inability to Adapt
We live in a time of unprecedented change. And failing to adapt to the market, your industry and your customers’ changing needs is a sure way to become an also-ran. - Not Paying Enough Attention to Relationships
Business is ALL about relationship. A 21st century business needs to respect and care for all stakeholders and clients. Communicate, listen, respond and pay attention to those you serve and those who serve with you. - Not Having the Right Team
As Jim Collins says in ‘Good to Great’, you need the right people on the bus and you need them in the right seats. You need to delegate effectively. You need good systems and documented processes to make it easy for everyone on the team to do their job in a consistent and error-free manner. - Inadequate Support System, Advisors, etc.
Anything worthwhile requires more than you. You need mentors, advisors and people who will tell you the truth. My hearty recommendation is to have an ongoing mastermind team that can be like a board of directors for you and your company.
Most small business owners are technicians and fail to make the transition from technician to business manager and leader.
They also don’t maintain enough perspective to see what they’re doing that isn’t working and what they’re not doing that they should be.
Ultimately, the reason why businesses fail is a lack of clarity and focus.
Running and growing a business is a matter of utilizing money, equipment, time and people efficiently and effectively. It’s simple, but it’s not usually very easy.
SuccessNet is dedicated to helping you navigate the challenging waters of growing you and your business. Everything we do is designed to support you and your company to grow and prosper.
By having the proper support, you can position yourself to be in the minority of all businesses that are started—the ones who succeed.
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