7 of the Most Common Characteristics of a Failed Business

By Keith Krach

In the 1970s, organizational ecology emerged as a new academic discipline. The field began as a way of looking beyond obviously successful companies to identify why some organizations fail. Scholars studying the automobile industry, for example, were concerned with why Ford took off, but also why the early manufacturers McHardy and Divine Motor Car Co. did not.

An important part of organizational ecology is that it takes into account the development of a company even before it officially opens for business. Examining the early stages of a company, from its inception until the founder calls it quits, can yield a wealth of valuable information. In that spirit, here are a few of the most common reasons that businesses fail, particularly during the startup phase. Entrepreneurs should consider these points and strive to avoid them in their own organizations.

1. Poor management

The simplest explanation for business failure is poor management, but what does that really mean? In some cases, this can involve an entrepreneur with a strong but specific set of skills trying to fulfill too many roles, especially ones in which he or she has no experience. Poor management can take many forms, but an unwillingness or inability to delegate can be particularly detrimental to a fledgling startup.

2. Under-planned business model

Startups that flop have often failed to create a comprehensive plan. The owner or founding team focuses so intensely on getting the business off the ground that there is little in place to keep it afloat. Some recommend that at least a one-year plan be in place, complete with goals, market analysis, and a budget, among other components. Planning must be comprehensive in order to position a new startup for survival, let alone any kind of measurable success.

3. No digital presence

Given the current business landscape, in which consumers increasingly engage with brands and complete transactions online, companies cannot expect to grow or succeed without having a strong digital presence. At a minimum, this means setting up a website and social media profiles that all link with each other, as well as developing effective strategies for digital marketing.

Other reasons that businesses may fail in the digital age include not offering online transactions and not interacting with customers on social media, blogs, and other outlets. Fortunately, in many industries, it’s now rare for a business to lack a digital presence. Entrepreneurs should nonetheless keep this in mind, so as to not take it for granted.

4. Overlooking the customer

It’s a fair assumption that every business leader will agree that the customer takes precedence over all else. Where successful and non-successful companies contrast is whether or not they actually maintain that customer-first perspective in their policies and practices. Often, the organizations that are forced to close their doors are those that never fully opened them to the customer in the first place. They failed to listen to and apply market feedback.

5. Depending on a narrow demographic

Another mistake that relates to customer relationships is ignoring a potential customer. Many businesses successfully launch with the support of a small group of people, and while it’s surely important to appease that demographic, depending solely on it can lead to failure. Businesses need to establish a brand that grows and evolves by reaching out to new customers on a regular basis.

6. Lack of differentiation

Entrepreneurs frequently go into business because a certain market is burgeoning. They develop a product of their own that meets the needs of that sector, but they stop short of truly differentiating their company from others. Having a different name or logo is not enough — the product needs to compete in order for the brand to compete.

7. Scaling too early

Patience turns out to be one of the most valuable virtues in business, and hastiness is an equally significant vice. The ability to gauge the right time for growth is crucial to the success of a business, since expanding too quickly or too soon can be a disastrous mistake. Scaling should be approached with the same careful attention to planning as the launch of the company.