Why Do Businesses Fail?

Every business begins with a similarly enthusiastic entrepreneur who has dreams and plans of making it big someday. But the eventual results are often quite different.

As per statistics, out of the estimated 28.2 million small businesses in the United States on January 2014, 20% will fold in their first year, 50% in their fifth year, and 70% in their tenth year! Did you know, your business’ pin-code could be responsible for its failure as well? Studies by Entrepreneur.com reveal that the top five areas where small businesses failed are all based in California (except for Allentown, Pennsylvania) – Stockton, Modesto, San Bernardino, and Santa Rosa.

To be fair, a business fails mostly due to basic reasons like low cash flow, no market, depleted capital, wrong team, failure to address customers’ needs, and competition. But there are plenty other reasons too, which often escape the entrepreneur’s attention until it’s too late!

Given below are some such reasons for businesses failing:

Poor Management Control

Are you the type that refuses to get your hands dirty? Do you enjoy arguing with your coworkers?

Well then, we have bad news for you. Business owners who refuse get into the not-so-pleasant nitty gritty of their business end up losing the business altogether! There’s a reason why the Mom and Pop concept continues to succeed, where the owners get to know their customers and attend to any problem on the ground before it gets out of hand. You don’t really have to be in the store or office with your workers all the time but your workers need to know that you are hands-on enough to show up unexpectedly to check operations. This will keep them on their toes.

Management control also means setting up the business systems to avoid any kind of hanky-panky by your employees. This refers to a more-than-adequate accounting system, internal office controls that will minimize, if not prevent, petty stealing, a solid cyber security system to deter cybercrime, and a system of checks and balances among your workers and yourself.

Your employees will model their behavior after your own. So, things like not getting involved in the business enough or using company funds as a personal account will only set a bad example and thereby lead to poor management.


Internal Politics

Your company will be as good as the workers you employ. But it is also important that you pick workers who can get along with each other!

The moment you put together too many dissenting opinions, personalities, work ethics or egos in one place, you create the breeding ground for toxic internal politics, in which the ultimate casualty will be your business!

According to Gallup, about 70% of all American workers don’t care about the company they work for. For them, it’s “just a job.” For successfully running your business, you need workers who will feel involved as a part of something bigger. This way, they will not drop you the moment a better job offer comes along.

What if you’ve done your best to engage them and they still refuse to be a team player? Simply replace them! Weeding out the negative influences is also a positive step.

Your Passion for your Business is Gone

Most entrepreneurs start a business because of a passion – a dream. That passion is what propels you to work hard and persevere. If the passion disappears, so does the hunger and interest. Always keep your eye on the “why” that made you create this business. This will keep that passion ignited in your heart and you will find the reason to work for it.



Over-Expansion & Obsolete Technology

Your business is booming and you have a loyal following. When everything is peachy, expansion seems like an obvious step. But if you expand too much and too fast, it all may get out of your control sooner than you think.

Turns out, too much of a good thing can be bad – if you do not have a proper strategy for it. A successful business can quickly go down the drain because your sales cannot sustain your expansion. Sometimes rushing to introduce new products and technology can stun your loyal customers and make them uneasy for any of these reasons: quality goes down, processes become too complicated or slow, employees can’t implement changes properly, and there is not enough market to sustain the higher costs of doing business.

On the other hand, if you choose to hold on the costs and not upgrade your technology, you risk getting dismissed outright by the market. Your deliveries become slow, you end up with too many redundant processes, or you fail to have an online presence. All these will simply drive your customers away to a more savvy competition.

In conclusion, outer circumstances may sometimes affect businesses, but more often than not, they fail due to the poor decisions, unethical actions and lack of resolute commitment on the part of the business owner. To be successful, your business deserves your unflinching attention, strategic decisions, and support. Give all of those things, and you’ll see your business soar!

Order Now