Top 10 Reasons Why Businesses Fail

Business is passion, planning, and funding combined. Unfortunately, sustainability may not be for all hard-doers. Despite all that ambition, you’ll be surprised to know that 70% percent of businesses in America tumbled within a mere decade.

The first few months, or a year even, may promise a field of success for most. In the succeeding years, when numerous challenges crop up, businesses face the threat of toppling over. Business owners usually make the mistake of sweeping critical issues under the rug–critical issues that include, among many others, mistakenly investing in niche ventures that don’t really have a solid market. Business owners call it having proper foresight.

Businesses fail due to many factors, such as poor management, lack of market research, inadequate capital, and rapid market changes. When any of these factors are neglected, businesses can be left behind or quickly become unsustainable.

But beyond that, small businesses fail for a number of reasons. Let’s take a look at the ten main causes of this phenomenon:

1. Ineffective leadership

Did you know that companies invest so more in leadership development than in any other avenue of learning? With that, however, only 70 percent of entrepreneurs believe they hold the future of the company in their hands. Leaders are not just born; they are made through experience.

It’s not enough for businesses to have leaders who are simply good at “leading” with no strategy or rapport. In fact, many leaders end up micromanaging their employees, resulting in low morale and productivity.

Much is demanded of new businesses, and when issues arise, plowing through its thick, muddy struggles can be extremely difficult for unseasoned leaders. It all starts with bold and grounded pioneers, and for the business to continue to thrive, they all need to be unrelenting mentors.

Motivation is a driver, but effective continuity from a weathered front-runner steers the troop. A business needs leaders who pay attention to the little things–from constructive criticism to employee needs. These little markers add up to effective leadership. As they say, the right leaders don’t just lead others to leap like a lion; they look at the wildlife in its entirety.

2. Failure to understand the target market

Good planning and market research are vital to any business. Never just “wing it” or you’re bound to crash. If you’re setting up a quirky new food or clothing line that isn’t exactly turning heads, you’re doing it all wrong.

If you want to be a smart business owner, you must be able to project the consumer’s wants and needs and deliver to them in ways that exceed their expectations. It’s not always about giving consumers something unique in the long line of stalls; you must also know the fundamentals of your target market.

You would want to know what your target market looks for regularly and how much they are willing to spend. You also need to understand at least how your service fosters customer loyalty.

Besides knowing your target market and what they want, as a growing business, you must also know and anticipate your competition. Gathering and analyzing market information will keep you on top of your game and not blipping below the radar. Ultimately, you want to speed past your competitors if it were a choking race.

3. Lack of long-lasting value

Successful companies succeed with this main ingredient: exceptional delivery of goods. First, a promise, then the steady production but most of all, mind-blowing upkeep of goods. A company fails to succeed when it begins to underdeliver.

The mistake with many small businesses is that they get so excited about earning the first treasure fast that they forget what needs to be done to do just that! That’s a red flag right there, and you can be sure customers will know you’re simply after their pockets, not really their satisfaction.

Add value to the goods you sell or the services you provide, outsmart your competitors, and make sure your customer is happy doing business with you. Be a value deliverer, not a mediocre or just-getting-by establishment. If it is your investment that you’re concerned about, remember that you profit only by creating value for your customers, and that’s where your focus must be.

4. Lack of transparency

A business that lacks authenticity is bound for a fast nose-dive. Practicing transparency in business and understanding your customers’ needs go hand in hand. Just because you become the best new business of the week doesn’t guarantee that you’ll always stay at it. Keeping your market’s demands in check and delivering quality products and services at all times will keep you rowing against higher tides.

Another tip to remember is never to fixate on the wrong angles of the business. This will lead to the loss of your customer’s trust for good. You can’t be working too hard on new ice cream flavors when your customers only want more chocolate or perhaps more variations of it. When trying to work your way up, never take your customers’ demands for granted.

It also pays to ensure your products and services don’t lose their luster in time. Make improvements and try hard to meet customer needs. You’ll know you did something right when they keep coming back.

5. Reliance on a single customer

Practically all businesses start small. And when you’ve hit the right buttons and your business made it don’t lose track of what put you in that position. At the same time, don’t be fooled into thinking your product, service, or strategy will always work for that one happy customer.

What you want is to never become overly dependent on one or two business favorites. Don’t rest on your laurels, either. Instead, constantly look for new ways to expand and gain the trust of other clients. Customer strategy is essential to luring in the fat fish; you would want them over the ones swimming in the shallows.

Diversity is key, and that’s very true for internationally acclaimed businesses today. Always map out your customer network and never rely on “just the first few” top clients. Be an influencer, not a dependent. And if you’re a startup, be in the know of helpful tips.

6. Zero cost control and accountability

A well-functioning business is one that always keeps track of where the money goes. Investing in a new project or professional venture is a bold step. You must always be accountable for every financial decision you make in pursuit of these promising businesses.

However, many business owners do not keep a record of their sales on a daily basis. That’s a big misstep. Every business owner needs to plan and manage every project and never compromise the monitoring of expenditures.

Some entrepreneurs think that when their business starts making money, they should upgrade their facility immediately. Check how your operations are doing, and never spend on something you know you can’t afford at the moment. Instead of growing your business, you may be grooming it toward failure.

Others also reward themselves by spending big. Avoid these mistakes by sticking to proper budget planning and resisting the urge to spend. Chances are, it’s too soon for you to be forming frivolous spending habits.

Making proper financial decisions is one of the most critical balancing factors to ensure entrepreneurial success. In the realm of business, true success takes patience and accountability skills.

7. Lack of personal growth

Growth means reaching out to creative, lucrative, and inspiring business resources. Attending seminars, meeting new people, and welcoming new professionals are just some of the ways to work up the ladder in business. The more you know about the industry of focus, the more skills you develop, the more connections you meet, and the more concrete and long-term success you earn.

If you are too fixated on your own strategy and believe it’s the only solid pathway to consistent success, you can’t be any more mistaken. Growth is about building yourself around new opportunities and welcoming connections and knowledge that enrich your mind, your business, and your life altogether. This is the winning formula for every successful person out there.

8. Lack of concrete business systems

From managing sales records to operating CRMs needed to run the database, all technologies and systems are created to ensure that businesses of all sizes and industry verticals run smoothly. As such, these must always be up-to-date and customized. Good business groundwork doesn’t squat to make ends meet; they invest in the right programs and security systems. They keep up with today’s innovative technologies that help boost businesses.

This is the 21st century, where automation is an indispensable concept. Without advanced business technologies, you will be slugging behind your competitors and struggling to meet market demands. If you need to create more than one platform for your products and services, today’s business systems let you do it systematically.

In fact, this is what online marketing is all about; you get to keep as many websites and platforms as may be reasonably necessary to get the word about your business out there. You can hire website developers, SEO specialists, and similar experts to strategize your online placements. Hire more workers who can build your online presence; find the fastest way to promote brand awareness.

Business owners and professionals need to create, operate, and maintain long-standing and efficient systems for their ventures to make a mark. Why not start with free tools for your small business as you work your way to the top? See for yourself how up-to-date tools are the future of sturdy businesses.

9. Failure to create a sense of trust

Businesses may be about pleasing your consumers and profiting, but those two things aren’t the end-all and be-all of doing business. At the end of the day, it’s also about understanding and catering to the needs of your employees. Like it or not, you need your people to grow your business.

They are trained, they are skilled, they know the business operations, and they work hard and put in the right amount of work (or even more) as long as they’re properly compensated–and trusted.

Never be the type of employer or business owner that sits at the top and forgets who else is doing important work. It’s not a wall but a bridge that you must build between you as the boss and your workforce.

In many cases, all it takes for employees to become deeply loyal workers is for them to feel that they are valued. When they get what they have been promised and are rewarded right, they are most likely to reciprocate by exceeding your expectations.

Trust is a dangerous word in the business arena. But because your employees are also practically family, they are expected to look after your business’ welfare. Be aware of who’s loyal and who isn’t. And always be reasonable when making business decisions that directly affect them.

10. Not competing enough

Are you a match with your colossal competitors? It may all be a long shot in the beginning, but to rise through the ranks, you need to meet the big sharks on the way. The marketplace is tough enough with its numerous competitive businesses each trying to outdo the other.

A start-up must learn to start battling tougher and more renowned moguls in the industry to at least make a blip in the scheme. This is another reason why hiring the right professionals in your new business is a smart move. Don’t settle for less or swim on the same surface, or you’ll never make it to the deeper, greater ends.

The market is a fast-speeding train with crates waiting to pound the surface and passengers that perhaps want to swindle you on your way there. Don’t get choked, and maneuver wisely through the passages. This requires a great strategy, critical thinking and planning, and sharp intuition in your every move to rocket past the competition. Really, it doesn’t matter how big their jets are.


What should I do if my business fails?

If your business fails, it can be a complicated and overwhelming experience. The first step is to take a step back and assess the situation. Consider the factors that led to the failure and analyze the potential causes. Once you have identified the issues and what went wrong, start evaluating possible solutions.

Consider ways to restructure the business, such as cutting costs, diversifying, or pivoting to a new business model. Additionally, look into obtaining financial assistance through traditional or alternative financing options. Lastly, consider seeking advice and guidance from a business consultant or mentor who can provide guidance and help you develop an action plan for moving forward.

And… perhaps, most importantly… Don’t Give Up!

What percentage of new businesses fail, and what percentage of new companies are successful in their first year?

The percentage of new businesses that fail or are successful in their first year varies depending on the industry and other factors. However, it is estimated that up to 50% of new businesses fail within their first year. The success rate of new companies in their first year is calculated to be around 4045%.

What is the number one tip for starting a new business?

The number one tip for starting a new business is to create a detailed business plan. A thorough business plan will lay out the entire structure of the business, outline goals, and create strategies to reach those goals. It is important to identify the resources needed to reach the desired goals, such as personnel, financial, and market resources.

By taking all of these factors into account, a business owner can begin to understand and evaluate the success of the business.

To Sum It All Up

Keeping a business and taking it to the top takes plenty of skills, research work, extensive experience, and expert professional know-how. Wanting to own a business is one thing; maintaining and continuously strategizing to keep it from failing is a completely different story.

Are you cut out for the big business arena? We leave you with this video that reveals the secrets to making your business a real success:

Rowan Jones
Chief Editor