Why Do Small Businesses Fail? Learning from Business Failure

Why Do Small Businesses Fail? Learning from Failure 
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Agreed, new businesses are coming up every flying second. But do you know why? It is not just a simple case of supply meeting demand; it is because countless nascent businesses are shutting their doors on a daily basis paving the way for newcomers.

We’re living in an era of startups; there’s no denying that. But even someone as big and noteworthy as Snapdeal doesn’t make profits. Surprised yet? You’ll be more surprised to hear that no more than 5% startups in the current era are profitable. Why do startups exist then? Thirst of money! Not just that; today’s business model involves capturing the market first by hook or by crook and only then, managers start paying attention to numbers.

Businesses of all sizes are moving towards the ‘out’ door. The reasons are endless; right from rising competition to lack of funds to lack of organizational management and what not. However, there are a few reasons which are more common than you think.

Find out below the top reasons why small businesses fail:

Insufficient Investment

“If you invest nothing, the reward is worth little.”
― Richelle E. Goodrich

This one comes as no surprise really. Money has and always will have the final word when it comes to business; one key that strings everything together.

Ask any ex-CEO about the reasons for business failure and this will more often than not top the charts. It is not just a lack of money at the start; but a lack of funds when it really matters. You’ve bagged a big fish for which you need a big time initial investment which will eventually turn into profits second month onwards. If you don’t have the necessary funds in store; how will you buy that hefty machinery?

Not paying employees on time, shoddy office location, lack of public transportation nearby, improper basic amenities, below average CTCs; such are the reasons behind non-expansion which eventually leads to small business failure.

Lack of Credible Manpower

Well, no matter how big you get; you can always drop back to 0 if you can’t attract talented and knowledgeable people. Given the competition and the number of brands in the market, there is an incessant lack of pure specialists who are well versed with their trade.

Not only leaders, you need skilful team players who know what its like to work in tandem and understand the responsibilities of a corporate setup. Small businesses might have a quick and easy start; but credible manpower is what will see such businesses through to a higher level.

You can never have enough of talented employees basically. And talent costs money; which is where small businesses fail to deliver.

No Cohesion Amongst Decision Makers

A difference of opinion is not evil; it is somewhat necessary to brood creativity and entertaining brainstorming sessions. However, the difference shouldn’t be too huge; in a manner wherein the overall company goals are being put to the sword.

Be it CEOs or departmental managers or stakeholders; often you find small companies struggle when it comes to cohesion amongst the top guns. Reason? There’s no answerability to stakeholders and perhaps a lack of experience at that level.

This is not only detrimental to the performance of the company in the short term but can prove lethal as well if carried on for subsequent months. There’s a reason why top managers usually split and go on to begin their own individual ventures separately.

“Teamwork is the ability to work together toward a common vision. The ability to direct individualaccomplishments toward organizational objectives. It is the fuel that allows common people toattain uncommon results.”
– Andrew Carnegie

Poor Creative Direction

This is kind of self explanatory isn’t it?

There’s no business in the world today which can work seamlessly well without a proper creative direction. Since we touched on the lack of skilled manpower before, this one had to follow.

Creative individuals cost a lot which is where small businesses fail to live up to their billing.

What’s our social media strategy next month? Which offer should we roll out come festive season? How can be tap customers locally? What’s the latest technology we can play around with? Creativity doesn’t just mean ‘something unique’; it is a combination of a lot of things.

Below Par Digital Marketing Efforts

Probably the biggest factor why small businesses fail in the ‘online’ world of today. Digital marketing is no longer a luxury; it is a bread earner for brands across the globe irrespective of their size and brand strength.

The entire world is online; which practically means that if your online marketing game isn’t on point, you’re not going to stay in the market for long.

Small businesses often tend to get busy satisfying clients, looking for leads, grabbing new customers and focus less on their own marketing regime. This is a deal breaker in most cases. Digital marketing is not just about social media; it is about SEO, advertising, brand building, reputation management, social listening and a lot more.

“Dont say anything online that you wouldn’t want plastered on a billboard with your face (or logo) on it.”
– Erin Bury

Short Term Benefits Vs. Long Term Goals

This forms the crux of most failures at a lower level. It is a result of the so-called domino effect; wherein a lack of investment leads to this.

Where small companies commit mistakes is that they tend to look for quick-fixes and temporary gains rather than building something which stays with the general folk for decades to come.

This urge for momentary small victories triggers a loss of war on the long term front. The attitude of ‘let’s earn what we can while the plate is hot’ doesn’t work in the real world. It might work for a few months, but brands often come back to earth within a jiffy.

And companies don’t get to make first impressions twice, do they?

Cut Throat Competition

“If you continuously compete with others, you become bitter; but if you compete with yourself, you become better.”

No matter how unique your work domain is; there’s always somebody who’s doing what you’re doing and doing it better; given the nature of the market these days.

When the going gets tough, the tough get going. Which entities suffer the most at the hands of competition? Small businesses! Competition often brings out the best in big brands as they can afford to spend big on capital, manpower, branding and what not.

This is one luxury which the small companies just can’t afford; which is why they often pay the price. Not just that, such companies fail due to a lack of scalability and adaptability, which is essential in such a dynamic market. This is also the reason why businesses fail.

Lack of Conflict Resolution

I hate to burst your bubble, but conflicts are everywhere. Individuals are meant to have conflicts; there are no two ways about it.

Be it a big-time monthly retainer client bailing out on you or a financial loss because a product line just didn’t sell or a clash of strong personalities; crisis is inevitable in a workplace.

Small business managers don’t necessarily have someone to answer to i.e. they’re not on a leash which is why they might go out of their way and take things personally. And once ego settles in, there’s absolutely no turning back.

“The world is an arena where things represents things. It is a stage where the same thing is seenfrom different lenses as a different thing.”
― Ernest AgyemangYeboah

Narrow Target Audience

Because of so many active players in the market, new business domains are coming up which were unheard of a few years ago.

Some founders are so keen to come up with something unique that they disregard the practical plausibility of the idea. This thirst of something untapped gives rise to a narrow target audience.

What happens when the target market is narrow? Even if you do everything right, not enough money is generated. And for a small business, this is totally unacceptable. This is why you often see nascent companies changing their domains altogether which tarnishes their brand value somewhat.

Juggernaut Supremacy

Juggernaut supremacy basically denotes the presence of big-time players who have been eating small businesses and spitting them out since time immemorial.

Why do small businesses fail? Its because they’re in a domain wherein the top players have captured 99% of the market. And they only have the leftover 1% to fight for, against other nascent companies. Imagine the fierce competition!

Brands are known as ‘brands’ for a reason; it signifies that a particular company has left its mark on the majority population. Small companies aspire to become brands; however, its not all sunshine and rainbows.

Often you see the news of a recognizable brand acquiring a small brand. So, even if you get off to a brilliant start, chances are that someone will buy you out. Even if you’re the most righteous man/woman on the planet, money talks!

Biting Off More Than What They Can Chew

Too much too soon – this is the story of 9/10 small businesses which end up in the dumpster. The thirst for success often blinds business managers into taking decisions which prove to be negatively critical for the course of future events.

There’s no progression in the way small businesses move forward. Everything needs to be instant – instant gratification, instant rewards, instant profits, instant growth, instant expansion. This is not how brands are built in the long run.

Sure you can work all out 15 hours a day for a few days or maybe a week if you’re lucky. But there will come a time when something has to give. Small brands dive into multiple categories and domains and try to conjure what they can instead of sticking to what they’re actually good at.

Saying ‘no’ sometimes work. Small brands are under the impression that they can’t say ‘no’ to any client. For eg. A digital marketing agency saying ‘yes’ to a client who asked for branded t-shirt sets for the entire company’s workforce. Doesn’t quite connect the dots, does it?

Finding out their USP should be the main goal in the initial months, which is what business managers fail to realize sometimes.

No Difference Factor

Last but not the least, we’ve arrived at a critical point. The idea is just not good enough. It is not unique enough to leave a mark on customers.

Learning from business failures is one thing but this is something which can’t be reversed; something which can’t be undone.

With the urge to get started quickly, founders sometimes pick a domain that’s far too general and common. For example, in the current market, for a new brand to sell sports shoes effectively and generate profits is practically impossible. Get the picture?

To become ‘unique,’ the challenge is to fight the hardest battle which anyone can imagine until youreach your destination.
– A. P. J. Abdul Kalam


Hope this business failure story would help you to take your dream to the reality successfully. Let’s not forget that the success of any new business after all lies in the hands of the business owner. Armed with passion, patience, determination, and a positive mindset, view any setback as only an opportunity to learn and grow.

What do you learn from this failure story? Please write in the comment section below.

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