Share this article

Starting a business can be so fascinating and no one would want theirs to fail. However, some individuals who start-up businesses do find themselves closing after some time. According to statistics, many businesses are created every month and the rate at which they fail is very high. What are the reasons behind the failures?

Starting a business can be so fascinating and no one would want theirs to fail. However, some individuals who start-up businesses do find themselves closing after some time. According to statistics, many businesses are created every month and the rate at which they fail is very high. What are the reasons behind the failures?

This post will explore in detail all the reasons why businesses fail. With that, you’ll understand how to properly handle a business as a proprietor. So, stick around to learn more!

A-must-know Statistics on Why Businesses Fail

  • Over 50 percent of businesses in the U.S. closed permanently due to the coronavirus pandemic.
  • 38 percent of startup businesses fail because they ran out of cash.
  • Lack of market needs leads to 42 percent of business downfalls.
  • Less than 10% of business founders aren’t passionate and this leads to their failure.
  • 23% failed because they didn’t have the right team running the business.
  • 19% fail because they were outcompeted.
  • 14% fail because they ignored their customers.
  • 14% fail due to poor marketing.
  • 15 percent of businesses fail due to pricing issues.
  • 19 percent fail because of an improper business model.

1. More than 50 % of American businesses closed permanently due to the coronavirus pandemic 

 (Yelp)

Amid the rising covid cases, the restrictions which were introduced affected businesses in several states in the U.S. This resulted in the rise in temporary and continuous shutdowns. Thousands of them had to close completely and never reopened again.

2. 38 percent of startup businesses fail because they ran out of cash

(CB Insights)

Most startup businesses run out of cash since they cannot get investors or adequate finance for it to run smoothly. For this reason, if you’re starting a business, you need to know how you will distribute the money you have. Though, it’s important to realize the small enterprises can be costly when you are getting started. 

At times you may find yourself getting into your account whenever you have issues to do with money. This can drain you so much and even lead to closure if you are the owner.

3. 7% fail due to conflict between the owner, employees, and investors.

(CB Insights)

It is vital to recruiting a perfect team to help you run your business. Though close to 30 percent of the proprietors find this a tough task. Still, this doesn’t pertain to the employees alone. 

Remember, many businesses normally fail due to the investors, staff, and the founder having differences. Therefore you can avoid this if you properly define the rights and roles of every person when you launch your business. This also applies to the investors with intentions that don’t help the business attain its goals.

4. Lack of market needs leads to 42 percent business downfalls

 (Inc)

At times business holders find themselves concentrating on issues of their interest. They do this instead of dealing with issues that support the market need. Therefore when getting into a business, you need to know your clients plus their preferences. 

And familiarizing yourself with them needs some effort from you. If you do that, you’ll understand them better. Besides, from the small enterprises which survive, those who are not concerned about consumer issues are likely to fail. This extends to bad marketing skills since it is also important.

5. Less than 10% of the business founders lack passion, leading to their failure

(CB Insights)

A majority of entrepreneurs always start a business because they’re enthusiastic about it. It wouldn’t be advisable to open something you aren’t interested in just because you are after getting tons of cash. 

Moreover, startups do face challenges when you’re starting and at times you may feel the stresses of burnout. Thus, you need the enthusiasm to run them. If you have passion for your product then you can avoid failures.

6. 14% of businesses fail since they do not acquire the right team

(CBInsights)

Having a correct and active team is very crucial for businesses. This will mean you consider unique talents, personalities, and the way you can work as a team. According to reports, more than 50% of business owners opt not to have any workers. 

This enables them to stop the likelihood of incompetence from getting into the enterprise. And also cut on expenses, though it restricts the ability to prosper.

7. 20 percent of the small enterprises fail due to being  outdone by their competitors

(CB Insights)

The fact that you have a perfect business idea doesn’t mean you cannot fail. For this reason, you need to understand how you can illustrate and design it. You also need to always be up-to-date about your competitors. 

This will allow you to see the successful policies and modern techniques they use to be successful.

8. 15 percent of businesses fail due to pricing issues

(CB Insights)

Even though the figure may seem not much, it can lead to a complete downfall of a small business. At times businesses find it hard to determine the right price for a given product. And you have to be careful as you do the selection. 

If your price is too low, you won’t be able to get enough cash. Financing your firm may be another problem. However, if you charge so high for the product, potential clients may stop buying from you. They can even give bad reviews about it and this will also affect the business.

9. 19 percent fail because of a bad business model

(CB Insights)

It is important to have a perfect model which Integrates best practices to protect the business from failures. You can check how your competitors operate before you come up with a model. You’ll also need to come up with a business plan. 

One which comprises strategic marketing and problem management solutions. This will help you survive the activities of your competitors and potential setbacks. It will also have financial projections based on the revenues you predict. 

A milestone chart is also vital as you will have objectives and tasks allocated to it. This can help you be on track.

10. 14 percent Fail due to poor marketing

(CB Insights)

Directing your money to only one direction can be dangerous to your firm. Therefore you should avoid focusing much only on the development of your product. And forgetting its marketing. 

This will help you get more customers. So, if you cannot market the product yourself, you can consider hiring a marketing company. Also, ensure it is a reputable firm.

11. 14% of businesses fail due to Ignoring their customers  

(Sprout; CB Insights)

If you want your business to fail then try ignoring your clients. Take note that customer feedback and service are very important. According to reports, close to 90% of clients get ignored by retailers on social media platforms.

If you avoid answering your customer’s messages. And also offer bad services that they don’t need, be sure you will lose in the end. Moreover, if you want your company to survive, then consider reaching out to the consumers. Also, assist them when they need your help.

12. 10 percent fail because of mistiming their products

(CB Insights)

There are periods when you may find yourself making your product available in the market very late. And in other cases, you expose them to the market very early. This can affect your consumers and you may get feedback from your client. 

Especially when they don’t get the product when they need it and it’s not there. Also when you launch a product very early and they don’t know how to use it, then they will want to know more. You’ll have to tell them what it is and how they can use it. 

This is why it is always advisable you remain relevant. You can even research the items that trend and those being produced by your competitors to know what to offer your clients.

Conclusion

Even though every business activity has risks accompanying it, the noted statistics should not startle you. You can use the figures to steer you when starting a business. And with that said, you’ll have a unique way of handling your startup. Thus, you won’t experience what others went through.

Sources

Yelp

CB Insights 

Inc

Sprout

Share this article

Leave a Reply

Your email address will not be published.