25 Reasons Why Most Businesses Fail

Many people have a dream of owning their own business. Every Entrepreneur aspires to achieve utmost success in his/her business venture. But  why do some businesses succeed when others fail.?  There are common mistakes that kill many small businesses before they ever get off the ground.

As a business leader you can either wait to be blind-sided or you can think about potential changes which could impact your business and plan for how you will react. This will give you the best chance of success and build your business resilience.

25 Reasons Why Most Businesses Fail

"Watch Video by DON LOK"

1.Choosing Wrong Business

Why did you choose this business? That’s what every small business owner has to ask themselves before they commit. If they’re doing it for the wrong reasons – such as to make lots of money or be their own boss – they are likely to come unstuck.

Choose a business that is going to be profitable, that you’re passionate about, having good knowledge and experience on it that will provide a service or product that is going to fulfill people’s need in the marketplace that will drive you to succeed.

2. Lack of Focus

When you start a company you have to make sure you would remain vigilant. The minute you lack focus, your company would start declining. Without focus, your business will lose it the competitive edge. It is impossible to have a broad strategy on a startup budget. What makes startups succeed is their ability to quickly pivot, and the lack of focus leads to the inability to make the necessary adjustments.

3. Not Actually Understanding What Customer’s Need

So many businesses forget to really understand what their customers want, need or value.  And they will fail.  Every business will tell you that the customer is king. Keep an eye on the trending values of your customers. Find out if they still love your product or service.

Businesses also fail because the entrepreneur fails to respond to negative customer reviews, follow up with customers to ensure the products or services meet quality and functionality needs, or take customer feedback received and use the relevant information to improve the product, service or pricing strategy.

4. Bad Management Systems

More than half of the experts say a company failed because management stubbornly stuck to a strategy that wasn't working. Nearly a third also believes that management tends to underestimate the changes in the market and doesn't adapt appropriately.  50% of business failures are because of inexperienced management.

To avoid this arrange management training, hire an experienced manager or partner, or finding a mentor can go a long way in gaining perspective and helping you save your company from bad business decisions before a crisis happens.

5. Poor Marketing and Advertising Strategies

Every business owner should understand the value of marketing. Having a superior product isn't enough to be successful in the business world. Entrepreneurs need to be able to promote their products so that they keep the loyalty of old customers and gain a steady stream of new ones.

A proper marketing strategy should be outlined in your business plan and you should lead with it. If you notice poor results, it’s time to change the strategy before it’s too late. Advertising is a vital part of your company’s success, and if you as an entrepreneur aren’t able to properly do it, take into consideration help from a professional. Understand the value of advertising through online marketing, social media and other digital resources.

6. Insufficient Capital and Negative Cash flow

One of the main reason that businesses fail due to lack of working capital, or because of cash flow problems that emerge a few months into trading.  To succeed in business you need positive cash flow. If you ignore this, your business will end up soon with negative cash flow. This happens when the outflow of cash is more than your incoming  cash. You should never allow negative cash flow.

Business owners who have no business finance skills will not know whether they are making any money or not. It is vital to learn the basics so that you can prepare a simple profit and loss account and cash flow forecast. You should be aware of how much money you have in the bank, what you owe and what is owed to you, more or less on a daily basis. A good credit control system is vital even for a small business. You need to have a system for ensuring that you send out invoices on a regular basis, and you need to know who hasn't paid on time so you can chase them up.

Be prepared for unexpected increases in the costs of things like utilities, materials, and labor. Make sure you keep enough reserve cash to carry you through tough times and seasonal slowdowns.

No matter how much passion you have for your business, it won't get off the ground without sufficient capital.

7. Selecting Wrong Location

Poor location is a disadvantage to your business. Business Location must be well accessible to public transportation and foot traffic with your brand visibility. A poor location might make your customer acquisition costs too high. Entrepreneurs who are strategic about their business location have a higher likelihood of hiring the best people and reaching their target market.

8. Don't Have The Right Team

Most of the startups believed they failed because they didn't have the right team. Long work hours, big egos, stress, and money worries can make for a tense work environment if you're not careful. That's why it's important that startups find the right combination of people who complement each other's strengths and work together as a team, even when tension is high. When choosing your core team for your startup, make sure that they have good experience and skills you need and can go the distance.

9. Lack of Resources

Optimize resources to ensure that your investment in the business is being used to its best advantage.  Your business premises still need to be of sufficient quality to impress clients and ensure that your workforce have a comfortable workspace. Your surroundings speak volumes about the quality of your business. Bear in mind though, if an employee has to take time off on long-term sick leave through work-related stress, as the employer, you are liable. If you’re unable to afford to replace that person temporarily, the effectiveness, morale, and productivity of others within the company may be impacted. 

10. Poor Customer Service

There is no point in improving lead generation if a business doesn’t know its customers well or treat them well. Winning customers over starts with understanding consumer desires and tailoring products to meet those wants and needs. Treating customers well starts by following best practices when it comes to customer service. Pay attention to their interests and changing needs.

When customer may need help finding a solution, if handled rudely, sluggishly or poorly in any form, it gives the customers a negative perception of your business. Poor customer service may be the single reasons customers may no longer patronize your business and this will cause the business to fail.

11. Not having good Business plan & Vision

Lack of Business Vision and Plan your business fail for sure. It’s like – “A captain driving a ship on ocean without knowing his destination.” A proper vision can help you plan and execute all of this efficiently. To be successful, you have to know where you want to go, and how you are going to get there. Not planning out your short and long-term goals can hurt the growth of your business.

  The first step to becoming a successful business is to develop a sound business plan. It should also have clear to-do lists, benchmarks, and milestones. Once you have the plan, you must follow it.

12. Failure to understand your market

In business, you have to have a thorough and quantifiable knowledge of your marketplace. Market research helps businesses better address what potential clients and customers are looking for. Being a booming business isn't just about creating a product or service. It's about using that product or service to meet a need. Market intelligence tells businesses just how to achieve that. Many business owners make the mistake of making or selling a product or service for which there is little or no demand. Failure to undertake sufficient, detailed market research can result in poor sales and can cause your business to fail.

13. Lack of Knowledge, Experience & Skills to run the Business

Try and start a company revolved around something you have experience in. Many Business owners can’t do what is needed for a business to take off. Factors that can cause your business to fail include, not having the right skills, qualifications or experience to run a business, not going on any training courses to help you understand marketing, finance, recruitment, etc. Getting out of your depth and not learning any new business skills. Always have someone good at sales, someone good at management and bookkeeping, someone good at marketing and someone good at product development.

A coach can offer new perspectives and insights for growing your business with whatever resources you already have. When you can’t figure out what’s stunting growth, it may make sense to consult a professional to help realize your vision.

14. Not having Leadership skills

Most businesses lack strategic and effective leadership. Leadership is about motivation and inspiring the team with a bold vision. For a business to succeed, it must be effectively managed by a leader. There are different levels and types of management in a business, however, poor management will drive your business to the ground. Leadership is important to a business because your subordinates must support you and the common goal, for the business to attain success and growth. A leader must be able to make good decisions most times which must be unbiased in terms of policy enforcement, financial management, incentives, remuneration, branding, promotions, etc.,

15. Not using Technology

Many Entrepreneurs fail to update their technology in business. They still follow traditional methods and old technology. They fail to bring their business online on website or mobile app. They fail to use Social media Channels also. Social media marketing is a powerful way for businesses of all sizes to reach prospects and customers.

16. Spending Too Much Than Earning

When the expenses spiral out of control, or a founder uses much of the company's money for personal expenses, it's impossible for the business to survive. They burn business capital before their cash flow is positive. This often happens because of misconceptions about how business operates. When business owners exaggerate their expected revenue, they can overspend before their products even hit the market. This includes spending on the various expenses required to run a business, such as wages, production costs, utility bills, and rent, among other incidentals.

17. Failure to create the proper business systems

Sales funnels aren't the only automation required to run a successful business that's built for the long term. Other proper business systems need to be put in place. CRMs need to be implemented and customized. Policies need to be enacted. Financial audits and tracking procedures need to be created. And so on. Without a good deal of systems and automation, the amount of work becomes overwhelming and the details can easily be overlooked. 

18. Expanding Too Fast

Scaling is a good thing if it is done at the right time.  To put it simply, if you scale your business prematurely, you will destroy it. When it’s time to expand,  you must treat the expansion like you're starting all over. If you're expanding the reach of your business, make sure that you understand the areas and markets into which you'll now be reaching. When a business expands too fast and doesn't take the same care with research, strategy, and planning, the financial drain of the failing businesses can sink the whole enterprise.

Rapid growth results in massive amounts of money being invested, but most business owners are so focused on the money part of the business that they forget to think of the hundreds of other little things that make up your business that haven’t yet grown and are falling behind.

19. Poor Record Keeping

As a small business it’s difficult to wrap your head around accounting, especially if you aren’t an accountant and don’t have one on staff. Managing your money is the first step when it comes to the success of your business, but you can’t manage what you can’t measure. One of the biggest mistakes small businesses make is not having a full understanding of their numbers. If a business is just starting out, hiring an accountant can be expensive. But, tools do exist that can give you the information you need without paying someone full-time.

20. Lack of Core Values

Core Values are very important to run a business. They are your guiding principles that should remain constant. Even as your company grows your core values should remain the same. Core values can also serve as a moral compass. Some of the more common core values are integrity, trust, quality, customer satisfaction, excellence, respect, responsibility, feedback system and teamwork.

21. Believing You Can Do Everything Yourself

When a business is just starting out, all hands are on deck. You have an endless to-do list, but never enough people to complete it. Another big mistake business owners do is they do everything themselves, without any help. If you can’t afford to hire employees use tools that can help you to run your business. The reality is that you don’t have to do it alone. “There’s nothing wrong with staying small. You can do big things with a small team also. Find the tools that help you, no matter how small your team is.

22. There is No Demand

If there is no demand for your product or service in the market what’s the meaning of doing such business in that market. Better to close that business or move it to another marketplace.  There's a reason why many experts suggest that entrepreneurs do their homework and research their potential market before starting a business venture. If there's no need for your product or if the market is saturated, you may not be able to drum up enough business to pay your expenses. Most of the business failures happened because there was no market need. In other words, after all the time and effort they put into development, nobody wanted to buy their product or service.

23. Failing to Establish a Competitive Advantage

Establishing a unique value proposition and marketing it properly everything. Focusing on one core idea and executing it well is usually the best course of action. Never assume customers will start pouring in even if your product is considerably better than the competition. More often than not, it takes triple or more time to gain traction startup founders originally aim for. If you have competitive advantage in your business there is no competition for you, you are the only one in that particular business.

24. Poor Communication

Poor communication is one of the reasons why businesses fail. A good communication is mandatory in business between management, staff and customers. Everything operates on communication, the same way the brain sends a message to the mouth to chew to begin the digestive process is the same way you communicate your value to your prospective clients in order to close a deal.

25. Poor Quality of the Product

Customer is kind, so it can never be accepted that they be provided with poor quality of the product. Your business is bound to fail if the product fails to satisfy the customers and not reaching his expectation. Even if you offer something to sale the product it may sold once only but it will bring you bad name which leads to business failure. So you should focus on making products with quality.