5 Reasons for Business Failure

Business failure is a subject most people never want to discuss, or ever hear about. I even had a Business School administrator once tell me that business failures are so minimal they needn’t even be considered.

Yet, of the 6+ Million new businesses the Kauffman Foundation tells us will be started this year … most of them will fail!

Dream vs. Reality-4.75


So, I have to ask the question: “Why do so many businesses fail?”

I think a possible clue lies in the frantic questions I periodically receive from business owners asking for help with their failing business … or from aspiring entrepreneurs who are lost in the morass of trying to start a business.

Interestingly, the cause for these questions—and I believe the underlying cause of most small business problems—can be found in one of the following reasons for business failure.

Let’s take a look:

  1. Lack of Passion. Every entrepreneur believes they have the passion to start a business. Unfortunately, very few of these people understand the meaning of “sustained” passion. That is usually because they have no idea what pitfalls and roadblocks lie ahead of them, and that their passion will be sorely tested. Far too many new business owners lose their passion after a few “reality checks.”
  2. Lack of Knowledge. In almost every case, the questions I’m asked indicate a basic lack of business knowledge. If you cannot understand and analyze financial statements—or create Pro forma statements for your planning—you should not start a business until you can do both. The same holds true for planning, marketing, managing employees, and all the other aspects of running a small business. Find a mentor, read business books, attend small business classes—whatever it takes to get the knowledge you need.
  3. Lack of Planning. “I don’t need no freakin’ Business Plan” is a common response when I ask someone with a business problem, if they have a business plan I can look at. Very few entrepreneurs have any written planning, they just want to get their business started, because they “just know” the business will succeed. If you do not do proper—and constant—planning for your business … you will fail. Period.
  4. Not Understanding the Market. “If you build it, they will come” is the worst possible approach to starting a business. More businesses have failed because of this belief than any other. Study your potential market; test it; survey it; research it—whatever it takes to learn all there is to know about who you are going to sell to, and what it is they need or want. A little extra time spent here can often mean the difference between success and failure.
  5. Lack of Commitment to Hard Work. Rare is the new entrepreneur who has any idea about the amount of hard work required to build a successful business. Most aspiring entrepreneurs envision a life of leisure where they only have to work a few hours a week and let others do all the real work. However, it is you, the business owner, who must create the fruits of your labor before you can start to take it easy and begin to live off those fruits. Most people want quick gratification, without putting too much effort into the process, which is—the formula for failure!


You will notice that I did NOT include “lack of capital” in the above list of reasons for small business failure. In my opinion, that is usually a cop-out because the entrepreneur is lacking in one of the 5 reasons listed above.

If a new entrepreneur can overcome the reasons for failure listed above, they will be able to find money for their new business—even if they have to resort to Bootstrapping.

So, if you are a new business owner or aspiring entrepreneur, I highly suggest you review the above topics and make sure you have an understanding of what makes the difference between success and failure of a small business.

What do you think? What is your opinion on why most businesses fail?


2 thoughts on “5 Reasons for Business Failure

  1. Agree with your comments. We are going through a rough patch due to lack of planning for a seasonal slow period. Although procedures exist, getting new employees to implement them during our “swamped” season seemed futile. They are now exchanging reduced hour weeks, making outside sales calls and following telephone leads as well as IMPLEMENTING procedures designed to carry us through. One of them told me last week “I know you said it would drop off, but I thought it would be more of a taper off and taper back, not falling off a cliff”. I’m still laughing (sort of) since it is an un-neccessary hardship on the company. We have had to postpone intended new programs until spring now that would have made us a cutting edge repair shop due to the financial down turn.

    1. Thanks for the comment Steve. You’re absolutely correct about the importance of planning for slow times. It is even more important when your business is cyclical or seasonal. Detailed plans should be in place several months ahead of any anticipated slowdowns.

      Thanks again for the comment, and good luck on working through your slow season.

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