Reasons for Business Failure

13 Common Reasons for Business Failure To Find Success

“Some people dream of success, while other people get up every morning and make it happen”

If you’re trying to create a company, it’s like baking a cake.

You have to put all the ingredients in the right proportion. Otherwise, you will never get a perfect piece of cake.

Starting a business might seem like an easy and simple task to do.

Unfortunately starting a new business with no knowledge will make you fail in every step.  Most startups and new businesses fail for choosing the wrong concepts, the wrong path, and the wrong planning at all. 

Starting your own business is like riding a roller coaster. There are highs and lows and at every turn you take is another twist.

The lows are really low, but the highs can be really high. You have to be strong, keep your stomach tight and ride along with the roller coaster that you started.

According to a study,  9 out of 10 startups fail (source – the 2019 report claims 11 out of 12 fails), 7.5 out of 10 venture-backed startups fail, 2 out of 10 new businesses fail in the first year of operations.

So, Why do startups fail? What are the major reasons startups fail?

There are lots of reasons for business failure, lots of major faults why they make the same mistakes again and again.

And seeing these mistakes all the time, I have decided to share my secret observation to make it clear for all of you who want to find success with your startup business. 

Here I’m going to describe the top 13 common reasons for business failure, that will help you to understand what you need to do when you are running a new business or think to start a new one!

Lack of Market Research

Let’s think of something that you know already.

Google recently ruled the world with no recent competitor.

In 2001, Yahoo! began using Google’s search algorithm. And as Google began competing for share, Yahoo! began to quickly lose steam. 

By 2002, the popularity of Google’s efficient engine had grown exponentially.

It referred to 31.8% of all searches, compared to Yahoo!’s 36.3%. During the next eight years, Google rocketed to the top, gaining a near-monopoly on the market.

According to Comscore, in July of this year, Google had more than 65% of the market share, while its closest competitor, still Yahoo!, had just 16.1%.

Now, researching everything to start a new business is a must.

 If you have no visual market research to start anything, your business will never stay in the marketplace for so long.

A lack of market research can destroy your whole startup/ business strategies like a house of cards. 

So, gather more information on how you can run a business?

Who can be your competitor?

Why are they better than any other? 

Which strategies do you need to implement in your business?

and many more…….

Wrong Product & Service

You have put your heart and soul into developing and launching your product. 

You hope that it will sell like hotcakes. 

But, it didn’t happen as you expected.

But if a product could sell on its own or easily, there would not be so many product failures around us. 

Statistics show that, Of seven product ideas, only one will yield a successful product.

For every seven new product ideas, only four enter the product development stage.

New products have a failure rate of 25-45 percent. 

So, when a situation arises that your product does not sell, it’s your clue to find out what went wrong. 

Most of the time that problem happened because of the wrong product and service.

Your product or service will express your company, so when you serve anything wrong, the situation is hilarious.

Suppose, you have a ladies bag store and you have a website. There you attached a nice picture and a short description and with that, you mentioned a bag as “BEST SELLING BAG”.  A customer ordered that bag and when you sent it, she found it didn’t look the same, the color wasn’t that she ordered.

What will you expect from your customer’s reaction?

She will be really disappointed and that can make a negative impact on your business.
Even sometimes your business page or website with the wrong name and wrong service, like you are running an automobile service and you named your website or page as TREE HOUSE can make another worse feelings to your audience.
Remember that the First impression is the last impression so make it as impressive as you can!

No Financial Backup 

Running out of money is a newborn business’s biggest risk. 

Owners often know what funds are needed day to day but are unclear as to how much revenue is being generated, and the disconnect can be disastrous.

reasons startups fail

A primary reason why a new business or startup company fails is a lack of funding or financial backup.

Most of the entrepreneurs have no clear idea about how much money is needed to keep operations running on a day to day basis, they don’t even know the initial cost of running a business.

Without financial backup, starting a business can face big obstacles.

If you are financially unable to continue your business when your 1st product fails you will not be able to come back with a new one in a marketplace, you will not be unable to lead a great team. Sometimes the phrase “Money is everything” is absolutely correct!

So, How will you be sure that now you should start your business?

Well, when you can see you can handle the utility bill, product cost, establish a realistic budget for company operations and you have a handsome amount of capital that will help you if your business arises hardship.

Never make a hurry to get everything at once. Some major reason for business failure is pulling down your goals every time.

Take time, make planning, be financially stable, and then…… You will find the real taste of running a successful business.

Not The Right Team

“Better to lose with the right team than to win with the wrong team”

According to small business research, only half of new businesses survive for the first five 

years and only one-third of new businesses are able to survive for 10 years. 

The inverse is compelling as we can conclude that if only 50% of new businesses survive for the first five years, then the other 50% fail in the first five years.

The best idea, planning, and execution for business depended on the leadership and the best team. 

If you find that your business fails gradually, then you should take a step to make a great team to solve each problem.

Why do businesses fail because of the team?

Let me know if you finished a team task smoothly? Don’t you ever find any difficulties?

 If you haven’t a great team It’s kind of impossible. Reasons for business failure are lots, but not everyone gives you the solutions which are needed to pick when it’s essential.

The maximum team faced a common problem is failings of communication, co-operation, and a capability to help each other. And this is the main problem where your business can stack!

Talent wins games, but teamwork and intelligence win championships.

With the right team, you can easily save so much time and energy. Whereas if you don’t have the right environment and the right support from the company or the right team, it can be extremely tiring and frustrating. 

No Online Presence

An online presence can make or break a business.

A strong online presence allows you to build your brand and gain the credibility that you need to attract more customers. 

Along with making your business readily accessible, an online presence also gives your customers an easy way to find out more about what you have to offer.

But today many of our businesses have no online visibility. Many of us don’t even know how we can manage our business online. 

Yet online business is the easiest way to maintain everything. 

Let me give you an example of why startups fail when you don’t have an online presence!

Suppose you are an owner of an electric store and on your opposite road there’s another electric store who has an online presence and maintains all his products there digitally. As a result, he always got local customers as well as online customers too.

Now think of your store!

You only have a set of local customers and without online presence, nobody actually found you and comparatively your opposite store got more attention.

Now the choice is yours !!!

Do you want to run your business with an online presence and get more customers or only deal with local customers?  

Lack of Marketing

Good marketing is a magnet of success in your business

Marketing is not a magic wand or silver bullet. There are plenty of ways your marketing efforts can miss the mark.

But that’s not what you want to hear when you’re investing in marketing, is it?

Marketing can be undoubtedly powerful for businesses. When you do it the right way, marketing can boost awareness for your brand, position your company in the right place, drive leads, and sales.

But a bitter and hard truth is that marketing doesn’t always work! And thus your business fails to find success.

Why do we need to be concerned about marketing failure?

According to the U.S. Bank, 78% of small and startup businesses fail because they lack a well-developed business and marketing plan. 

Smart marketing depends on building a strong marketing strategy with industry research and analysis.

Creating a marketing strategy lets you focus on your business goals to determine the best direction you should take and avoid losing sight of your objectives.

Initially, you have to learn your company values and mission, long and short term objectives, which types of audience you need in your business, how you start marketing your product, which marketing policy will make your product more investing to your audiences and others.

You can’t fix your marketing mistakes if you don’t know what they are!

So as a Digital entrepreneur my personal opinion to you, if you don’t know the term marketing, learn first how to do marketing and then start your business.

Poor Customers Support

It takes months to find a customer, seconds to lose one

Customer support is the new marketing, it’s what differentiates one business from another.

Customers might not tell you that they have a bad experience with your business, but they will tell their friends, family, and co-workers.

Many will even spread the word about the poor rating. The effect of poor customer service ripples far beyond the revenue lost with that one person.

Ninety-Six Percent Of Customers Will Leave You For Bad Customer Service. 3 in 4 customers switch brands because of poor customer experience.

And here is why-

  •  A customer that annoyed by your service will switch brands
  •  find the purchasing process too difficult
  •  Late reply

So, what will happen when you provide poor customer support?

  • your customer will leave
  • new customers stay away from your business
  • Your reputation will suffer
  • Revenues and profit will shrink

When it comes to customer service, your customers are smarter than ever. 

They know what good service is because the best companies have taught them.

Companies like Amazon, Apple, and others that are recognized as customer service rock stars in their industries promise great service and they deliver.

So, don’t give your customers a reason to switch, at least not because of bad customer service. 

From the starting of your business, you have to be very careful about the customer service that you will provide in the future.  

Without a happy client, you will fail to become a successful entrepreneur and your business will lose to chase success. 

Be nice to your customer. Something as simple as a friendly greeting, a smile, and a sincere gesture of appreciation by just saying “thank you” is a good start. 

Poor Management

“People don’t leave for companies, they leave for bad management.”

Now, I know you will start remembering one of your managers or leaders. 

Maybe the reason behind calling him/ her a bad leader is, that person always kept piling on the work despite your already excessive workload, misguidance, less motivation, created a negative environment and the effect made the biggest fail in your company.

why do startups fail
To be honest, I know many companies where they are financially strong but they can’t take a stand forward to success just because of their poor management.

Inspiring management motivates employees and creates an environment where creativity and collaboration thrive. At the same time, poor management creates a toxic workplace where it’s difficult for workers to shine. 

Poor management can also cost your business money through faulty systems and unnecessary mistakes. 

So, what happens when poor management meets in a company?

It will reduce productivity, lose motivation to all, decrease company profits, make the unnecessary loss of good staff, damage company reputation,  and finally make your dream business fail.

So, what is the remedy?

Make proper management with basic managing stuff, such as good communication skills, the proper way of managing or handling any situation, knowledge of leading a team, the individual person or a group of the management team who can motivate others, co-operative and by whom the whole company can find a positive environment.

Poor Pricing Strategies 

More than 90% of entrepreneurs don’t have a clear idea about pricing. 

One of the most harmful reasons to fail a startup just because of a poor pricing strategy.

Nevertheless, they always get a hardship in running their own business.

Remember one thing,  that your customer always waits for the best service and for sure they also want something BEST and REASONABLE.

For years, I used to get my hair cut for $9 at a local barber.

The results were always mixed, ranging from “oh, well” to “oh! my god!”. 

One day, I walked into a local mall and found a stylish haircut shop. In front of the door, I found some of the haircut demo pictures that pushed me to go inside and that day I changed my mind to get a haircut from a local barber to this stylish store. 

I gaped at the price tag of $19.99 for a haircut! I was feeling good and decided to go for it. I know maybe it makes you amazed why I choose something which cost more than $10.

Because I was happy about the quality and the price looks similar in digit and that doesn’t bother me that much.

That was the best experience I had in terms of getting my hair cut. 

And guess what, I have been going to the expensive stylist ever since.

So, when I decided to change my mind there were a few reasons!

Firstly, I really liked their pricing strategy. I found quality over price and  I found a place more comfortable than the local barber. 

Your overall pricing strategy will depend on what type of demand there is for your product or service.

Understanding different pricing strategies will help you to decide which strategy or combination of strategies is most effective for your business.

So, which things do you need to improve if your startup needs to succeed?

You need to research about – 

  • Market condition
  • Actions that competitors take
  • Trade margin
  • Input cost
  • Consumer’s ability to pay
  • Production and distribution costs
  • Account segments
  • Variable costs

Lack Of Focus

Many passionate entrepreneurs fight to run their business with their usual product and want to add more features to their business.

75% of entrepreneurs don’t have a good focus on their business.

Without focus, you will never be able to reach your goal.

When my relatives started a business, he had just $375 and a clear vision of where he wanted his business to be in five, 10, and 15 years.

Starting up was relatively simple. He just built a website and dove into Internet marketing.

After a year when I asked him how his business was going? What’s the update?

Then I came to know he just closed his business as he was multitasking and couldn’t be focused on his work. At the end of the year, he decides to close it and start another.
I felt upset because he could stay with that business for so long if he gave more focus on that. 

When entrepreneurs and small-business owners ask me for guidance, I don’t tell them to just “focus.” Instead, I give them these lessons I learned from my business journey.

  • Create a working definition of focus. Make sure that everyone you work with understands what it means to be focused within your organization, and hold one another accountable as you adapt and grow.
  • Hold yourself accountable. Make a list of your short- and long-term goals, and share them with someone. If you don’t have partners or shareholders, you can share them with your CPA.
  • Have regular staff meetings with all key employees. Present your business’s problems, and listen to their solutions. It makes your team feel important and helps you find ways to improve your business by hearing from employees on the ground.
  • Be rational, not emotional. Remember that no matter how great an opportunity may seem, numbers don’t lie.

Legal Challenges

Including all of the startup failure reasons, legal issues can have the worst effects on your business.

An important aspect of the successful development of a business is to anticipate and tackle common legal issues in a proper and timely manner.

Any business can face legal challenges at any time.

When starting a business, firstly you should decide how to structure your company. You have to decide whether to register a partnership, limited partnership, corporation or limited liability company.

Sometimes it happens when people start their business they literally forget about legal issues. As a result, sometimes that issue gets bigger than their imagination even sometimes they have to close their business as there’s no choice.
Some common legal challenge a startup or small business can face-

  • Licensing
  • Trademark
  • Shareholders agreement
  • Employee termination
  • Tax 

So, make sure whenever you’re going to start a business, you are prepared in every step that a single legal issue can’t stop you to achieve your goals. 

Expecting Quick ROI

Starting a business and after a day expecting a massive return on investment is a waste.

No business gets profit quickly!

After starting a business, you need to focus on marketing your products without thinking about investing first.

There’s lots of business where no profit has come even years and years running a business. But now, you can find them on the world’s top business list.

You’ve probably heard the origins of Amazon by now. 

Jeff Bezos left his cushy gig on Wall Street and moved to Seattle to sell books online from his garage in 1994.

By 1996, Amazon had sales that reached $15.7 million and $147.8 million in 1997. Needless to say, people were curious.

Then, by the end of the decade, Amazon wasn’t as promising as it once seemed. 

Despite having revenues of $1.6 billion in 1999, Amazon still managed to lose $719 million. 

Things didn’t get better in 2000 when it was found that Amazon had just around “$350 million of cash on hand,” despite raising billions of dollars.

Jeff Bezos finally turned a profit in 2003, which was nine years after being founded and seven years after going public. 

He was able to turn things around for Amazon by laying off one-seventh of Amazon’s workforce and closing some distribution centers.

So, never expect a quick RIO in your business, most importantly when you start a new business.

You have to take patience, have to wait for it and more effort to focus on your business will give you a way to find success from failure. 

Failed To Build An Ecosystem

Why do your great innovations fail?

There is a major overlooked reason that makes a miserable failure in your business.

Why?

Your company’s ecosystem is too poor to develop a total environment.

When BMW and Toyota need to develop key technologies, such as batteries, they may join together and then later go on to compete in the marketplace.

Similarly, when your business is facing major trouble you should find out the reason within a swipe!

Sometimes your business will face an internal Ecosystem failure and sometimes it’s only in the marketplace.

Mostly internal ecosystems can hold you back from achieving success.

How?

Your business needs to take every action properly, even when it’s about management, employees, and the department that an individual person or few peoples are holding.

Entrepreneurs are the live wire of the ecosystem approach but the main concept of the ecosystem is ‘Interaction’ — high-density network, numerous networking events, a large amount of collaboration within the local environment, and access to resources.

Final Verdict

Startups fail when they are not solving a market problem. We were not solving a large enough problem that we could universally serve with a scalable solution. We had great technology, great data on shopping behavior, great reputation as a leader, great expertise, great advisors, etc, but what we didn’t have was technology or a business model that solved a pain point in a scalable way.

I realized, essentially, that we had no customers because no one was really interested in the model we were pitching. Doctors want more patients, not an efficient office.

We have to think outside the box we are created!
So, make something unique for your client, they want different, they want quick attention. Make them feel precious to your business. Then nobody is capable of holding you back to find your success.I have a more entrepreneurial solution for my audience who want to start a business but hesitate to ask for fantastic solutions, I’m Hemi Hossain, Digital entrepreneur in Melbourn, offers to help you develop your mindset to make yourself more successful in business.

I invite you to read more blogs about how to become a digital entrepreneur, Power of social media, 12 ways to impress your clients, 37 digital marketing tools when starting an online business, and many more.

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