The Top 8 Reasons Why Most Small Businesses Fail

 In Business

Starting your own company is notoriously difficult. Indeed, aspiring entrepreneurs are probably already aware that half of all small businesses fail within their first five years. Worse, only a third of small businesses reach their tenth anniversary. Any way you slice it, the statistics make for grim reading. On the plus side, new business owners can buck those trends and create a thriving company. To make sure you avoid the fate of so many companies before you, it’s a wise idea to consider why small businesses fail in the first place. Today, we’ll outline the top eight reasons new companies struggle to make an impact and explain how you can prevent the same issues from derailing your organization:

Nonexistent Marketing

Marketing is a necessity for small businesses –– not a luxury. Unfortunately, some inexperienced business owners may not realize this. It can be difficult to put a dollar-figure next to the value of marketing, and unlike other investments, marketing may not seem essential. Yet, before someone can patronize your business, they have to know it exists. The good news is that there are a number of different methods for promoting your new company. Traditional media like radio, television, and billboards still retain value, and digital marketing strategies can send hundreds of qualified leads to your website in a short space of time.

Tough Competition

Sometimes a business owners does everything within their power to set their company up for success, only to come up short anyway. The lesson here is that entrepreneurs should never overlook their competition. Certain industries may be so saturated that it’s impossible for a new company to survive in that space.

Inferior Product or Service

This may seem obvious, but no company can expect to grow if it offers an inferior product. Note, an inferior product is not necessarily a bad one; rather, inferior indicates that it’s less effective, more expensive, or in general of lower quality than alternative products. Remember, consumers won’t maintain brand loyalty if better options exist elsewhere. This is why small business have to constantly reimagine and update their product implementation and customer service best practices.

Lack of Funds

There’s a difference between businesses that squander their capital and those that never had enough money at their disposal to begin with. Business owners have to budget efficiently if they’re going to see their company through difficult periods early on. Given that fact, it’s imperative for entrepreneurs to secure the finances necessary to keep their business moving forward. You may even want to consider a business loan or a cash advance if your cash-flow situation is becoming dire.

Toxic Company Culture

One can’t overstate the value of hiring hardworking, capable employees. Startups in particular require a positive office culture in order to meet the challenges ahead. Business leaders have to foster a positive office environment and encourage business collaboration on a regular basis. When professionals fail to work together, the customer experience suffers. When that occurs, there’s not much a business owner can do to salvage the situation.

Bad Press

Negative reviews online or within traditional media can kill a new company before it even gets going. It’s crucial that your business makes a positive first impression with customers. Anything less than exceptional customer service will open up your business to damaging criticism. Note, it only takes a couple of bad customer interactions to sink a business’s reputation, so take care to educate your staff on how they should deal with customers in a myriad of situations.


Entrepreneurs need to have a surfeit of self-confidence and belief to found a new company and lead it to success. However, it is possible to try and grow too much too quickly. Business expansion is never easy and rarely straightforward, and even savvy professionals can misread a business’s prospects. Just because your business has found some success in a given market or time frame, it doesn’t necessarily mean your company will continue to grow at that same rate in the future. Many promising companies have gone under due to poor judgement.

Executive Infighting

Make no mistake, if things aren’t right at the top of your business model, it will negatively affect every aspect of your company. Executives and partners don’t have to be best friends to forge a working business relationship. Nevertheless, if your vision clashes drastically with that of your fellow business owners, then that disharmony can ruin your company. It’s important for your executive team to stay on the same page and present a unified front to both your employees and your customer base. Otherwise, confidence in your brand can quickly erode.

The Bottom Line

The reality is that few companies go out of business because of just one reason. Instead, most small businesses that struggle do so because of a combination of several of these factors. The key to keeping your business going often depends on your ability to prioritize. Addressing issues as they arise can be stressful, but it’s the only way to build a successful business.

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