Why most businesses fail?

Most businesses fail within a few years. Only a handful reach 10 years. The majority fail within two years. The research shows that the following are the most common reasons for business failure.

  1. Inadequate funding. This is perhaps the biggest reason for business failure. Startups often run out of money before they have reached a critical mass to take off.
  2. Leadership issues. This speaks to the personality and character of the founder. Entrepreneurship is really hard and requires a certain mindset to go through all the stresses to bring an idea to the market. Most people simply are not cut out to be entrepreneurs. A good business leader is able to rally a group of people towards a common vision.
  3. Bad management. Small businesses especially have no management structure to speak of. The founder does everything. This leaves alot of gaps in effective running of the business.
  4. Hiring mistakes. A wrong hire can cause a business a lot of pain. Be slow to hire and be careful especially of relatives and friends. At some point you may have to fire a friend and it can turn ugly.
  5. Unprofitable business models. Some industries are bound to fail. Some markets are too saturated. The business model chosen may not be appropriate. The pricing may be off. Carefully assess your business model before investing in any venture.
  6. Marketing issues. The ability to attract and retain customers is critical for business survival. Potential customers need to hear about you and then try your products or services. If they are happy with the price, quality and service they will come back and tell their friends.
  7. Inadequate systems. Without proper systems a business cannot scale. A business needs good financial management systems, customer relationship management systems, human resource management systems, quality management, planning and budgeting, etc.
  8. Product failure. A product or service which doesn’t meet the target customers requirement is bound to failure. Business owners should spend time understanding what the customer needs before embarking on any venture.
  9. Bad business planning. Every business should have a business plan which responds to their environment. Risks and opportunities should be continuously identified and exploited. Pivoting is necessary when things go sour in one line of business.

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