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5 reasons businesses fail & how to avoid it

Too often we hear of businesses going bankrupt and startups closing their doors because times are tough. Over 50% of small businesses fail in the first year and 95% fail within the first five years. But why is that? And more importantly what can you do to avoid this happening to you? The following 5 are by far the most common reasons as to why most businesses fail and hopefully you will be aware of these, so as to significantly increase the chances of your business surviving and thriving!

  1. Not Enough Emphasis On The Customer

Your customers are the lifeblood of your business. Simply flogging a product or service and not taking the time to evaluate your customer’s wants and needs will ultimately lead to failure. As a business owner you have to stay focussed on what your customers are saying and asking for. Even if your sales are going ok, are you on top of market trends? Are you watching your competitors and what is happening in your space? Are you keeping up with technology and using it to your advantage to communicate to your customers and get their feedback? If you haven’t done this, then make this a priority. Customers = Business. You cannot have a thriving business if you are not aligned with your customers. This is by far the biggest reason most businesses fail.

  1. Lack Of Leadership From The Top

As a business owner, you are the CEO of your ship. You need to be able to direct your business in the direction you see best fit. However we are not all born leaders and you may need to get help with doing this, in the form of a management team or board of directors to properly guide the business. If you have staff, then you need to be able to share the vision you have for the business so that they ‘buy-in’ to this vision and are committed to your cause. Every great business has a great leader at the helm. They rose to the occasion and were able to get the right support behind them to make their vision a reality – i.e. Virgin, Apple, Google, Facebook, etc. One of the reasons a business will fail early on is because of a lack of focus and direction and poor leadership from the business owner/CEO and resulting management team. Make sure you exude confidence with your business strategy, with everyone around you.

  1. Lack Of Innovation And Differentiation

Quite often the challenge in business is to constantly innovate and differentiate your business, products and services from your competitors so that it stands out and gets noticed. With the advent of technology, social media and intense online competition, the need to innovate, stay sharp, focused and ahead of the curve, has never been more important. Failing to recognise where the market is heading and being prepared to innovate, more importantly innovate to stay ahead of the times has seen mighty companies go out of business – i.e. Blockbuster, Kodak, Borders, etc. We live in a rapidly changing environment and as an astute business owner you have to be nimble and quick to move with the market, make the tough calls and stay ahead of the trends, or risk being the dinosaur in your industry and becoming extinct!

  1. Lack Of Business Planning And Strategy

Most business owners run their business with a day-to-day survival mentality. Its not uncommon to find that majority of business owners have no idea what their level of cash-flow and profitability is and are living off dangerously high levels of debt and credit, with no proper planning on how to grow, scale, leverage and become more profitable. The average business owner does not have a business plan. To make it worse, they are not getting any meaningful advice on how to manage their business. Its like taking a ship out to sea, but with no compass to guide you, you will eventually run out of fuel, lose direction, hope and eventually sink. Failing to plan is planning to fail. Make sure you seek the advice of a mentor or coach, so that you can obtain sound strategic advice on how to manage and grow your business.

  1. Poor Financial Management

The vast majority of business owners have a very weak understanding of how to manage the financials of a business. Quite often there is a lack of understanding between managing cash flow and profit. SmallBizTrends.com states that 40% of small businesses make a profit, 30% come out even, and the remaining 30% lose money. In order to have a successful and thriving business, you as the business owner must be able to account for every last dollar. Not taking your financials seriously could be costing you thousands, maybe tens of thousands of dollars. If managing the financials, including tax, GST, payment terms, accounts receivable and payables, is not a strong point of yours, then get a professional to help you in this area. Poor accounting practice puts a business on a sure path to failure. Seek help in managing your business financials, to ensure that you don’t become a failed statistic.


About the author

Gavin is proof that there is light at the end of the tunnel! Having completed an MBA and a successful corporate career at IBM and Oracle, he successfully made the transition to running several of his own business and has helped many others to do the same. Gavin is an active speaker, coach and author of ‘Break Free From Corporate – Be Your Own Boss’ (available on Amazon) and runs a program designed to help people during their transition. For more information please visit www.breakfreefromcorporate.com or email gavin@breakfreefromcorporate.com


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Gavin Sequeira

Gavin Sequeira

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