Home > Information Technology > The Top 5 Reasons Small Businesses Fail (And How You Can Conquer Them)

The Top 5 Reasons Small Businesses Fail (And How You Can Conquer Them)

Being a small business owner is no easy task. More often than not, you’re trying to break into a well-established market, going head-to-head with industry veterans. On top of that, there are literally hundreds of variables you need to account for – from marketing to staff to supply and demand.

“Starting a company is no walk in the park,” writes Roy Osing of The Globe and Mail. “Entrepreneurs and small business owners will tell you that growing a business requires hard work, dedication, and strategic planning to succeed.”

In other words, it’s not a job that just anyone can do. With that in mind, it should come as no surprise that more than half of businesses don’t survive past their fifth year. How can you ensure your small business is one of those that does?

Easy – by understanding how you might fail and taking preventative measures against that failure.

1. Something Was Broken Right From The Start

One of the first things that any decent artist, entrepreneur, or developer will tell you is that not every idea is a good one.  Sometimes, you’re going to come up with a concept that you absolutely love, only to find out that it’s absolutely busted in practice. Although it may sound a bit hyperbolic, just remember: on paper, Communism is an excellent system of government.

This can apply to anything, by the way – not just the core concept of your business.

How Can I Avoid This Pitfall?

One word: research. You need to understand the market you’re going into, you need to know your consumers, and you need to study up on business strategies and concepts. More importantly, you need to understand that not everything you come up with is workable – you need to be willing to admit that you’re fallible.

“It was hard to admit the idea wasn’t as good as I originally thought about or that we couldn’t make it work,” explained entrepreneur Keith B. Nowak, looking back on the failure of startup Imercive. “If we had been honest with ourselves earlier on, we may have been able to pivot sooner and have enough capital left to properly execute the new strategy.”

Oh, speaking of Nowak; one of the best ways to learn more is to read company post-mortems. There are some incredibly well-written ones out there, and all of them can provide a great deal of insight into how your business might fail – and how you can prevent that from happening.

2. “Marketing? What’s That?”

It’s an unspoken rule of the business world: if no one knows about your organization, no one’s going to buy from it. So many business owners have seen their sales slump and profits drop into the toilet simply because they don’t know how to get the word out. They don’t know how to get in touch with their customers, and their brand ends up cracking apart as a result.

How Can I Avoid This Pitfall?

To quote Jayson DeMers of Forbes, “start marketing. If you lack money, then invest an hour or two a week to read a few marketing books, blogs, or articles and teach yourself how to use social media, blogging, and PR to draw more people to your website and/or your store. If you’ve got more money than time, get a quote from a few marketing consultants or freelancers.”

While you’re at it, take the time to do a bit of research on Search Engine Optimization (and if you don’t have a website, make one). Moz has a great beginner’s guide that’ll help you get started in that regard – and there are plenty of other resources online if you’re willing to spend a bit of time looking.

3. The Culture Was Way Too Toxic

If shouting matches between the founders or executives of your company are a regular occurrence, you may just have some extremely passionate, spirited people at the helm. You might also be on the road to failure. Speaking to CNBC, Jones Day attorney Andrew Sherman likened conflict between company heads as akin to two parents fighting in the days leading up to a divorce.

Not surprisingly, that tends to kill morale in the workplace.

There’s also your employees to consider, of course. If your staff isn’t stoked to come to work every day – or worse, if they’re actively trying to sabotage your business – you need to take action immediately. If you don’t, you’re well on your way to a catastrophic failure.

How Can I Avoid This Pitfall?

Aside from hiring a company therapist?

Make sure your business has an exit plan in the event that one or more of its founders or executives checks out. You should never go into any relationship expecting that the other partner (or partners) will always be there – least of all a business relationship. If you don’t have a game plan for when you lose a partner, then it’ll hit your business hard.

It probably won’t survive the impact.

On the employee side of things, you need to always go out of your way to foster a positive workplace environment. Show respect to your staff, and do whatever’s necessary to make sure their job is one that they love. Part of that is having a clear vision for your business – and an established set of values you can instill in your colleagues.

4. The Owner Couldn’t Handle The Pressure

Not everyone is cut out to run their own business. It’s an extremely high-stress job, given to long hours and plenty of roadblocks. It’s all too easy for a founder to buckle under the pressure and burn out.

Unfortunately, that means the business is likely to buckle with them.

How Can I Avoid This Pitfall?

Aside from having an exit strategy – a plan for what happens when the owner doesn’t care anymore – you can’t. It’s therefore important before you go in that you understand exactly what running a business entails; it’s almost three times more stressful than raising children. If you’ve ever seen a new parent, you’ll know precisely what that means.

5. The Business Simply Wasn’t Managed Well

I’ve seen far too many examples of poor management in startups and small businesses alike to recount them all here.

Maybe the founder didn’t fully understand their market when they went in. Maybe the owners failed to communicate, with either themselves or their staff. Maybe they relied too much on a single point of failure, and the whole business collapsed as a result. Maybe they had no revenue stream, and they simply ran out of money.

Or maybe they just didn’t bother to write up a business plan, like the founder of Realtime Worlds.

How Can I Avoid This Pitfall?

We’ve come full circle; the best way to avoid this pitfall is the same as the best way to avoid the first: research. Make sure you know exactly what’s involved in penning a successful business strategy, and make liberal use of every single knowledge source available to you. You absolutely need a plan here – if you don’t have one, you’re done before you’ve even started.

A Difficult Road To Success

Starting a company is never easy, and there’s a whole lot of ways you can fail right out the door. It’s important to understand the ways in which you might end up crashing – along with the fact that the failure of a brand can rarely be linked to any single variable. Usually, it’s a whole number of factors, all of which can be avoided with enough foresight.

Running a successful business is an extremely challenging venture – but it’s also one of the most rewarding things you’ll ever do. Sure, there are plenty of ways your business can fail; don’t let that discourage you.

Nothing is worse than the regret of never trying.

Share this article
Share on Facebook
Facebook
Tweet about this on Twitter
Twitter
Share on LinkedIn
Linkedin
Chris Niedojadlo

Chris Niedojadlo

Chris Niedojadlo is the COO of ServerMania.

  • Great article Chris, some valid points here. I think most top level management you come across can be branded as dictators, not actual leaders who contribute to the team. That’s one of the biggest pitfalls we see. I’ve actually created an article on this topic and detailed 15 super effective ways to turn around a failing business. If you get the opportunity, let me know what you think 🙂 https://www.searchcontrol.co.uk/blog/15-powerful-steps-to-turn-around-a-failing-business/