Why Businesses Fail

Man with empty pockets

 

In a prior article I gave a few general reasons why businesses fail. Those reasons seem to be the common ones being bandied about by “experts” and pundits in the business community. They are also somewhat generic in nature.

Since then, I ran across a more in-depth study done by CB Insights that provides very specific reasons for business failures.

CB Insights took a seemingly unusual approach to finding the answers to why businesses fail—they directly asked a group of over 100 owners why their startup businesses failed.

Below is a list of the top 20 reasons given, with the percentage of businesses that said that was their reason for failing (some businesses gave more than one reason):

42% –   1. No market need

29% –   2. Ran out of cash

23% –   3. Not the right team

19% –   4. Got outcompeted

18% –   5. Pricing/cost issues

17% –   6. Poor product

17% –   7. Lack of business model

14% –   8. Poor marketing

14% –   9. Ignore customers

13% – 10. Product mis-timed

13% – 11. Lost focus

13% – 12. Disharmony on team/investors

10% – 13. Pivot gone bad

9% – 14. Lacked passion

9% – 15. Bad location

8% – 16. No financial/investor interest

8% – 17. Legal challenges

8% – 18. Didn’t use network/advisors

8% – 19. Burn out

2% – 20. Failure to pivot

I think it is important to note two very important things about these findings:

  1. The number one reason for failure is that the business provided a product or service that no one wanted—or at least that no one was willing to buy. Obviously, these businesses were not fulfilling a market need.
  1. Notice that 8 of the top 10 reasons are market, customer, or product problems. Most of these failed startups did not know their market, or their customers.

Although the CB Insights study was done mostly on tech startups, and others with employees, it is probably even truer for sole-proprietors, because few sole-proprietors have the benefit of experienced investors and advisors to help them with their research and planning.

You can see the entire study here.

* * * * *

What do you think? Do you know someone who can relate to the list above—maybe even yourself?

Well, there’s one more thing I want to point out… there is a common thread of causation flowing through every reason given above for business failures. It’s what I believe to be the underlying reason for the vast majority of business failures around the world.

Why don’t you give the above list some thought and see if you can recognize the one thing that will cause over 5 million businesses to “disappear” this year—then let me know what you think in the comments.

I’m still waiting for data to update my annual report on “Business Survival Reality” for this year, but after that is done I will tell you what I believe is the real reason is for most of the business failures. Then I will embark on a mission to tell you how to avoid that issue in your own business.

*

One thought on “Why Businesses Fail

Leave a Reply

Your email address will not be published. Required fields are marked *