Why Small Businesses Fail And How You Can Make Sure Yours Doesn't

Over twenty percent of small businesses fail within their first year of operation. According to the U.S. Bureau of Labor Statistics, nearly half close their doors within five years. With numbers like those, you'd think that entrepreneurship would be slowing down.

Instead, the opposite is happening.

According to The US Department of Treasury, there are 430,000 new businesses a month, up 50% from 2019. Entrepreneurship is growing exponentionally. If you're starting a small business and want to make sure that yours doesn't fail, review common reasons small businesses fail and how you can avoid it.

Here Are The Most Common Reasons Small Businesses Fail:

1. Lack of Market Need: The most cited reason for business failure is offering a product or service that people just don't want to buy. This happens when you create a business around a product, service, or idea don't need or see a reason to invest in it.

   How to Fix It: Know Your Market: Conduct thorough market research to ensure there’s a demand for your product or service. Identify the target audience, create a winning product, and then make sure future customers understand the value of your product or service!

   
   

2. Small Business Cash Flow Issues: Many small businesses struggle with managing cash flow, which includes generating consistent revenue and covering operating expenses. Depending on credit, loans, and investments often creates debt that small businesses can't crawl out of. Even businesses backed by Venture Capitalists often don't succeed with a reported 2% being successful.

   How to Fix It: Focus on Cash Flow: Prioritize financial management by building a budget incorporating smart spending, strong cash reserves, and winning price points for your products and services. Use your market research to create a business model that works, lean on strategies that remove uneccessary obstacles, and streamline your operations.

   
   

3. Poor Leadership or Team Dynamics: Inadequate leadership, lack of experience, or hiring the wrong team members can limit a business's growth and decision-making.

   How to Fix It: Invest in Leadership and Team: Make sure that your leadership team has the skills to lead. They must have vision, and the ability to strategize, manage operations, and find ways to innovate, grow, and improve. Make sure to hire, train, and retain the right people and then manage their performance with a leadership style that works.

   
   

4. Ineffective Marketing and Sales: Even with a great product, businesses can fail if they don’t market effectively or convert leads into paying customers. If you're struggling to connect the right product to the right target audience, you may need to create or rethink your marketing strategy.

   How to Fix It: Refine Your Operations: Create a marketing strategy that works. Start with marketing research. Use an implementation strategy to introduce your product or service into the market and then manage the strategy's performance.

   
   

5. Scaling Challenges: Scaling a business requires streamlined processes, efficient systems, and adaptability. Many businesses fail when faced with the complexity of scaling or even when operating on a day-to-day basis. We've heard "it takes money to make money" but you should not be hemorrhaging money in the process.

   How to Fix It: Streamline Processes: Use a risk review to remove any risks from your business operations. Then, use process reviews to streamline your processes and make them more efficient.

   
   

The Path to Small Business Success

Reaching seven, eight, or nine figures requires more than hard work—it demands strategic planning, resilience, and adaptability. Here are some tips for business owners striving to beat the odds:

While only a small percentage of businesses reach $1 million, $10 million, or $100 million, careful planning, execution, and adaptability can help you defy the odds.

CCG Learning Academy is the premier small business learning platform that teaches the skills small business owners need to compete. Every learning module is developed by a consultant with 10+ years working at major banks like JP Morgan Chase, Bank of America, Citi, or Discover. When you're ready to get the cutting-edge answers that can separate your business from the rest, sign up for CCG Learning Academy. The first 30 days is free!