Common Reasons for Small Business Failure

Why Many New Businesses Fail – Four Common Reasons of Small Business Failure

You may have already heard many stories of how people started a business with much enthusiasm but fail to run it successfully for a long-term. The failure of a business has, in my opinion, nothing to do with your luck or any other spiritual powers. There are a few common reasons of small business failure and I have written some of them in the following headings;

1: Poor Market Research

It sometimes happens that you wake up from your bed at 3 a.m and say to yourself ”wow, this is a multi-million dollar business idea”. Lame! Multi-million dollar business ideas do not simply pop-up into your mind while you are sleeping; instead they require a hell lot of market research to assess whether your business idea is worth a million dollars or not. Making a million dollars is not as easy as you think.

Poor market research plays an integral role in small business failure. People forget to gather useful data from the market which, in real terms, ensures success. They overestimate the potential of their product/service to sell in their target market. So, before you spend a single penny on your business, conduct a detailed market research.

2: Poor Business Planning

I have seen people who grab a page or two from their pocket and say, ”this is my business plan”. You are pretty much sure about the reaction that occurs on your face when someone says so. You’re right! Another reason why people fail to make their business successful is that they do not draft a proper and well-researched business plan. Warning: do not waste months on preparing a business plan rather than actually doing anything.

A business plan will help you draft a map of how your business will meet its objectives. You will address all operational areas of your business before actually starting anything; this will ensure that you are well prepared for any surprises that come your way. I have covered a diverse range of topics related to business planning in my blog and hope you will find them helpful. While preparing your business plan, all you need is to be honest and realistic about the projections and assumptions you make.

3: Limited Start-up Capital

Another common reason for most business failures is either they start with little start-up capital or they spend the available capital on unnecessary luxuries such as buying expensive furniture, expensive graphic designs for your websites, hiring more people than required, expensive marketing campaigns etc. It is always important that you prepare for running the business at breakeven (or even loss) for at least the first year of operation. The available capital shall be used in necessary and value adding items.

A business plan will help you develop a forecast of how much capital do you need to start your business and what is actually necessary at the start. Spending wisely in the start will help you sustain for a longer period as well as prepare you for hard times.

4: Synergy between Team Members

This is another common reason causing many new businesses to fail. Unless you are a single proprietor or a professional offering your services, you need to team up with people. You may also have co-founders who are with your from the scratch of your business. The team members and their synergy among each other play an important role in the overall success of your company.

Be careful when you select your partners and other team members because they will be playing a key role in your business. There is a need of people who have technical knowledge about your industry as well as those who are good in other business operations.

I hope the above reasons have helped you in understanding how you should start initially. There are many other reasons to a business failure that can be written here but these four reasons are in my top list.