Why do Most Small Business Fail?- 7 Reasons and What You Can Do to Safeguard Yours

shop open signIf you are hoping to succeed in business you might as well ask start by asking the question.

Why do most small business fail?

Over the years I have tried my hand in various business ventures from picture framing, selling curios to different MLMs.

If there is one humbling and an invaluable lesson I have come to learn is that starting a business and seeing it to fruition is no easy task.

While it’s everyone’s dream to succeed in whichever venture they lay their hands on, in business circles, though, many startups do not live to see their tenth year anniversary.

50 percent of new ventures close shop before they even celebrate the fifth year of operations according to a study by SBA Office of Advocacy.

So, what causes these colossal crash and burn statistics with small businesses?

Expert opinions abound on the perils that small businesses face and the probable causes of their failures. Here are 7 common mistakes that can weigh down a business venture and even sink it forevermore.

  1. Starting a copycat form of business.

    Have you noted that far too many of small businesses are just imitations of other ventures? Well, many start-ups lack the ‘Unique Value Proposition’ factor that helps successful entities to wade through lean times and stifle competition.

    By simply copying what established entities are already offering, new business owners find the competition, budgetary limitations, and employee management overwhelming and they end giving in to the pressures.

    In a word, the end result of copycats is despair, poor customer service, and unavoidable closure before the fifth year of operation.

  2. Insufficient operating capital

    Operating capital enables a business to take care of short-term expenses and existing liabilities.

    Many small business owners, unfortunately, fail to put aside enough capital to take care of the same in the presumption that the business will generate enough profits to take care of itself.

    This leads to delayed payments to suppliers, late salaries, and ultimately poor customer service. When cash problems bite, the only probable end result is folding up of the venture.

  3. Lack of, or a poorly drawn business plan

    planning outlineLet’s face it. A business is as good as its business plan. The document spells out the steps to achieving set milestones, the required resources- either physical or human resource- and outlines corrective measures in case of problems.

    Many new businesses, however, either have a poorly drawn business plan or disregard them altogether. A poorly drawn business plan is simply a recipe for a disastrous ending.

  4. Poor employee management skills.

    You heard it. Your small business venture will probably not live to the fifth year of service if you don’t hire and retain the best people.

    To break this down to understandable bits, contracting your own, unqualified kin to manage your business and failing to appreciate your hardworking employees will lower morale and sequentially lead to poor customer service.

    The same goes for businesses that suffer from founder dysfunction where delegation and mentors are unheard of. In today’s business sphere, you can’t be the jack of every trade and expect to triumph.

  5. Failing to evolve with times.

    Technology is causing ripples in the business world. Right from marketing, to cash flow management and customer service, technology is at the heart of things. A business that does not evolve with the times will find itself stuck on a dead end while its competitors forge ahead.

    As an example, many businesses have turned to social media to reach out to potential customers, read market trends and basically understand ways of overcoming their competitors.

  6. A poor choice of location

    At the very start, the existence of your startup will be largely dependent on a drop in customers and passersby.

    Choosing the location, whether in terms of accessibility or suitability for your kind of business, is paramount to attracting the first lot customers before you can establish a loyal base.

    Poor location choices may include seeking to establish your venture where big players are already established, establishing the business where the kind of goods or services on offer aren’t required.

  7. Poor marketing strategies.

    Availing your brand to the market is important to the growth of the business, more so a startup.

    Many small business owners, however, underestimate the power of effective marketing strategies and consequently fail to put aside a budget for the same.

    As a consequence, new customer acquisition is a painfully slow process that suffocates the existence over time.

Expert tips to help your small business succeed.

There exists plenty of advice on how to overcome the missteps above and make your budding venture a success. But then, most of the tips are easy, generic advice that lacks in value proposition and is short in practicality.

So, here are five tips that can help increase the probability of creating a successful venture.

  1. Have a mentor.

    quote by steve jobsYou’ve surely had a mentor in the past.

    I had one and I can tell you for a fact that I wouldn’t be where I am today had it not been for his patience.

    A mentor should be someone who’s been there, done that. Someone who is willing to carry you through the same trouble they went through but with less pain.

    A mentor should be easily reachable, have mastery of your field of interest and is basically willing to go a step further to make you sense when you are blinded by excitement for overnight success.

    They should be an invaluable resource of connection to your future success. Not a  ‘king in a castle’ but the kind you can ask your stupidest questions without getting embarrassed?

  2. Work in the field prior to starting out.

    While reading books can equip you with some basic skills on starting and running a successful venture, it can never prepare you surprises of a startup.

    It’s only wise that you should seek a chance to work in an already successful venture and learn everything up and close.

    This way, you will get some idea about the systems, the people, and the location as you start out.

    Seek to understand how the top level management goes about handling the affairs of the business. Draw knowledge from those around you.

  3. Create a market before you establish your business

    A trick that will help you understand the market that you’ll be venturing to is creating some prototypes of your products and trying to sell them out.

    This way, you will have first-hand knowledge of market needs, existing competition and the best way to reach out to new customers. It may seem unnecessary, that you will find the landing much softer once you start out.

  4. Work with the best rather than the cheapest

    You may have hundreds of excuses to choose shortcuts rather than the quantified.

    I understand you don’t have fat bank accounts, spiraling networks, and willing experts to help but one thing is for sure; choosing mediocre is equal to choosing the death of your venture.

    Walk with those who can see your vision. Again, don’t listen to your loud cousin telling you how he is sure you are on the right track even though he has no idea of what you are doing.

Final word…

Whether you are starting a tech firm, a financial services agency or an online business, having the facts right is an important first step to your success.

Don’t only master what can make you succeed but also be in the know of what can cause your downfall.

This way, you will be part of the statistics of the countable small business ventures that survives beyond the five-year operation span.

Having said all that, don’t let the  fear of failure be the reason why you never started somewhere in the first place. I am a firm believer in entrepreneurship. It beats the nine to five any day. If you share my sentiments check out the the formula I used to build myself a successful online business.

The difference between successful people and unsuccessful people is that successful people are willing to do what unsuccessful people are afraid to do.

You were destined for greatness. Go out and prosper!!

Many thanks for reading my post. If you have a question or a comment, please leave it below. I would love to hear from you.



Hi there. Great to connect with you. I worked as a graphic designer for many years but could not seem to make much headway. A few years ago I discovered internet marketing and that is how this blog was born. Hazina is a Swahili word which means treasure. It’s what we do here. We help people just like you find their own online treasure. Check out this amazing community based online education program that has helped me build a successful online business and how you too can have a piece of the action.

8 thoughts on “Why do Most Small Business Fail?- 7 Reasons and What You Can Do to Safeguard Yours”

  1. I like straight to the point and being clear on what your teaching and giving out to assist, I myself being new to the online world am conscious of everything that’s going on around me and keeping my business around not only today, tomorrow but forever, and I prefer forever so all the help I can get my hands on to keep it going is appreciated, Love the information and definitely bookmarking you. Thank you

    • Thanks Leon for your comment. I am glad you found my article useful. Best of wishes in your online business.

  2. So much I can say concerning this article, but in short I will just say “You hit the nail right in the head”. I used to have a small business. We lasted only 5 years due to 90% of the reasons you just named. Our biggest problem I would probably say was starting too big too early. We had so much going on, thinly staffed, and did not do research to see what demand was like in our area. Lesson learned.

    • Hi Jean and thanks for your comment. If I knew what I know today about the world of businesses, I think things would be far different. People fail in business because they lack foresight. I made almost all these mistakes during my business days and I ended losing a lot of money. Understanding the reasons why you will probably fail is a good place to start. That way you don’t become to complacent.

  3. I actually run a small business, well a website, on chess and I’m shocked by reading this article – really worrying really and I’m obviously doing a few things wrong…
    I never thought about drawing up a business plan for my online business – but I suppose it makes sense now! Do you have knowledge of any free templates for good business plans?

    • Hi Chris. I don’t know any free templates but am sure a quick search online will get you what you are looking for. A business plan should be tailored to your fit an individuals capacity in terms input and growth. Your business plan should also develop as your business grows.

  4. Thanks for this overview, very concrete and to the point information. It is quite a struggle for many to start a small business. As you mention in the end of your post, one of the biggest reasons why businesses fail is due to the fact that they give up, and I respect your point there, it is very true.

    • Ha Jacob and thanks for dropping by. Never ever give up on your dreams. Its either that or you spend the rest of your life building other peoples dreams.

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