Why Businesses fail ?

What has been often observed is that Businesses fail for many reasons. The following list includes some of the most common reasons:


1 – Lack of Planning – Businesses fail because of the lack of short-term and long-term planning. Your plan should include where your business will be in the next few months to the next few years. Include measurable goals and keep a track of the results. The right plan should include specific to-do lists with dates and deadlines. Improper planning can damage your business.


2 – Leadership Failure – Businesses fail because of poor leadership. Leadership must be able to make the right decisions most of the time. From financial management to employee management, leadership failures can trickle down every aspect of your business. The most successful entrepreneurs research, learn, and reach out to Coaches/Mentors to improve their leadership skills.


3 – No Differentiation – It is not enough to just have a great product in the shelf. You have to also develop a unique value proposition, without which you are likely to be demolished to rubble in this competitive world. You need to evaluate, what sets your business apart from the competition? What makes your business unique? It is important that you understand what your competitors do better than you. If fail to differentiate, you will fail to build a brand.


4 – Ignoring Customer’s Needs – Every business will tell you that the customer is #1, but only a small percentage actually follow it. Businesses that fail is because they more likely lose touch with their customers. Keep an eye on the trending values of your customers. Find out if they still love your products. Do they want new features? What are your customers saying? Are you lending an ear to them? Organizations need to create experience for their customer. This will also help companies to foster Branding for themselves.


5 – Inability to Learn from Failure – We all know that failure is usually bad, yet it is rare that businesses learn from failure. Realistically, businesses that fail, fail for multiple reasons. Often entrepreneurs are oblivious of their mistakes. Learning from failures is difficult but proves to be reward-reaping in the long run.


6 – Poor Management – Examples of poor management are the inability to listen, micro-managing – lack of trust, working without standard or systems, poor communication and lack of feedback. Entrepreneurs need to take an exit route from the ego-trip assuming they know everything. Employee’s and customer’s feedback are also important and must be considered for growth of the company.


7 – Lack of Capital – It can lead to the inability to attract investors. Lack of capital is an alarming sign. It shows that a business might not be able to pay its bills, loan and meet other financial commitments. Lack of capital makes it difficult to for the business to grow and it may jeopardize the day-to-day operations.


8 – Premature Scaling – 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. For example, you could be hiring too many people too quickly, or spending too much on marketing. Don’t scale your business unless you are ready.


9 – Poor Location – Poor location is a disadvantage that can be too expansive to overcome. If your business relies on foot traffic, location is a strategic necessity. A poor location might make your customer acquisition costs too high.


10 – Lack of Profit – Revenue is not the same as profit. As an entrepreneur, you must keep your eyes on profitability at all times. It is the profit that equips the business to grow. According to Small Business Trends, only 40% of small businesses are profitable, 30% break even, and 30% are losing money. Hence regular check of financial ratios (A kind of financial health check-up) is of utmost importance.


11 – Inadequate Inventory Management – Too little inventory will hurt your sales. Too much inventory will hurt your profitability.


12 – Poor Financial Management – Use professional accounting software to manage the company accounts. Keep records of all the financial records and always make decisions based on the information you get from real data. Know where you stand all the time. If numbers are not your thing, hire a financial professional to explain and train you to understand, at least the basics.


13 – Lack of Focus – Without focus, your business will lose the competitive edge. It is impossible to have a broad strategy on a budget. What makes businesses succeed is their ability to quickly pivot and the lack of focus leads to the inability to make the necessary adjustments.


14 – Personal Use of Business Funds – Your business is not your personal bank account. Therefore, refrain from withdrawing money to buy a new iPhone or any other personal expense.


15 – Overexpansion – It is easy to make the mistake of expanding your business into too many verticals. Hence, before you enter the new markets, make sure you maximize your existing market.


16 – Macroeconomic Factors – Entrepreneurs can’t the control macroeconomic factors. Common macroeconomic factors are business cycles, recessions, wars, natural disasters, government debt, inflation and business cycles. However, with proper planning and fund allocation, your business can still succeed in bad times.


17 – No Succession Plan – Future leaders should be identified in advance. Without an effective succession plan, your business is unprepared to fill in the openings created by retirements, unexpected departures or death.


18 – Wrong Partner – It’s no secret that it is easier to succeed in business with the right partners. A wrong business partner will, at the very least hurt, or, at worst, destroy your company.


If you are serious about making it big and lasting as an entrepreneur, focus on the following:


Make a plan – It all begins with planning. The biggest mistake many entrepreneurs make as they start their ventures is that they don’t sit down and write a business plan. The goal is to keep it concise. You need to have a solid business plan which should consist of following:

  • Core values – Your core values are the fundamental beliefs that drive your business. They are your guiding principles that should remain constant. Even when 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, excellence, respect, responsibility and teamwork.

Don’t let your core values be limited to hollow words, make them a part of your culture. This spirit must appear in your vision statement.

  • Mission statement – A brief statement that defines why your company exists. It is your corporate reason for the being. It describes your target market and the services/products you offer. If you have done it right, your mission statement, in just a few sentences, will communicate the essence of your business to your business and to the world.

  • Define your customers (Targeted segment) – If you are determined to succeed in business, you need to have a clear definition of your customer. It is something that can be expressed in numbers. You need to know the size of the market segment, its growth, the level of competition in that segment and the required market share. In a way, you need to define your ideal customer.

  • What is your product/service – It’s the key to have a clear definition of the services you offer. Without a clear definition, you will be unable to effectively develop, market and sell your services. Briefly explain what your product does and who will use the product. Mention the advantages of the product.

  • Involve your customers in product development – Most businesses that fail create products/services without involving their customer. If you are serious about success, you need to build your products according to the requirements of your customers. Businesses that fail build products based on their own assumptions. Take feedback from the consumer.

  • How will you sell and market your product/service – Marketing and selling your service could be one of your biggest business challenges. Sales and marketing plan is a must. Set measurable goals. Create systems to manage the process.


Your first action assignment is to write your business plan. Completing your business plan will give you an opportunity to process your idea in detail. One of the best approaches you can take is to collect your thoughts before you make a real commitment of starting your business. If you aren’t passionate about writing your business plan, it’s unlikely that you’ll get passionate about your business either.

If you don’t prepare a business plan, your initial enthusiasm will fade away and you will fail.


Dr. Praveen Srivastava, Life & Business Coach, Management Consultant and Author



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