These Are The Reasons Most Small Businesses Fail

Up to 21.2% of startup businesses will fail in the first year and over 50% will fail in the first five years.

These are frightening statistics for startup owners, because no entrepreneur ever set out with the sole intention of closing the business within five years. These are lifetime investments, at least to them.

But reality is reality, and several factors are responsible for startup failure. In some cases, entrepreneurs do not carefully study their target audience and market to determine the viability of their business before setting out.

A business only succeeds if it solves certain needs in society, or else there’s really no place for them. But that’s just one big-picture reason.

These are some of the other reasons why startups fail within the first five years:

Poor Management and Leadership

This is perhaps one of the most obvious reasons why startups fail. Leadership is an integral aspect of a business and unless a business is properly managed, it is bound to fail. Sadly, most startup entrepreneurs are not knowledgeable enough on what it takes to manage a business.

This could result in confusion, conflict, lack of productivity and low morale among the employees and stakeholders. The employees would obviously not be motivated if the management is not motivated and therefore any form of incompetence displayed by a business leadership and management would translate to the employees.

One way to improve leadership is to hire a project manager. If you’re not ready to invest in a project manager, implement business management software to help keep track of workflow. Stay on top of all projects and make sure your employees know how to use it as well.

Keeping better track of things will improve leadership, or at least let you keep a better eye on it.

Poor Morale

This ties in with leadership, but poor morale can absolutely crush the spirit of the existing team. People work for small businesses to feel like an integral member of a team, not to be steamrolled.

As a business-owner, you have to emphasize the importance of mental health. If you’re overworking your staff, they can become disengaged, unhappy, unproductivity, or even, if the condition is bad enough, out of work on disability.

Starting a Business for the Wrong Reason

A lot of entrepreneurs dream of becoming a millionaire within a couple of months after launching their businesses, but this is not realistic or even close. Of course, there are several millionaires who made money from being entrepreneurs ,but usually the wealth came after years of hard work and effort.

It would be delusional to start a business just to become a millionaire or perhaps to enjoy being the boss of your own. Yes, these are all benefits successful entrepreneurs enjoy but a business will likely fail when started for such frail reasons.

To really succeed as an entrepreneur, you need to identify the right reasons for starting a business and make them your drive and focus. Such reasons could be love and passion for the business or personal qualities like drive, determination, and so forth.  

Poor Planning

No business and venture can ever succeed without meticulous and conscientious planning.

Planning is an integral part of a business that must be painstakingly done. However, oversight and improper planning is one of the ills of small businesses. Such mistakes can cripple a business and erode its profit in a twinkle of an eye. No matter how successful a business has become, leadership must take every bit of its plan serious and ensure that each activity is painstakingly carried out.

A business plan is one of the basic tools for a business. Just like every other plan, a business plan details the steps a business would require to achieve a targeted goal.

Refusal to Invest in Automation

The world is rapidly changing and so are businesses. Business models of the 1950s cannot work today. To achieve success in business, a startup must be ready to adapt to the changing business world.

A startup entrepreneur should keep tabs on current technology and software tools that can help his or her business. Most businesses are investing in automation to handle several of their processes, and a startup can only compete favorably by investing in automation.

Automation software can be implemented in several aspects of a business, especially those that require repetition of a task. Examples include invoicing, marketing, disaster recovery and more.

By automating the processes, employees can be freed up to focus on more engaging, creative and interesting parts of the business. The business can get more done within a shorter time and greater productivity can be achieved.

Lack of Capital

Businesses cannot survive without capital. Lack of capital is one of the most significant reasons why businesses fail. This could result because businesses understate the amount required to start their operation or processes or perhaps they expect much more profit than the business actually brings in.

Lack of capital is interconnected with other reasons for business failure and it can be difficult to determine the exact percentage of businesses that fail solely because of this reason. Essentially, improper management and planning, inefficient marketing and overall poor operations can erode business funds before any are brought in.

There are several other reasons why businesses fail.

For example, 19% of failed businesses are beaten out by their business rivals, and 23% of failures are due to assembling the wrong team. Insufficient need for the service or product is another important reason why businesses fail.

The factors responsible for business failure are all connected to each other. To succeed, startups need to start with the right reasons and purposes, they should be determined to succeed, employ the right team and invest in automation to drive their processes while the business grows.

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