Business Failure Rate Explained: 6 Reasons Why Small Businesses Fail 109

Business Failure Rate Explained: 6 Reasons Why Small Businesses Fail

What are the real reasons why small businesses fail, while others manage to make it? What is it that causes 8 out of 10 companies to fail in the first 1 to 5 years? And if we know the main reasons for this business failure rate, can we prevent it from happening? Seems like we can!

As an entrepreneur, all the responsibility is yours.

You can’t blame it on the economy, your team, changes in the market, new competitors, etc. All these are outer factors. How you try to prevent such negative influences is a matter of preparation, ability to take risks and staying calm in the face of adversity.

In this article, you’ll learn the real reasons behind this unpleasant rate in the business and startup world. Once we know why new businesses fail, we can see what not to do in order to succeed.

Learning from the mistakes of others is a powerful tool on the way to success. So, let’s see what so many companies have done wrong in their first years that led to failure.

Top Reasons Why Small Businesses Fail

Learn what causes business failure in new businesses. Here are the top reasons why companies fail in their first years of operating.

Keep in mind that the reasons below may apply to anyone in business. That’s the lifestyle blogger making a few thousand dollars a month and wanting to turn it into a passive income driven business. The aspiring entrepreneur who has plenty of ideas in his mind and is ready to execute.  Those who’ve been in business for some time but have just now decided to scale. It could also be the enthused startup founder, the lifestyle business owner, the employee hustling on the side, the stay at home mum.

Use the mistakes of others to carve your path to business success. Here’s what you might be doing wrong without realizing that could potentially lead to failure:

1. Not validating your idea.

The number 1 reason why new businesses don’t make it in the long run is that they fail to validate their idea.

Which means they (even if it’s a one-man business) end up creating a product or offering a service that no one is interested in using or paying for. That’s a waste of time and resources, although some good life lessons can come out of such an experience.

But if you invest all you have in this first company you’re trying to get off the ground and see it fail, not make any money and bring no customers, chances are you’ll give up.

But hey, so many people failed before they succeeded. Walt Disney’s first few businesses failed. Colonel Sanders, founder of KFC, was fired many times before he saw his dream become a reality in his 60s. How crazy is that!

And what about Elon Musk, founder of Tesla and SpaceX, who’s been having a vision to colonize Mars from a young age? He’s now a billionaire and one of the innovators of our generation, often referred to as the 21st century Thomas Edison. Well, he failed badly plenty of times too.

One of the surest ways to prevent failure in your business is to validate your idea before you ever start building anything.

That’s a simple process and it’s better to set aside enough time for it. Once an idea is validated, then you can be sure you’ll make money from whatever it is that you’re working on.

Start by researching the market to see if there’s enough demand. Create a profile of your ideal customer even before the company registration in the UK. Find where such people spend time online and reach out to them. Get their feedback. See whether there’s interest in your product. Define the problem it solves and use the language of the customer when promoting it.

Check out your biggest competitors and make sure they are earning enough. That means this niche is profitable. Ask yourself whether you can offer something better to get a piece of the pie.

2. Not understanding what the customer wants.

A business can’t succeed without its customers. Yet so many new entrepreneurs overlook this aspect and simply work on a business idea that sounds good.

In the end, they fail to differentiate themselves in the niche, to touch their clients, to use their language, to form a connection with them that can turn them into loyal customers.

Whatever your business is about, know that your main focus should be the needs and desires of your ideal client.

  • Who is that person?
  • Are you familiar with his demographics and psychographics?
  • Have you actually talked to people like that to know how they describe the problem you’re trying to solve?

This point of the list summarizes a few of the reasons why small businesses fail. That’s having no real value proposition, regular dialogue with customers or going after the right customers.

Avoid all these mistakes and save yourself the time, trouble and money, by understanding your target audience. Start today. Get in touch and keep the conversation going. These are the people whose thinking you need to be familiar with as they will be the ones using and buying your products.

3. Bad leadership.

Business failure also occurs when the main person behind the company is a bad leader. Why? Because that means he doesn’t take the right decisions, doesn’t spend the money right, doesn’t manage his people effectively, etc.

All these are crucial and that’s why bad management has become one of the key reasons why small businesses fail.

Here are some examples:

  • Making decisions without taking into consideration how the outcome will affect anyone else involved;
  • Not managing the company money well;
  • Not finding the work/life balance that’s necessary to run a successful business;
  • Lack of both short-term and long-term planning;
  • Hiring people quickly;
  • Not asking for help;
  • Not paying enough attention to your budget;
  • Spending too much in the beginning
  • Working on too many businesses ideas at once;
  • Not creating a positive work environment where everyone feels appreciated;

And more.

4. Partnering with the wrong person.

While it sounds good to start a business with your best friend from college, that’s almost always a pretty bad idea.

Friendship is one thing, doing business together is another.

That might lead to business failure because you aren’t sure if you have the same set of values. If your work ethic, spending habits and vision are similar enough to be able to combine them. If the other person will be able to handle the stress, crisis, long work hours and sacrifices that are part of entrepreneurship.

Think it through before starting a business with a friend.

5. Inadequate business plan.

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Most businesses also fail because they have no business plan or just a bad one.

Why is this crucial to your success? Because a detailed business plan is what can help you understand your competition and how you fit into the market. They allow you to see the big picture of how much this can cost you and make a good plan on how to fit the budget.

A solid business plan can be the foundation of surviving in the first 3 years of business. In it, you can set measurable goals and deadlines, and create your overall strategy.

It’s thanks to this well thought out roadmap that you will be able to define challenges in advance and prepare for them. So make sure you create a detailed business plan.

6. Not adapting quickly enough.

With technology and the digital aspect of every business, new tools, strategies and models come every next day. Most often, a business owner needs to adjust and even change direction depending on what’s happening in the market.

Innovation is a never-ending process. But if you don’t know how to adapt to it, your business will fail early on.

To be adaptive as an entrepreneur might mean to develop new skills, introduce new technology to your team, follow new marketing trends, change features of your product based on customer feedback, etc.

Not doing any of these (when it’s necessary) could become the reason why your business fails. You risk being left behind in a thriving industry or losing clients because you can’t grow as quickly as your competitors. Don’t allow this to happen. Become adaptive and stay up to date.

So these are the main reasons why small businesses fail. As scary as it may sound, you still have a good chance of succeeding if you avoid the mistakes outlined above.

Learn more about the 6 main reasons why small businesses fail. This failure rate can be prevented if you avoid the most common mistakes of new entrepreneurs.

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5 Online Degrees That Pay Well and Lead to Great Employment Opportunities 4

5 Online Degrees That Pay Well and Lead to Great Employment Opportunities

Online programs range from diploma mills employers knowingly screen against to brand name universities issuing degrees equally valued by employers and employees. But many online degrees teach you skills employers will readily pay a premium for and will give you great employment opportunities.

Here are the 5 best online degrees for employment.


We still pay people quite a bit of money to keep track of our money, whether as individuals or organizations as a whole. Those with a degree in accounting earn more than the average person with a business degree.

If you upgrade to a master’s degree in accounting, you’re well on your way to a lucrative position as a CPA.

If you specialize in tax accounting, you would work as a tax preparer full time or seasonally, while those working in bookkeeping are well paid whether working full time or part-time.

If you earn a degree in accounting after working as a life coach or personal development, you could become a personal finance advisor. Or simply work in accounting, a field expected to grow 13% over the next ten years despite the increasing use of personal accounting software.

If you are looking for a reputable online accounting degree, there are a number of Kaplan Online Programs you can choose from which are all highly recommended.


5 Ways to Boost Your Business Revenue

Businesses pay people to find out how to better understand their customers and speak to them. This is why marketing assistants earn thirty to sixty thousand dollars a year, while experienced marketers earn much more.

If you have copywriting skills like determining which keywords should be integrated into a webpage to put it front and center before a target demographic when they’re ready to buy, you’ll make even more.

If you have a track record of success or management skills, you could easily earn a hundred thousand dollars a year running a marketing department. Not only that, but online marketing degrees are highly respected since marketing and other financial degrees transfer very well online.

Human Resources

Human Resources has become far more complex over the past few years as rules and regulations that companies have to abide by exploded in number.

Hiring, firing, promotions, and training have to be done per complex procedures if you want to minimize the risk of a lawsuit. And whether it is required by state law or guidelines set by federal contracts, you have to fill out a number of reports each month, quarter and year on your workforce.

This means that working in HR is no longer something you do when you want a break from ordering office supplies. It requires training in the law, industry-specific software and procedures. If you earn an online degree in Human Resources, you’ll be eagerly sought after by many companies’ personnel departments.

Video Game Design

While Hollywood’s blockbuster seasons get reported on the news, the reality is that people spend several times that much on video games per year. This money is increasingly spent on digital releases over physically purchased game disks, and spending is shifting toward subscription services and apps.

The sheer amount of money means that even free games that make money through advertising or in-game purchases have to look good, while expensive games have to offer rich visuals to keep the audience engaged.

This has led to the appearance of video game design and video game arts as its own degree program, separate from the general graphic arts. If you have this expertise, you’ll find decent paying jobs with a number of companies as well as gaming app startups. And this degree means you don’t have to spend a lot of time learning to code, either.

Not only that, but with an online degree in video game design, you could get the foundation to create your own video game development company, all from the comfort of your home.

Database Administration

IT is a hot degree today, but learning how to code can seem daunting, and staying up to date with the constantly evolving programming languages is a challenge.

Conversely, database software has been relatively stable, and companies are seeing their stored data grow by 10% a year or more. The solution is larger and more complex databases and more database administrators.

If you earn a degree in database administration, you could work in a number of industries. Whether you’re controlling access to product data, managing customer data or mining data from the IoT, you have a good career in IT ahead of you.

And with the advent of Big Data and advanced data analytics, database administration degrees should continue to be in high demand for years to come.

All these careers have great prospects and adapt themselves very well to online education. This will not only mean that employers will be more inclined to consider you but will give you the same full spectrum of skills any traditional degree would.

Online programs range from diploma mills employers knowingly screen against to brand name universities issuing degrees equally valued by employers and employees. But many online degrees teach you skills employers will readily pay a premium for and will give you great employment opportunities.  Here are the 5 best online degrees for employment.