What is the reason most businesses fail? Entrepreneurs love to start businesses all over the world. They are full of enthusiasm. The dream is to start a business. Some are interested in the freedoms businesses offer. Others are attracted to the potential for building wealth. Many start businesses because they have lost their jobs and don’t have any other options.
Unfortunately, most people who start businesses ignore the many reasons businesses fail. When you start a business, you must be aware of the many reasons businesses fail. You must know the reasons businesses fail. It is the best way to improve the odds of business success.
It is true that most businesses fail. But, you can succeed if you pay attention to the most common reasons businesses fail.
1 – Jump right in without a true vision for your business.
You have to be strategic in business. No matter what kind of business you want to start, you should start with research and learning. Learn about competing businesses. Find out everything about the customer. Know the challenges and opportunities of the market you are entering.
If you want to start a business, consider the following:
- Develop a true vision for your business. Be clear about your aspirations and the kind of company you want to build.
- Don’t get stuck in the ocean of sameness. Understand that your business needs to be unique to be competitive.
- Don’t start a business without understanding your target customer. Define your niche. Develop a specialty unique to your business.
- How are you going to grow your business? You need a strategic plan to help your company grow.
- What data are you going to use to make business decisions?
- What are your short-term, medium-term, and long-term goals?
- How are you going to measure results?
2 – Failure to write down your business ideas and goals.
If you don’t write down your goals your business will fail. Writing down business goals helps you visualize them. It is a way to transform ideas into tangible things. Writing down business ideas and goals will help you intellectually engage and emotionally connect with everything you want to achieve.
What should you write down your business goals?
If you want to change your business for the better, start writing down your goals. What are you doing, and when are you doing it. Have all the details in writing and transform your business.
Writing down your goals will help you see them more clearly. It will help you act with clarity and direction. You will be more productive if you work with goals and ideas in writing. People who write down their goals are more likely to achieve them. They create a brain-to-hand connection with everything they want to achieve.
Here are the benefits of writing down your business goals that will help you succeed in business:
- It helps you clarify your business goals. If you fail to write down your business goals, you’ll lack direction. This way, even if you get distracted, you will have a plan to achieve your goals.
- There is no better way to narrow your focus on what really matters in your business than writing down your goals. When you narrow your focus it is unlikely that you get distracted or scattered.
- Writing down your goals help you stay motivated, especially measurable goals.
- When you write down your measurable goals you are more likely to meet deadlines.
- You can easily review your written goals. It helps you look at your progress toward your goals.
3 – Failing to understand what it takes to succeed in business.
Learn about businesses, especially those similar to the business you are starting. Find out how they have succeeded. What are the reasons they have failed? Most businesses take 2-3 years before they become profitable. And it might take much longer to become truly successful.
In the first year of business, you will struggle. Money is always tight when you start a business, and you have to hustle to get paying customers. You will fail often. It’s all about learning in the first year of business and avoiding too many costly mistakes. If you make it past the first year of business, you are doing well. About 20 percent of small businesses are expected to fail in the first year of business.
By the second year in business, you will even more challenges, but you’ll be a lot more experienced. Sometimes the only time you keep your business going is by maxing out credit cards and tapping your personal savings. Hopefully, your business has grown enough that you need to hire employees.
If your business reaches the three-year mark, you were able to execute well on your business idea. You may not be profitable yet, but you are on your way if you continue to learn and respect what it takes to succeed in business. This is no time to relax. Keep hustling and learning about business.
4 – Businesses fail due to too much (over)planning and not enough action.
A business idea is not a business. Most people wanting to start a business never get beyond the idea phase. They think about a business idea. It is a fun mental exercise to think about a business to start. The problem with spending too much time planning is that it doesn’t get you anywhere. Too much planning is just another form of procrastinating.
After you have your idea, generate an action plan. Take action. Move forward. Take your first step toward business success.
If you don’t want to fail in business, stop over-planning, and start taking action:
- Over-planning will never build a business. After a while, you won’t have anything to show for. You will waste endless amounts of energy on the plan and you won’t have any energy left for building a business.
- When you over plan, you are more attached to the plan than the business. You could spend years planning without taking action. It will make you too attached to the plan and you won’t be able to take action.
- Overthinking is a real possibility for entrepreneurs who tend to over plan things. Instead of taking action and moving forward with your business, you could be obsessing over ideas and worries. It could be paralyzing your business efforts.
- If you let the desire for perfection stop you from taking action, you are over planning your business.
5 – A business that can’t manage risk fails.
Business is risky, but you can’t build a business without it. You can manage risk with careful planning—research common risks in business. Make decisions to minimize risks. Keep in mind that risk can be reduced, but it cannot be eliminated.
Here are some of the most common types of risk you have to think about in business:
6 – Unable to get paid fast
Businesses that get paid fast are more likely to succeed. Try to get paid in advance. If that is not an option, make sure you invoice customers fast. Don’t allow slow payment terms. Take credit card payments, so you don’t have to wait for checks to arrive. Automate invoicing and follow up.
7 – No seeking advice
Millions of businesses have succeeded before you. Entrepreneurs that are most likely to succeed seek the advice of others. Reach out to entrepreneurs. Many of them are willing to help.
8 – Seeking bad advice
Any advice isn’t good advice. You have to seek help from those who are qualified to help. Your friend can’t help you. Not unless she is a successful entrepreneur.
9 – Ignoring good advice
If you ask for advice, use it. Many people ask for advice, but fail to follow through.
10 – Confusing enthusiasm with strategy
All the enthusiasm in the world won’t be enough to save your business. You need a clear strategy built on research. It is important to be enthusiastic, but it is no replacement for strategy.
11 – Failing to treat yourself as an employee
Even if you are a one-person business, you have to be accountable. Set goals with deadlines. Follow through. Don’t make excuses.
12 – Choosing the wrong partner
Some of the most successful businesses were started by multiple partners. A partner could be the difference between success and failure. Carefully select your partner. Your partner should have skills other than yours. If you are a sales superstar, your partner probably should have some other skills.
13 – Hiring too slow
You can’t grow a business without hiring people. It makes sense to watch your cash flow, but hiring too slow can be a major bottleneck.
14 – Hiring too fast
Hiring too fast is a major business mistake. It’s great to get help, but you have to be careful about hiring. If you hire too soon, you might run out of cash.
15 – Hiring the wrong people
Hiring the right people is hard. It is also time-consuming. Successful businesses are great at hiring the right people.
16 – Can’t market cost-effectively
You can’t succeed in business unless you have paying customers. You should know how much money you need to spend to acquire a new customer.
17 – No sales strategy
Nothing happens in business without sales. You should have a working sales strategy. You should be able to break it down to easy-to-replicate steps. That is the only way to scale your sales.
18 – Ignoring common sense
Many businesses fail because they ignore common sense problems. If you can’t sell it, you will fail. If you run out of cash, you will fail. If you hire the wrong people, you will fail. If you can’t deliver a great quality service, you will fail.
19 – Unable to keep expenses low
The sign of a great entrepreneur is keeping expenses low. Optimize your resources. Minimize recurring expenses. Avoid long term financial commitments. Don’t sign a multi-year lease agreement.
20 – Fail to build good credit
Even if you don’t need credit, you should have good credit. From day one in business, build your credit. As soon as you open a business bank account, apply for a line of credit. Only open a business bank account with a bank that will help you with a line of credit.
21 – Inability to stick to core values
When you stick to your core values, you can more easily make decisions. Focus on your mission, vision, and core values. Your core values will guide you.
22 – Too much focus on sales
It’s great to have a solid sales strategy. Sales is a start, but it isn’t everything. A business that is built on sales only will fail. You have to back up your sales with great service. Seek a balance between sales and delivering your services.
23 – Insufficient quality control
Build a culture of quality. Implement quality control into everything you do.
24 – Too much focus on quality
You might have the highest quality product, but if you can’t sell it, your business will fail.
25 – Mismanagement
Entrepreneurs that fail are bad managers. Everything a business needs to succeed must be managed. From money to time to people to projects to sales and marketing, you need to manage it to succeed.
26 – Disregard customer wants
Customers are eager to tell you what they want. If you are willing to listen, you will succeed. The problem is that many businesses are too busy doing what they want to do and fail to listen to the customer. Seek out customers and prospects to find out how to improve your product or service.
27 – Insufficient focus
Businesses without focus fail. Focus on one product or service and work on that. Don’t try to be everything to everyone. Maintain focus.
28 – Dismiss the need for profit
Only a profitable business can succeed in the long run. A business without profit is going to fail. You need profit to hire employees, invest in your business, and grow.
29 – Confusing revenue with profit
Revenue is important but is not the same as profit. If you have revenue, it shows that you have sales. It is the top line of your business. Even if you have record revenue, your business could be operating at a loss.
30 – Ignorant of the impact of failure
Even if you succeed in business, you will fail many times. You can’t succeed unless you learn from your failures. Assess your failures. Learn from them and move forward. Businesses that fail are ignorant about their failures.
31 – Not enough cash
Cash solves many business problems. Maintain a positive cash flow to be able to pay your expenses. To grow your business, you need to be able to invest in your business, and that is impossible without cash. When you have cash, you have options. With cash, you can buy a business, survive down economies, or cover emergencies.
32 – Failing to seek funding
Sometimes it is unavoidable to seek funding. With funding, you can grow your business faster. You can buy equipment or increase your inventory.
33 – Trying to scale too fast
It is fun to be part of a growing business. Scaling too fast can be dangerous. Before you start scaling your business, ask yourself. Do we have enough capital to keep up with the growth? Are there enough employees to support the growth?
34 – Desperation
Desperation can lead to many business mistakes. Companies make desperate hiring decisions that often result in problems. You might hire the wrong person or overpay. Companies can also push new versions of software too fast. The result is often a low-quality product.
35 – Inability to differentiate
What sets your business apart from the competition? You shouldn’t start a business unless you can differentiate your business from the competition. Make a list of features that make your product or service different.
36 – Poor leadership
Leadership mistakes can destroy your business. Great leaders are expert delegators. Build a solid team around you and delegate. Make communication a priority. People around you want to know what’s happening in the business. Communicate with your customers constantly.
37 – Terrible location
If you have a brick and mortar business, location is critical. Study the location of your competitors. Understand the reasons behind the location of their business. Consider the impact of your location on your customers, employees, and business partners.
38 – Inefficient inventory management
Companies either have too much or not enough inventory. It is rare that a company has the right amount of inventory. Successful businesses take inventory management seriously. Make sure that you deploy the right inventory management tools for your business.
39 – Inadequate financial management
Optimal financial management is a critical element of business success. Avoid frivolous spending. Even small amounts of waste add up. Only borrow money when it makes sense. It makes sense to borrow money to fulfill a large order, but you should take on a loan to buy new office furniture.
40 – Mixing personal finances with business finances
Your business account is not your personal bank. Keep your business expenses separate from your personal expenses. Contact your accountant for advice on separating your business finances from your personal finances.
41 – Macroeconomic influences
Many businesses fail due to macroeconomic reasons. There are cyclical changes in the economy. There are pandemics like COVID-19. There are natural disasters resulting in macroeconomic changes. Macroeconomic factors can be the most difficult to deal with. Successful businesses prepare for difficult business environments.
42 – Unable to adjust as needed
A key requirement to stay in business is the ability to adjust as needed. Don’t resist change. Stay flexible. Make decisions quickly. For example, if you own a restaurant and the market demands that you deliver your food to the homes of customers, you should think about implementing delivery in your business.
43 – Overexpansion
Overexpansion is the result of faulty planning. Success and expansion are not synonymous. Your business could fail if you are not careful about expansion. For every business, there is optimum growth. Overexpansion often ends in bankruptcy.
44 – Lack of a succession plan
A good succession plan is critical to ensure the continued success of your business. You need a succession plan to transfer ownership in case of death, divorce, illness, or other unforeseen circumstances. A succession plan is necessary to deal with the unexpected in business. Think of it as peace of mind.
45 – Offer customer credit irresponsibly
Beware of the dangers of invoicing customers for payment at a later date. Be careful about extending credit. Evaluate each customer based on their financial health. Reward customers for paying in advance.
46 – Unable to grow sales
The best way to grow your business is to increase your sales. You might have to increase new products or services. Another option is to introduce a new product or service to your current customers. A larger sales team can also help.
47 – No disaster recovery plan
Expect the best but prepare for the worst if you want to succeed in business. What if your business was burned down? What if your employees had to work from home starting tomorrow? What if your data was compromised by ransomware? Could your business recover? Do you have a plan? Protect your business and customer data.
48 – Inadequate emergency funds
All businesses should have an emergency fund. Business revenues fluctuate, but many expenses are constant. You need an emergency fund that you can fall back on during low-income periods. To come up with a sufficient emergency fund, ask yourself. How much cash do we need each month? Do we have cash for at least 6-12 months? How long would it take to bounce back? What costs can we cut immediately when necessary?
49 – Failure to give yourself a break
It takes a lot of hard work and years of dedication to succeed in business. To ensure long-term success, entrepreneurs need a breather from all the hard work. The time you take for yourself, away from your business, will energize you.
50 – Incapable to express gratitude
Regardless of how much success they have, many entrepreneurs are unhappy and unfulfilled. Managing a business can be a lonely job. But it is important to show appreciation for your achievements.
51 – MLM is not a business
Multi-level-Marketing (MLM) is not a business. The people selling you MLM products want you to believe that they are selling you a real business. MLM is a deception. Unfortunately, many people fall victim to various MLMs. If there is one thing that is true about MLMs, it is that you should avoid them all.