5 Reasons Why Small Businesses Fail

by / ⠀Entrepreneurship Finding Customers / December 2, 2020
Most startups fail, but understanding why businesses fail can be helpful for avoiding business failure in your company. Here's what to avoid.

Small business failure is a harsh reality. Every entrepreneur starts a business with the best of intentions. But intentions alone aren’t enough to launch and grow a successful company. The reality is that most businesses fail and the only way to ensure your company is successful is to push past these risk factors.

The Reality of Failure

Success stories such as Facebook, Airbnb, and Tesla often get glamorized to the point that the general public feels like they’re just one good idea away from striking it rich. But the truth is that the business world is challenging. Small business failures are everywhere. And if you aren’t ready, the marketplace will chew you up and spit you out.

Research from the U.S. Bureau of Labor Statistics shows that 20 percent of small businesses fail within the first year. By the end of year five years, 50 percent of startups are no longer solvent. After a decade, just one in three businesses have survived.

In other words, the odds are against you.

If you want to beat them, you need to understand the factors that cause businesses to shut their doors so that you can architect a proactive plan for growth and survival.

5 of the Biggest Reasons Businesses Fail

Every business is different, but these are the most common reasons for failure across all industries.

1. Wrong Reasons for Starting

The “why” behind your business plays a key role in whether or not it’ll be successful over the long run. If you start a business simply because you want to be rich, or you like the idea of being your own boss, it’s probably not going to work out for you. It might, but these can’t be the only reasons.

When starting a business, there has to be some passion for what you’re doing. You have to be okay with not making a ton of money for the first several months or years. You need to possess a positive attitude and willingness to stay the course even when failure feels imminent. And you have to love the customer. Otherwise, everything else will fall apart.

2. No Market Need

You might have a pretty cool gadget or gizmo…but does anybody want it? Even the best business ideas will fail if there’s no market for what you’re selling. It can be sobering to admit that nobody wants what you’re putting out there. However, the sooner you understand this, the faster you can pivot to something that the marketplace does want.

3. Failure to Deliver Value

If you study successful businesses, they all have one thing in common. They deliver value to their customers.

Whether it’s Google, Apple, McDonald’s, or the successful family business down the street, companies that stay in business continue to deliver real value over and over again. The moment your business stops delivering value is the moment you run the risk of collapsing.

The good news is that there are multiple ways to add value — from the products you sell to your customer service and everything in between. But it all starts with understanding the marketplace so that you can determine the best way to serve your customers’ wants and needs.

4. Failure to Build a Brand

When you’re super small, your biggest goal is to develop a product or service that adds value. However, as you grow and the competition heats up in your space, it becomes necessary to build a brand. And this requires an investment in online marketing. If you fail to zero in on the right brand and create a message that resonates with your audience, you’ll get squashed by other competitors who know how to speak the language your customers speak.

5. Poor Hires and Mismanagement

You can’t run a one-man team forever. If you have hopes and dreams of growing your business and scaling up over time, you eventually have to add people to the team. Poor hires and improper management will sink you. It’s better to overpay for good talent than to save money by hiring people who add little-to-no value. Take hiring seriously and don’t go down this path until you have the clarity and resources to do it well.

Keep Your Business on the Right Track

If you can avoid the aforementioned culprits, you’ll dramatically increase your chances of keeping your doors open and remaining profitable for years to come. It’s never easy, but with a stable vision and a commitment to the right strategies, you’ll find that it’s not rocket science either. Roll up your sleeves and get to work!

About The Author


Nate Nead is an avid online marketer, financier and tech executive, helping startups to Fortune 500 companies scale content marketing initiatives that provide significant value to bottom-line profits.