5 Reasons Small Businesses Fail—And How to Avoid Those Fatal Pitfalls


Avoiding Business Pitfalls

What’s your biggest fear? Public speaking? Spiders? Failure?

I’d wager failure is pretty high up on the list. Especially if you’re a small business owner.

As you know, it’s great to be able to run your own business. But there are responsibilities that go with the freedom. Screw up badly enough, for long enough, and your business will fail. You’ll fail.

Fortunately, this doesn’t have to be as scary as it sounds. While most small businesses do fail, yours doesn’t have to be among them. Even more fortunately, the things that cause small businesses to fail are oddly consistent. There’s a surprisingly small pack of causes that tend to do them in.

This is good news for you. Because if you know what those causes are and how to deal with them, then you’ve just knocked out most of the things that could bring your business down. This makes the path to success much clearer.

So you probably want to know what these causes are, right? Great. Keep reading.

1. The owners didn’t verify the market

Ever had a plan look beautiful on paper, only to fall flat in the real world? That’s what I’m talking about here.

Note that I wrote “verify” your market, too. Don’t just confirm it exists. You need to verify that those people are interested in what you want to sell.

In a study of 101 startups that failed, CBInsights found that “No Market Need” was the #1 reason companies failed. So how do you avoid this?

Start small, then scale. Try a food truck or a table at a farmer’s market or a craft fair. Try a pop-up shop. Try a one-time event at an existing business, or a few events around different parts of town. Whatever you do, don’t solely rely on text-based research. Don’t rely on what people say they’ll do. Confirm they will hand over dollars for your product or services.

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You’re already risking enough to start this thing—make sure you know there’s demand for what you want to sell or do.

RELATED: Best Practices for Conducting Market Research

2. They didn’t understand the full scope of what running a business requires

Stop me if you’ve heard this story: A star employee gets tired of his employer. He leaves and sets up his own shop, then nearly drowns in the nuts and bolts of running his business. He barely ever gets time to do the thing he so excelled at in his old job.

This happens a lot, but it is a manageable problem.

To solve the problem, you’ll need to demonstrate the two skills that are critical for small business owners: The ability to learn and the ability to adapt. And here’s why these are so essential. Anyone of reasonable intelligence can learn the basics of running a business. If they don’t like certain parts of running their business, or they’re just not good at them, they can hire someone else to do that work.

Take marketing, for example. Most small business owners aren’t enthusiastic about it, but only 14% of them outsource their marketing, public relations and advertising. That’s a missed opportunity, both as a way to get more business, and a way for the small business owner to save some time.

3. They didn’t understand the business they were going into

This one seems particularly hazardous for new restaurant owners. How hard could it be to run a restaurant, right? You’re an awesome cook already—you just need a great location, some staff, and enough money to equip the place and stay open for a few months until you hit operating costs. Right?

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