Why Do Most Businesses Fail? My Take as a Company CEO
To all business owners — most of the time, it’s a matter of how you plan rather than what you do
Last week as I was browsing Quora and emerging myself in what interests people in the field of business, company establishment, leadership, team management, etc., a specific question took my attention.
I was requested to share my thoughts on why most businesses fail. It was a straight-to-the-point question, yet the probable answer didn’t seem so simple. As I sat down to share my take on the matter, I caught myself traveling down memory lane back to the very first moments of my company’s establishment, as well as reminiscing over other entrepreneurs’ experiences.
I realized there’s plenty to share — establishing a business is no joke and its success is predestined right from the moment you start thinking about it and laying out the planning.
So I figured it would be a good idea to further develop my answer into a full-blown article. I believe we best learn from experience — sharing some of the entrepreneurs’ most common mistakes will certainly showcase why some businesses are doomed to failure.
In reality, owning a business is rarely identical to what you’ve imagined
Numerous times I’ve mentioned the most common misconceptions when it comes to establishing, owning, and, essentially, running a business.
Let me just focus on a quick reminder: The people who believe owning a business means them working far less than being employed is by far the biggest mistake one could make. I can’t even begin to explain why this idea is so coherently wrong.
When you’re employed, you need to focus on your tasks and duties in terms of execution in a timely manner as flawless as possible. Of course, you carry responsibility, and being employed can be extremely stressful but mainly you’re responsible for your own job requirements.
As you may already know, owning a business is a slightly different story — you are responsible for the company, the managers, the employees, the projects, the clients, and virtually anything that is part of this establishment.
So it’s only logical to assume that owning and running a business is indeed hard work. In this day and age, when everyone is free to try out different entrepreneurial approaches, there is this romanticizing of the owning-a-business concept. All it takes is for someone to enter social media and they will instantly witness success stories that may fool them into thinking just how easy everything is. My advice is not to believe anything you see, especially business-wise.
Once we’ve got that covered, I’d like to focus my attention on some of the most common reasons businesses tend to fail, especially in the early stages of establishment. I hope many aspiring entrepreneurs would take notes and avoid stumbling upon the following misconceptions and obstacles in their own personal business journey.
Why do most businesses fail?
Of course, there couldn’t be a single answer to this question. In business, many factors matter — there isn’t just one crucial mistake that quickly leads to the enterprise’s downfall. It’s more like a combination of many micro mistakes along the way.
The lack of a business strategy is definitely a big no-no
If you’re interested in establishing a business, then perhaps you’ve already heard about business planning and strategizing.
I cannot stress enough how important is for aspiring entrepreneurs to take some time to actually plan and strategize their future business endeavors. Diving straight into action is, in my opinion, one of the pivotal reasons behind businesses' failure.
Instead, try taking one step at a time.
- Figure out your business idea. Take some time to actually reflect on it and check whether or not it would be successful in the long run. Oftentimes we are deeply influenced by emotions and excitement and are quick to take the plunge. Instead, take as much time as you need in order to be sure that this idea of yours is what you are a) passionate about and b) informed and educated on.
- Conduct thorough research. The thing is your business will participate in a dynamic business environment situated in a certain niche. So it’s important for you to first research the niche in question. Get familiar with the market and check how this field develops. Make sure you get enough information on good practices as well as common mistakes — which leads us to our next point.
- Don’t forget about the competitors. Many businesses fail simply because they didn’t research their competitors right at the beginning. Your competitors are not someone you should frown upon. Rather, they are sources of important information and experience. Also, don’t forget that you together shape up your business niche. By researching your competitors, you can gather insights in terms of successful business strategies.
If you fail to sum up your initial investments, your business will fail too
Investments in business are as important as strategizing and planning. I’m not referring to money only — every business needs an investment of time and effort in order to succeed.
Money-wise every aspiring entrepreneur should sum up their initial expenses and make sure they can cover them. A big mistake would be to start a business without any profit — most of the time, starting an enterprise needs constant development and improvements that usually require financial investments. Those could be domains, website development, staff, customer support, etc.
If you lack passion, likely your business would fail
Why do you choose this specific business niche?
Answering this question can help anyone realize whether or not they are passionate about their business idea. If your excitement lasts for several months only, there’s a high chance your business would soon fail due to inadequate effort and participation on your part.
The lack of development and growth is also a great disadvantage
In today’s ever-dynamic business climate, it’s almost mandatory for every business to continue developing, growing, and improving its products and services.
If you abandon your company’s development, you’d witness it quickly drowning surrounded by your growing competitors.
Outside of planning and investments, it all comes down to the employees
Your business would likely fail if you hire unprofessional employees in terms of both expert skills and poor work ethic.
Invest in building a great team so that you can be sure your business provides excellent service and customer support.
Failing to add a unique element to your business can quickly lead to failure
Being part of a certain business niche doesn’t mean you don’t need to do anything in your power to make your business stand out.
As a matter of fact, many new businesses fail simply because they don’t offer anything new to the audience. Think about it — if you are a customer accustomed to buying fabric softener X, would you buy fabric softener Y if it doesn’t offer anything better than X? Why would anyone risk changing their customer habits?
Adding a unique element to your business can greatly improve your chances among all the successful competitors in the same niche.
I honestly believe the majority of business failures can be avoided right at the very early planning stages.
If entrepreneurs take their time to strategize effectively, I think they would come up with stable and successful enterprises that would live to tell the tale.
Of course, if anyone finds it hard to plan or doesn’t have any idea where to start, I strongly encourage you to seek the help of a professional business advisor. This way you’ll get help and will further improve your business’s chance right from the get-go.