Why [Small] Businesses Fail

It is nearly certain that we have all seen the stats by now; 33% and 50% of businesses go belly up within the first 2 and 5 years of business, respectively.

But why do businesses fail? No, the answer isn't just money. In fact, money may not be the top reason why businesses fail.

These are the reasons why businesses fail, in order.

1. Poor planning/strategy

This is definitely top of the list for us as it affects the others on the list.?

For a business to succeed, it needs to take planning very seriously. After all, if you fail to plan, you plan to fail, right? Businesses (their administrators) must be clear about their mission, focus areas and their vision for the future from the early days or once the idea is formed. Poor planning results in producing and marketing a product that nobody needs or marketing a good product to the wrong audience. It also accounts for why many businesses burn through a ton of cash before and without gaining PMF.

2. People/Management problem

People and management is next on our list because after a good plan comes execution and it takes people who are fit for a job to execute it well. Many businesses struggle with finding the right people to join them on their business journey whether they have the cash to afford talent or not. The other reason why this also comes before the money problem is because a great team can navigate money problems if they are strategic about partnerships; again, great planning.

3. Money; too much and too little

Money may be a problem but not in the way that many business owners think. Yes, the absence of cash to keep operations going can make a business fail, the same way having too much cash can make a business fail. When businesses get too much money to play with, they are tempted to go on a hiring spree while also spending recklessly on marketing and fancy office spaces that they can otherwise do without. Similarly, when businesses meet the end of their cash reserves and can no longer sustain operations, they die into oblivion. It's also a plus to know that there are many great businesses that made it without external investment or too much capital.?

4. Poor marketing

Imagine marketing a banana to a lion. You certainly won't get its attention while you put yourself at risk. Similarly, marketing your product to an uninterested audience puts your business at risk since you won't be making enough sales to justify operations.

These four reasons, individually or collectively, account for why businesses fail but there are ways to mitigate them and we will discuss that in part 2.

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