Why Businesses Fail

Did you ever tell yourself that you wanted to start a business?

Alex Lago
Alex Lago
Jul 8, 2020 · 3 min read

There is a difference between people who would be good at starting a business and those who could actually make it succeed.

According to the U.S. Bureau of Labor Statistics,

approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.

But why is this?

The way most people do things isn’t very logical. We hate to admit it, but most of us don’t base our specific actions on reason.

When people decide their major or what university they will go to, it is usually on a whim mixed with some facts. No one has the time to perfectly and indiscriminately research every single major and explore all their interests. And this makes sense. No one has unlimited time, so to cope with that, we make educated guesses.

This could be a reason businesses fail. Most people have some kind of interest in the business they are creating, but most will not take the time to research in-depth about what they are doing.

This simple fact of human psychology makes it only natural that so many businesses should fail.

The matter of the fact is that already established businesses are constantly creating yearly business plans with detailed budgets and ways they can save money. With this in mind, it is almost inevitable that they should beat out a smaller business where the owner doesn’t really know what they are doing.

It is safe to assume that many people who start businesses are risk loving. If they weren’t, they would most likely be at a larger company or working for someone else.

While this is very noble in my opinion, it also leads to rash behavior. Many small businesses find it hard to get loans for this reason. Since so many fail, it can be difficult to obtain the funding.

Having low initial capital can also be a barrier to getting more capital.

If you were a bank would you rather loan out to a small business with not much of a business plan or a large established company that you know will repay?

Most large companies have marketing departments or outsource to a marketing firm to take care of all their advertising.

These teams contain people who have studied all the different ins and outs of marketing from billboards and online ads to how to get seen from the specific type of product they are dealing with. These people deal with a lot of information and have marketing down to a science.

A new business owner just has to hope that they stumble upon the right technique for them. They can also do their own research, but how much time do you have to devote to marketing outside of your business?

There are many barriers to starting your business and it isn’t as simple as many experts claim to say. Do solid research and be realistic (not positive or negative) about what you are getting yourself into.

Be prepared for failure and welcome it as a necessary step to possibly succeeding in the future. But know that you may just not succeed and you have to be ok with that too and constantly be willing to adapt.

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Alex Lago

Written by

Alex Lago

My goal in writing is to spread good and useful information. I like Economics, Philosophy, and Travel. For more: https://alexanderlago11.wixsite.com/website

The Personal Finance Guide

Tips about investing, money, and the economy made for everyone. We seek to make a difference by getting everyone to be a little more informed. Submissions about any of this are accepted. Reach out to my email to become a writer.

Alex Lago

Written by

Alex Lago

My goal in writing is to spread good and useful information. I like Economics, Philosophy, and Travel. For more: https://alexanderlago11.wixsite.com/website

The Personal Finance Guide

Tips about investing, money, and the economy made for everyone. We seek to make a difference by getting everyone to be a little more informed. Submissions about any of this are accepted. Reach out to my email to become a writer.

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