Why Small Businesses Fail and How to Avoid Failing

[djbaxter]

5 Reasons Small Businesses Fail — And How to Avoid Those Fatal Pitfalls
By Brian Sutter, AllBusiness.com
October 31, 2017

While most small businesses do fail, yours doesn’t have to be among them. Even more fortunately, the things that cause small businesses to fail are oddly consistent.... This is good news for you. Because if you know what those causes are and how to deal with them, then you’ve just knocked out most of the things that could bring your business down.

1. The owners didn’t verify the market
Note that I wrote “verify” your market, too. Don’t just confirm it exists. You need to verify that those people are interested in what you want to sell.

2. They didn’t understand the full scope of what running a business requires
Star employee gets tired of his employer. Leaves, sets up his own shop, nearly drowns in the nuts and bolts of running his business. He barely ever gets time to do the thing he so excelled at in his old job.

3. They didn’t understand the business they were going into
You’re an awesome cook — you just need a great location, some staff, and enough money to equip the place and stay open for a few months until you hit operating costs. But you’re not just running the restaurant. You’re the owner. You’re responsible for all the financing, the legal issues, the staffing issues, the certifications (including that coveted liquor license), the food sourcing . . . and all the other problems that will arise from any one of those systems.

4. Unforeseen disasters
Staying afloat when things are going well for your business is not enough. Your business needs to be disaster-proof.

• Have enough insurance.
  
• Have enough staff to cover when people get sick.
• Have enough money to make it through at least six months if your revenue is cut.
• Train your employees well enough that if you had a medical event they could take over.

5. Insufficient funding

• Keep your overhead as low as possible.
  
• Never think you’ve got money. In other words, stay thrifty.
  
• Keep your eye out for new ways to monetize your business.

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[TribeDoor]

Nice read. Thanks for the share.

 

[Johnatan23]

Hey,

the reason why I think most businesses fail is because they are not reinvesting. Most people I know have failed because they thought they are way ahead of their competition and they missed the opportunity to expand and dominate the market - but this is mostly true when talking about online e-commerce businesses.

 

[djbaxter]

According to me, My experience says that no business can fail if advertisements is good and effective. As business promotion is very important for any business success.

That's simply not true.

Businesses fail every day, large and small, for many different reasons, and many of those that fail use advertising effectively.

 

[Small to Feds]

Focusing on the "How to Avoid Failing" I have developed the following golden rules for small businesses that I have observed in practice among the small companies with whom I have worked:

1. Do not promise what you cannot deliver

2. Do not overextend your resources and get a reputation for poor performance.

3. Do not tell the customer what he or she wants to hear. Tell them what they need to know. They will respect you for it.

4. Network constantly on professional sites. Hit the "Questions" and "Answers" feature and accumulate an "Expert" rating from your peers in your field.

5. Blog like there is no tomorrow. A blog is quite different than a web site. Provide good, solid information free of charge and use blog searches for synergistic businesses to team with. Teaming is an absolute necessity these days.

6. Be prepared to provide information, samples and valuable service gratis as a marketing tool. Introduce yourself and then immediately engage the client with your presentation tools available to bring your expertise to whatever topic they are interested in. Let them take you where they want to go with their concerns and their needs. Apply your presentation tools and expertise dynamically on the fly in a sincere manner to those concerns and needs and you will be in demand for follow up business.

7. Quote and bill what the client can afford and grow with him (in content and resources).

8. Be dedicated to working yourself out of a job with a specific customer and having your client take over by training him. He will remember you and recommend you to 10 others.

9. Remember growth is a function of persistence and foresight. Know where your market is headed and get their first - then write and speak about your success indirectly by helping others. Demonstrate humility and a satisfaction in helping others succeed. They will find ways to give you credit. There are ways of tooting your horn without making peoples' lights go out.

10. Word of mouth advertising from pleased clients is a sure ticket to success.

 

[Peter Johnson]

Very good advice! Thanks!

 

[Jrob]

Good article and here are a few more.
1. While being thrifty can be good, it can be bad also. Being thrifty to save money instead of marketing their business is bad. Also, being thrifty when buying inventory for a retail store and it does not sell. Turn inventory into cash, instead of compounding mistake.

2. Need to delegate. Many owners do tasks their employees can do. Time is a big issue for most owners and not allowing employees to do many things is not good for the business. Also, listen to their feedback with an open mind to run the business.

3. Not being different. Need to give customers a reason to shop your business and with the marketing to let people know. Great service and products are not enough in most cases.

I have been working with small business owners for 15 years and while many are smart, almost all could do a better job with their time and marketing their business.

 

[Tony from EPS]

This was a great read. You make an excellent point about unforeseen disasters. It's easy for business owners to recognize that there may be a fire, but in my experience businesses don't really think of that as a serious threat. Most communities have some sort of fire inspection, or fire prevention program. This helps to guide a business on what they need to do to protect themselves from a fire starting in their business. And, in the unfortunate event of a fire, they can always call 9-1-1. However, there are so many other potential disasters that I feel get overlooked. Some examples would be a power outage, severe weather, flooding (this can be from natural sources, municipal water mains breaking or water pipes bursting) or even workplace violence. Recognizing these hazards can help a business mitigate a disaster before it even happens.

 

[Suman Verma]

Well, failure is for sure not associated with the small businesses only. There are business who have been there in the run quite long but are still facing failure in some of the steps taken towards it. The only thing is that the immpact of the same is more on the s,mall businesses and those biggies out there have tendency to handle such failure.

I think such failure also gives you a hint where you were wrong and what was it that needs to be rectified before proceeding.

 

[AdamT252]

Agree iv'e had some experience in the field and 3 out of 5 times a business fails is because they didn't verify the market,sure they had a decent idea and all but the time and place was completely off,the people didn't have a want for the products they were selling or the market was already over saturated etc.That's why you should always consult a professional when starting a new business or expanding one.
And you cant sell a product to a populace that doesn't want it and/or they have a better more familiar alternative.

 

[Phillip Reeves]

There are many causes why a small business does not mature as successful as some of the other business which started at the same time. In fact, the chances of a small business failing are more than the chances of it being successful.

It is important for you to start a business for the right reason. If you are starting a business because you believe it will help you become rich quickly, then chances for your business to fail are higher. If you are passionate about your business, you will work hard and you will be ready to make sure that it grows over time.

In order to make sure your business stays afloat and keeps growing, you need to have a vision for your business. If you just start a business thinking about initial investment and then possible returns, and are not concerned about competition, market, trend, etc you will not be able to keep your business afloat for long.

When you think about starting a business, investment is at the core of it and one does a pretty good job of calculating the initial investment but that is exactly the problem. You need more than just an initial investment to keep the business running. Since your business will be new, your returns won't be enough initially to keep the business running. There are ways to enlarge your capital, you can do it through banks, financial companies (Emry Capital is one of them) or lending it from your friends or family.

Running a business is not one man's job, you need a good management and an efficient team to help everything run smoothly. A good management ensures that the ideas are executed perfectly.

With the internet and social media penetration going up consistently, it has become very essential for businesses to have a presence online especially on social media. If you do not have an official website, social media page or internet profile the chances of your business to fail in the long run are higher as your reach will be very limited which is not good for a business.

 

[digitallyup]

he main reason for (business) failure is inexperienced management. Managers of bankrupt firms do not have the experience, knowledge, or vision to run their businesses. But I think the main reason why small businesses fail can be more specifically pinpointed; the main reason why small businesses fail is poor planning

 

[djbaxter]

he main reason for (business) failure is inexperienced management. Managers of bankrupt firms do not have the experience, knowledge, or vision to run their businesses.

That may be a cause but I really don't think it is the main cause. Businesses go bankrupt all the time despite having experienced managers or boards at the helm. Unfortunatley, even experienced managers can make bad or poorly informed decisions, or hire the wrong people to run or promote their business.