factors that may make a business plan fail

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Ten common causes of business failure.

Failure is a topic most of us would rather avoid. But ignoring obvious (and subtle) warning signs of business trouble is a surefire way to end up on the wrong side of business survival statistics.

What’s the survival rate of new businesses? Statistically, roughly 66 percent of new businesses survive two years or more, 50 percent survive at least four years, and just 40 percent survive six years or more. This is according to the study “Redefining Small Business Success” by the U.S. Small Business Administration.

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With this information as a backdrop, we’ve put together a list of 10 common reasons businesses close their doors:

• Failure to understand your market and customers. We often ask our clients, “Where will you play and how will you win?”. In short, it’s vital to understand your competitive marketspace and your customers’ buying habits. Answering questions about who your customers are and how much they’re willing to spend is a huge step in putting your best foot forward.
• Opening a business in an industry that isn’t profitable. Sometimes, even the best ideas can’t be turned into a high-profit business. It’s important to choose an industry where you can achieve sustained growth. We all learned the dot-com lesson – to survive, you must have positive cash flow. It takes more than a good idea and passion to stay in business.
• Failure to understand and communicate what you are selling. You must clearly define your value proposition. What is the value I am providing to my customer? Once you understand it, ask yourself if you are communicating it effectively. Does your market connect with what you are saying?
• Inadequate financing . Businesses need cash flow to float them through the sales cycles and the natural ebb and flow of business. Running the bank accounts dry is responsible for a good portion of business failure. Cash is king, and many quickly find that borrowing money from lenders can be difficult.
• Reactive attitudes . Failure to anticipate or react to competition, technology, or marketplace changes can lead a business into the danger zone. Staying innovative and aware will keep your business competitive.
• Overdependence on a single customer. If your biggest customer walked out the door and never returned, would your organization be ok? If that answer is no, you might consider diversifying your customer base a strategic objective in your strategic plan.
• No customer strategy . Be aware of how customers influence your business. Are you in touch with them? Do you know what they like or dislike about you? Understanding your customer forwards and backwards can play a big role in the development of your strategy.
• Not knowing when to say “No.” To serve your customers well, you have to focus on quality, delivery, follow-through, and follow-up. Going after all the business you can get drains your cash and actually reduces overall profitability. Sometimes it’s okay to say no to projects or business so you can focus on quality, not quantity.
• Poor management. Management of a business encompasses a number of activities: planning, organizing, controlling, directing and communicating. The cardinal rule of small business management is to know exactly where you stand at all times. A common problem faced by successful companies is growing beyond management resources or skills.
• No planning. As the saying goes, failing to plan is planning to fail. If you don’t know where you are going, you will never get there. Having a comprehensive and actionable strategy allows you to create engagement, alignment, and ownership within your organization. It’s a clear roadmap that shows where you’ve been, where you are, and where you’re going next.

Running an organization is no easy task. Being aware of common downfalls in business can help you proactively avoid them. It’s a constant challenge. We know, but it’s also a continuous opportunity to avoid becoming one of the statistics.

36 Comments

This article is apt for everyone who’s planning to make a business, i admire this article so much ths more clear, understandable and realistic. I really appreciate this information, thanks for those people behind this informative thing. thumbs up!!!!!!!!!!

I have been looking at countless articles on why businesses fail. This one seems to make the most sense.

Thanks! David

Wonderful article thank to those behind this am really happy to read this article,u will be blessed in Jesus name (amen).

Awesome article

The article is very helpful and I have been assisted by it keep posting helpful thing.

I found this useful to us in Africa; especially Uganda

why is small business fail

Item number 8 is an eye opener for me thanks. More grace!

I found this useful to us in Africa; especially Uganda lol

mind opening article keep on posting

Cash flow or lack thereof is the #1 thing I evaluate when helping a company turn their business around. I am not disagreeing with any one of the 10 but unless you have enough cash you may not have enough runway to fix any one of the other 9 items to turn the situation around.

I thought I would have a look at the article and then add something that was missed as I have good understanding of these issues. Well darn and hats off Todd Ballowe. You have covered all the issues in a very tightly worded manner. Well done.

your article is good. keep on posting such important stuff. the information is helpful. thank you very much.

Right on point about why some businesses fail??

This is the richest article I have ever read while doing my research on the cause of business failure.

thank to the author, Keep up.

am very grateful about this article

The points are well put and straight to the point.

Thanks to the author we are now aware of whats causes our business to fail .

Sir/Madam! The article is fine. If you don’t mind, please specify the internal and external factors that influence a business to success or to failure. Because, in this modern world, specification i every field is appreciated. The tips are good, but quite mixed, please categorize them, thankyou

woo ,this article is awesome.I have found what i was looking for

what must a manager do to sustain a business growth?

this article is so helpful cause it contains sense why bussineses fail

Great article! Covered a lot of perspectives. Most owners believe that “knowledge is power” however they should understand that only “applied knowledge” is only the power that works! -great point. Came across a blog on Buymaster.co which really compliments and adds to this article. Take a look http://blog.buymaster.co/why-small-businesses-fail-or-fail-to-thrive/

thanks this artical is very helpful

Wow , great article. it touches an interesting field that i’m studying “Strategic management Accounting” This field seeks to involve the marketing environment with accounting as the strategy to gain sustainable competitive Advantage in the market. Thus , this articles highlights the importance of strategic tools in the market.

I am just a new comer in business, but I think this article can be a help for me.

Its a nice article but its just that we read these kind of articles only after failing in business and there are mistakes that we do again and again..as much as your articles helps me to understand the common reasons for failure I would like to point out some major reasons in my own way:

1) Lack of Capital- This is by far the most major reason for any business to fail although I am not saying this is the only reason. But it is often seen that people have capital to start up a business but in a long run they are not able to fulfil the internal and external demands of the business like salaries of staff, rent, raw materials etc. 2) Lack of Managerial expertise: This is also a major reason. It is often seen first time entrepreneurs lack management skills like planning, organizing, controlling etc. 3) Competition: This also plays in the success or failure of any business. Before or even after starting a business one must know who there competitors are and what are there strategy like what is the price of the products that they are offering, similarly quality,finish etc. Know your competition. 4) Random: There are many other reasons like understanding the needs and mentality of the customer. Know their likes and dislikes, their paying capacity, handling raw materials, keeping proper money/cash flow and accounting the same at regular intervals, having an open thinking and attitude, and their could be many that might not be present in what all I have stated. Please do give a feedback on this one

i found this article very useful , i have 40 years experiance in managing various business . thank you

Thaxs I loved the article since it opens up peoples’ minds.

Must say, this is an excellent article.

Covers the most important point in perfect details with no extra fluff.

It’s a great article and very knowledgable here are some pointers hope this could help you 1) Lack of Capital- This is by far the most major reason for any business to fail although I am not saying this is the only reason. But it is often seen that people have capital to start up a business but in a long run they are not able to fulfil the internal and external demands of the business like salaries of staff, rent, raw materials etc. 2) Lack of Managerial expertise: This is also a major reason. It is often seen first time entrepreneurs lack management skills like planning, organizing, controlling etc. 3) Competition: This also plays in the success or failure of any business. Before or even after starting a business one must know who there competitors are and what are there strategy like what is the price of the products that they are offering, similarly quality,finish etc. Know your competition. 4) Random: There are many other reasons like understanding the needs and mentality of the customer. Know their likes and dislikes, their paying capacity, handling raw materials, keeping proper money/cash flow and accounting the same at regular intervals, having an open thinking and attitude, and their could be many that might not be present in what all I have stated. Please do give a feedback on this one https://www.meshcowork.com/en/blog/read/620446883/failure-in-entrepreneurship

Thanks I have enjoyed the article ,,, very sensitive to understand especially to students who study financial management

It’s really very helpful. Thanks for sharing this amazing strategy

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1. Financing Hurdles

2. inadequate management, 3. ineffective business planning, 4. marketing mishaps.

• Small Business Failure FAQs
• Small Business
• How to Start a Business

The 4 Most Common Reasons a Small Business Fails

Running a small business is not for the faint of heart

Running a business is not for the faint of heart; entrepreneurship is inherently risky. Successful business owners must possess the ability to mitigate company-specific risks while simultaneously bringing a product or service to market at a price point that meets consumer demand levels.

While there are a number of small businesses in a broad range of industries that perform well and are continuously profitable, about 33% of small businesses fail in the first two years, around 50% go belly up after five years, and roughly 33% make it to 10 years or longer, according to the Small Business Administration (SBA) .

To safeguard a new or established business, it is necessary to understand what can lead to business failure and how each obstacle can be managed or avoided altogether. The most common reasons small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.

Key Takeaways

• Running out of money is a small 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.
• Inexperience managing a business—or an unwillingness to delegate—can negatively impact small businesses, as can a poorly visualized business plan, which can lead to ongoing problems once the firm is operational.
• Poorly planned or executed marketing campaigns, or a lack of adequate marketing and publicity, are among the other issues that drag down small businesses.

A primary reason why small businesses fail is a lack of funding or working capital . In most instances a business owner is intimately aware of how much money is needed to keep operations running on a day-to-day basis, including funding payroll; paying fixed and varied overhead expenses, such as rent and utilities; and ensuring that outside vendors are paid on time; however, owners of failing companies are less in tune with how much revenue is generated by sales of products or services. This disconnect leads to funding shortfalls that can quickly put a small business out of operation.

A second reason is business owners who miss the mark on pricing products and services. To beat out the competition in highly saturated industries , companies may price a product or service far lower than similar offerings, with the intent to entice new customers.

While the strategy is successful in some cases, businesses that end up closing their doors are those that keep the price of a product or service too low for too long. When the costs of production, marketing, and delivery outweigh the revenue generated from new sales, small businesses have little choice but to close down.

The Small Business Administration (SBA) helps small businesses find loans for different needs, offering a variety of loan programs.

Small companies in the startup phase can face challenges in terms of obtaining financing in order to bring a new product to market, fund an expansion, or pay for ongoing marketing costs. While angel investors, venture capitalists, and conventional bank loans are among the funding sources available to small businesses, not every company has the revenue stream or growth trajectory needed to secure major financing from them. Without an influx of funding for large projects or ongoing working capital needs, small businesses are forced to close their doors.

To help a small business manage common financing hurdles, business owners should first establish a realistic budget for company operations and be willing to provide some capital from their own coffers during the startup or expansion phase.

It is imperative to research and secure financing options from multiple outlets before the funding is actually necessary. When the time comes to obtain funding, business owners should already have a variety of sources they can tap for capital.

Another common reason small businesses fail is a lack of business acumen on the part of the management team or business owner. In some instances, a business owner is the only senior-level person within a company, especially when a business is in its first year or two of operation.

While the owner may have the skills necessary to create and sell a viable product or service, they often lack the attributes of a strong manager and don't have the time to successfully oversee other employees. Without a dedicated management team, a business owner has greater potential to mismanage certain aspects of the business, whether it be finances, hiring, or marketing.

Most small businesses start out with the entrepreneur's savings or money from friends and family and then look for outside financing to grow.

Smart business owners outsource the activities they do not perform well or have little time to successfully carry through. A strong management team is one of the first additions a small business needs to continue operations well into the future. It is important for business owners to feel comfortable with the level of understanding each manager has regarding the business’ operations, current and future employees, and products or services.

Small businesses often overlook the importance of effective business planning prior to opening their doors. A sound business plan should include, at a minimum:

• A clear description of the business
• Current and future employee and management needs
• Opportunities and threats within the broader market
• Capital needs, including projected cash flow and various budgets
• Marketing initiatives
• Competitor analysis

Business owners who fail to address the needs of the business through a well-laid-out plan before operations begin are setting up their companies for serious challenges. Similarly, a business that does not regularly review an initial business plan—or one that is not prepared to adapt to changes in the market or industry—meets potentially insurmountable obstacles throughout the course of its lifetime.

To avoid pitfalls associated with business plans, entrepreneurs should have a solid understanding of their industry and competition before starting a company. A company’s specific business model and infrastructure should be established long before products or services are offered to customers, and potential revenue streams should be realistically projected well in advance. Creating and maintaining a business plan is key to running a successful company for the long term.

Business owners often fail to prepare for the marketing needs of a company in terms of capital required, prospect reach, and accurate conversion-ratio projections. When companies underestimate the total cost of early marketing campaigns , it can be difficult to secure financing or redirect capital from other business departments to make up for the shortfall.

Getting your company's name in front of your customers is a crucial aspect of any early-stage business. It is necessary for companies to ensure that they have established realistic budgets for current and future marketing needs.

Similarly, having realistic projections in terms of target audience reach and sales conversion ratios is critical to marketing campaign success. Businesses that do not understand these aspects of sound marketing strategies are more likely to fail than companies that take the time to create and implement cost-effective, successful campaigns.

What Is the Small Business Failure Rate?

Approximately 33% of small businesses fail in the first two years, 50% fail within five years, and 33% make it to 10 years and further.

What Are Some Signs That Your Business Is Failing?

Signs that a business is failing include small levels or lack of cash, inability to pay back loans on time, inability to pay suppliers on time, customers that pay late, loss of clientele, and an unclear business strategy.

Small Business Administration. " Frequently Asked Questions ," Page 2.

• How to Grow a Successful Business 1 of 28
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• Factor Definition: Requirements, Benefits, and Example 3 of 28
• How Much Working Capital Does a Small Business Need? 4 of 28
• How to Sell Stock in Your Company 5 of 28
• How SBA Loans Can Help Your Small Business 6 of 28
• 4 Steps to Getting a Small Business Loan Without Collateral 7 of 28
• 5 Biggest Challenges Facing Your Small Business 8 of 28
• Simple Ways to Keep Your Business Going in Hard Times 9 of 28
• 7 Popular Marketing Techniques for Small Businesses 10 of 28
• Small Business Is All About Relationships 11 of 28
• Balance Sheet vs. Profit and Loss Statement: What’s the Difference? 12 of 28
• Lines of Credit: When to Use Them and When to Avoid Them 13 of 28
• How to Accept Credit Card Payments 14 of 28
• Using a Business Credit Card 15 of 28
• best business credit cards 16 of 28
• These Are the 5 Best Bank Accounts for Your Small Business (April 2024) 17 of 28
• The Cost of Hiring a New Employee 18 of 28
• Raise vs. Bonus for Your Small Business Employees 19 of 28
• Outsourcing: How It Works in Business, With Examples 20 of 28
• Commercial Health Insurance: Definition, Types, and Examples 21 of 28
• Best Health Insurance Companies for Small Businesses for 2024 22 of 28
• Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) 23 of 28
• Best Small Business Insurance Companies for April 2024 24 of 28
• Best Professional Liability Insurance 25 of 28
• Don't Get Sued: 5 Tips to Protect Your Small Business 26 of 28
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• The 4 Most Common Reasons a Small Business Fails 28 of 28

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20 reasons why small businesses fail and how to avoid them.

The failure rate of small businesses is significant—as many as 45% of start-ups don’t survive the first 5 years. 1 Exploding Topics, Startup Failure Rate Statistics . So why do so many businesses fail? The primary causes of business failure are cash flow problems, poor financial planning, and a lack of market awareness.

We’ll explore 20 reasons why small businesses fail so you can avoid common pitfalls and develop a strategy to help your business grow and thrive.

Key Takeaways 

• Most small businesses fail within the first 10 years.
• Common financial reasons include poor pricing strategies, insufficient funds, and cash flow.
• Creating a clear business plan can help small business owners avoid common failures.
• Understanding your target market is key to creating a good business strategy.

Table of Contents

• Lack of Planning
• Choice of Location
• Lack of Research
• No Business Plan
• Poor Pricing Strategy
• Insufficient Funds
• Cash Flow Problems
• Poor Debt Management
• Dependence on One Customer
• Inadequate Profit
• Competition
• Lack of Market Demand
• Unexpected Growth
• Lack of Experience
• Ignoring Customer Needs
• Poor Management
• Ineffective Marketing
• Lack of Innovation
• Forgetting the Customer
• Ineffective Leadership
• Frequently Asked Questions

1. Lack of Planning

A clear vision is key to successfully running your small business. Start by setting research-backed goals for your company: what benchmarks do you want to reach in your 1st year? In your 5th year?

Setting timelines helps you keep on track with your goals and helps you make adjustments if you find you’re not where you want to be. Create a strategy for your business growth and set up check-in points. 

For example, check in every 2 months to make sure you’re on track to reach your goals. This gives you a chance to follow up with what’s working well and change anything that needs to be modified to help you stay on track.

2. Choice of Location

Business location is one of the most important decisions you can make when setting up a new small business. If you provide in-person goods or services, you need to make sure that there’s enough local demand to support your business. 

Businesses like bakeries and shops often rely on foot traffic for success, so visibility is key. Other industries like lawn care require you to commute to your customers, so you’ll want to pick a central location to minimize transportation costs.

If you offer remote services, location is still important—if you have some flexibility, consider how business taxes vary between states and municipalities. 

It’s also important to consider how you might expand in the future. If you see yourself opening up a second location, look for an area that has room to accommodate your future business growth. 

3. Lack of Research

Understanding your industry, competitors, and target market is key to business success and survival. Research common pitfalls in your industry so you can understand the specific challenges your company might face.

It’s also important to learn about your competitors. See how your services and prices compare to theirs, and consider whether you can offer any niche contributions to set your business apart.

Learn what customers are looking for from your company so you can deliver tailored experiences. Some demands are evergreen (constant), while others vary with market trends—research can help you determine and predict market trends so you can stay on top of your customers’ needs.

4. No Business Plan

In addition to your overall vision for your company, you’ll need to create a clear and actionable business plan. This helps communicate your vision to investors and other team members. There are many resources available to help you create a business plan, including business plan templates .

Your business plan should include:

• A description of your company and what you offer
• A market analysis including threats and opportunities
• Competitor analysis
• Marketing plan, including target customer profile
• Budget and projected cash flow
• Scalable growth plan

You’ll want to regularly revisit this business plan and review the success of each strategy. If you find anything that’s not serving your business, catching that early and making the right adjustments can be the difference between failure and success.

5. Poor Pricing Strategy

Setting the right price is a delicate challenge, but it’s essential for surviving as a small business. You need to price high enough that you cover your costs and make a profit, but low enough that it’s still accessible to a large customer base.

Start by understanding the costs involved in delivering your product or service. Calculate all the materials and labor costs, then factor in your profit margin .

Next, compare your prices against competitors. When you first start out, you may not be able to match the prices and profits of more established companies. If you find your prices are significantly higher, you might need to decrease your profit margin slightly. 

Remember that even if you can’t exactly match your competitors, there are other strategies you can use to distinguish your business—competitor prices are a guideline, not a hard rule.

6. Insufficient Funds

Financing is a common challenge for new businesses, and it’s important to ensure you have sufficient funds right from the start. There are a range of financing options you can consider, from small business loans to investor support. Research all your options and compare how they’ll support you in the short and long term.

It’s also important to effectively manage your finances once you’ve acquired start-up capital . Make sure you understand all of your business costs including licenses, materials, taxes, and labor. Balance that against your projected profits to make sure you’ll be able to stay operative through the first few challenging years.

7. Cash Flow Problems

Financial management isn’t just about the big picture—it’s also about the way your business spends cash in day-to-day business operations. Make sure you keep track of all the ways your company spends money, from larger costs like rent and labor to everyday transportation costs.

It’s easy to get caught up in things like marketing and product development and run out of cash flow early on. Make sure you have a clear budget that you review regularly to ensure you have sufficient cash flow to manage your business.

8. Poor Debt Management

There’s more to small business financing than just start-up capital and cash flow: you’ll also want to stay on top of any debt and ensure your credit remains strong. If not managed carefully, these challenges can easily spiral out of control and sink a small business.

It’s not uncommon for new entrepreneurs to assume some debt as a new business—you might have taken a start-up loan as part of your initial process. However, that debt can become problematic if you’re not making enough profit to consistently make your payments.

One of the most common signs of impending debt issues for small businesses is delaying bill payments. If you find that your business is struggling to meet bills, debt , or credit card payments, it’s time to do a close examination of your finances and cash flow to see where you might be able to cut costs and get on top of any financing issues before they become a larger problem.

9. Dependence on One Customer

Building customer relationships is important, but it can be risky to become too reliant on just one customer. Even if that customer represents a large share of your current profit, there’s never a guarantee that they’ll be able to sustain your company.

Once you’ve found a great customer, analyze how you won that customer and see how you can apply those strategies to finding new customers. Consider what that client was looking for and how they found your company so you can understand what worked well in your next marketing campaigns .

Build a customer profile and focus your marketing on reaching clients who fit that profile. See if they tend to live in a certain area, frequent a certain job or social media platform, or search for particular keywords. Try to diversify your customer base so you aren’t reliant on just one client for your business survival. 

10. Inadequate Profit

Most small businesses have low profits in their first few years, but there’s a point where those profits can become too low to survive. If you find that your profits aren’t enough to cover your expenses , it’s time to think about profit maximization strategies.

One of the first things to examine when you’re facing inadequate profit is your current cost management. Are there any areas where costs can be cut? Consider whether there are more affordable manufacturers, equipment options, or business spaces available to you.

You can also examine your pricing strategies. If you start by pricing low and you’re selling a large volume but still not making a good profit, your prices may be priced too low. Calculate how much you would have to raise your prices to make enough profit, and test out slightly higher prices to see how customers respond.

11. Competition

Even if you offer great products and services, it can still be hard to survive if you’re facing a lot of competition. Conduct a market analysis to see how many competitors are in your industry and area, what products they offer, and how their prices compare to yours.

Once you have a thorough understanding of your competitors, you can devise strategies to set yourself apart. This can include everything from offering competitive prices to providing a higher-quality product. You can also explore marketing strategies or consider how you can offer a slightly different product to fill a market niche.

12. Lack of Market Demand

Even the best businesses can fail if there’s no demand for their product. Market demand also fluctuates, so what’s in demand today can change by tomorrow. Keeping track of market trends and demand can help you stay ahead of the curve with what your company offers.

Start by assessing what’s currently in demand and how you can pitch your product to meet that demand. As customer needs evolve, you may need to slightly alter your products to adapt to changing customer needs.

13. Unexpected Growth

Growing your business is a hallmark of success, but it can also pose risks if you expand too rapidly without a clear plan. Unexpected growth can lead to over-extending your resources, overworking employees, and losing track of customers.

To prevent fallout from unexpected growth, it’s essential to have a scalable business plan. Make sure you can still deliver high-quality goods and services as you expand, so your customers stay satisfied. Keep track of how much money and labor you’re expending on new services so you can bring on new employees as you grow.

It’s all about striking a balance—you want to make sure you hire enough talent to keep up with growth but avoid hiring too early in case your growth slows down. Tracking your expenditures in relation to growth is the best way to create a plan for the future.

14. Lack of Experience

Successful business owners need vision and passion, but they also need experience to translate into their goals into a successful company. Lack of experience and industry knowledge can hold your business back, so it’s important to build a dedicated management team with a thorough understanding of the market.

A business mentor can help you manage the small business owner aspects of your company. Look for someone with experience managing their own business who can advise you on things like developing a business plan , hiring the right talent, and pitching to investors. 

It’s also important to bring on experts in your industry. Look for experienced financial advisors who can guide you through developing your financial strategies. You’ll build experience as you grow, but it’s a good idea to bring in experts for specific jobs like marketing and accounting.

15. Ignoring Customer Needs

The best source for understanding market demand is customers themselves. Responding to feedback helps you build strong relationships with your existing customers and helps you understand what you need to do to gain more customers.

Listen to customer feedback on pricing, services, accessibility, and any other concerns they may have. In some cases, you may not be able to accommodate every suggestion, but it’s helpful to respond and then do a cost-benefit analysis and see how making the recommended changes might impact your business.

If you feel like you’re not receiving customer feedback, consider reaching out. Comment and feedback forms after a completed order can be a helpful tool for gaining market analysis in real-time.

16. Poor Communication

Having a clear vision that you can communicate to investors and customers is important, but it’s just as key to having strong communication inside your business. When your team doesn’t understand your business goals, it’s harder for everyone to collaborate efficiently. 

If you’re operating your small business as a partnership, it’s fine to have different skill sets, but you need to be on the same page about vision and goals. Creating a business plan collaboratively can help ensure you agree on the primary strategies for your company.

Weak communication can lower morale and productivity and prevent your business from growing effectively. Consider making a modified version of your business plan that you can share with your employees. This can include an overview of your business goals and strategies to help everyone get on the same page.

17. Ineffective Marketing

Even with great products, your business can’t succeed unless you effectively reach your target market. Ineffective marketing strategies can hold you back from connecting with customers, while great marketing helps you reach new audiences and grow your business.

It’s important to have a targeted campaign with a clear focus. Start by identifying your target customers and learning about how they interact with local businesses. This helps you determine where to place ads, what to offer, and how to speak to potential customers.

Make sure your marketing strategy has a way to track results. That could include tracking impacts and clicks, measuring follow-through, and consulting with new customers to discover how they found your business so you can build on your most effective strategies.

18. Lack of Innovation

A great product at the start of your business may not remain competitive as the market changes. Innovation is essential for ensuring your business stays relevant and continues to be successful. 

This doesn’t mean you have to drop products if they’re still performing well, but it’s a good idea to consider how you can improve or develop new products if you have the capital to spend on development. This helps you stay ahead of the curve in a changing market.

Even with evergreen products, your business practices can still become stagnant. You’ll need to find new marketing strategies to reach new customers so that you can have a continuous revenue stream. Innovation spans all components of your business, from product development to new marketing methods.

19. Forgetting the Customer

Even if a product seems great to you, remember that in the end, it’s about the customer and how the product will meet their needs. Focus on learning about what the customer is looking for—what’s missing from current products, and how can your business satisfy that need.

If customers offer feedback, try to learn from that and incorporate it where possible. This can involve product innovation or customer service relationships. Customers will remember a great product, but they’ll also remember a personable and helpful business interaction.

Check-in with customers to make sure they’re fully satisfied with their experience. One way to do this is to send a follow-up email or form after their purchase. You can incentivize feedback by offering a small discount for filling out the form—this also encourages customers to return to your business.

20. Ineffective Leadership

While a great team and expert advice are important in supporting your business, it’s ultimately up to you to lead your company forward. If you’re burnt out or losing track of your vision, your team won’t know where to follow.

Strong leadership helps cultivate a positive company culture, a motivated team, and great client relationships. Your employees take their cue from you, so make sure to set a strong model for interacting with customers. 

Creating a good company culture starts with forging strong employer-employee relationships. Get to know your employees, their goals, and their challenges at work so you can help them perform their best. When you create a work environment that’s supportive and growth-oriented, it encourages your team to deliver their best work and help build your business.

The reasons why small businesses fail can include everything from poor pricing strategies to ineffective marketing. Learning how to recognize problems like poor management and inexperience can help you identify issues in your company before they impact your success.

Understanding and recognizing why small businesses fail can help you create strategies to avoid common pitfalls. Tools like FreshBooks accounting software can also help you manage your expenses and avoid problems like insufficient cash flow. Try FreshBooks free to discover an easy tool to help your small business thrive.

FAQs on Reasons Why Small Businesses Fail

Is it true that 90% of startups fail.

Yes, ultimately about 90% of startups fail. A few fail in the first year, and most new businesses fail in the first 2 to 5 years. After 5 years, businesses that survive tend to see a small rise in profits and growth.

Why are small businesses declining?

Some of the biggest reasons why small businesses decline are market competition, lack of demand, and lack of financing. In many cases, larger and more established companies make it difficult for new small businesses to enter the market.

What is the biggest problem facing small businesses today?

One of the biggest problems currently facing small businesses is inflation. High inflation rates mean higher input costs for products, and usually also mean employees will seek higher salaries. It can also mean higher interest rates when trying to secure a first business loan.

Why are small businesses failing in today’s economy?

Many small businesses are failing in today’s economy because they lack planning and financial preparation. While market competition and funding pose challenges to business owners, these can be overcome with financial preparedness and a clear business plan.

Article Sources: 

• Exploding Topics, Startup Failure Rate Statistics .

Sandra Habiger, CPA

About the author

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.

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9 Major Reasons Why Businesses Fail by Year 2 and How to Avoid Them

Posted january 28, 2021 by jake pool.

According to the Bureau of Labor Statistics, over thirty percent of private companies fail within two years.

Of course, there are external factors that businesses have no control over. Sadly, the COVID-19 Pandemic is a prime example of one. Since such events are unavoidable, let’s focus on internal factors that companies can act on.

9 common issues to avoid when running your business

As a new business owner, what are the traps to avoid from the start? And what can you do to stay in business? By understanding the following pitfalls you can hopefully avoid them and keep your business running smoothly for far longer than 5 years. Let’s dive in.

1. Insufficient funds due to weak forecasting

Without a doubt, poor financial forecasting is the main reason businesses fail.

It is relatively easy to plan fixed costs such as rent, payroll, utilities, hardware, etc. Entrepreneurs should vet this out extensively when writing their initial business plan.

However, it can be more challenging to forecast revenue generated from sales . Many new business owners are overoptimistic in their planning and vision. This results in an inability to amortize (pay off) an initial investment. Thus, the business fails.

Similarly, companies may be tempted to launch their product or services at a cheap price to be competitive. While it can work in the short-term, it’s not a sustainable business model. Once you start with a low price, it’s difficult to increase.

Goals should be ambitious, but attainable. And the budget should reflect accordingly.

2. The business lacks value

The success of any business hinges of its value. It might sound obvious, but it’s not that easy. As a business owner (or future), you probably think your product or service is great. But it’s not enough.

Before launching a business, always do extensive research (there is a lot of data available) on your target audience. Benchmarking and surveys are also a must.

Here are some generic survey questions to ask:

• Would you talk about this product or service with others?
• Have you ever heard of a similar product or service?
• How much would you pay for this product or service?

If your product is only valuable to you or a small group, or it doesn’t offer more value than your competition, it’s time to rethink things.

3. Inadequate business plan

As mentioned in the first point, budgeting is a key element of a business plan . But it’s not the only factor within the plan that will break a business.

A good business plan should include:

• A comprehensive description of the business
• Workforce needs and compliance (current and future)
• SWOT analysis
• Benchmarking Analysis
• Marketing Plan

But a solid initial business plan isn’t enough. Business owners should review and modify it regularly to keep with the pace of the industry and assess internal goals.

Many failed businesses in this scenario end up listed on business marketplaces like UpFlip because there are entrepreneurs out there equipped to change a poor business plan.

4. No connection with the target audience

The first questions any business owner should ask are — Do I know my target audience and do I understand what they need and want?

If you can’t answer those questions, it’s time to conduct more surveys and research. Otherwise, there is a disconnect, and the business will ultimately suffer and fail. It seems like a bold statement, but the biggest part of a purchasing decision is emotion.

Your product or service may have wonderful features and even value, but if it doesn’t connect with your target audience on an emotional level, it will fail.

For example:

If you run an office furniture business, obviously, the technical aspects of your premiere desk chair would be a sales point. But sturdy wheels and a comfortable backrest won’t differentiate you from the competition. 

Yes, you sell a chair. But also sell the idea of success, professionalism, or even luxury. The target audience must connect with your product on those levels. Otherwise, the business won’t stand out.

5. Competition is too stiff

Even with a comprehensive benchmarking analysis in the initial business plan, competition can evolve quickly. In many industries, there are new players every day in their respective markets.

To avoid failure, benchmarking must be a continuous effort. If your competitors are too big, it’s in the business’s interest to find a niche or some form of added value to your products or services.

Take TOMS Shoes , for instance. They broke into the highly competitive world of mid-level shoe sales by offering a socially conscious selling point to the value of their shoes. For every purchase, they give a pair of shoes to a child.

Note how their model also connects with their target audience at an emotional level.

6. Poor management

The success of a business comes from the top down.

Small business owners are often the only managers within a company. While it may work sometimes, it’s advisable to form a proper management team or at least hire a general manager.

Business owners don’t always have the necessary skills or time to be a good manager. Poorly managing or overlooking certain aspects of the business like human resources, marketing, or accounting can have a disastrous effect.

It’s important to learn to delegate to avoid wearing too many hats.

If you don’t have the money or infrastructure to hire full-time help (or in-house), think about outsourcing certain management tasks to a qualified freelancer via Upwork or a similar platform.

Otherwise, someone who can manage the company will soon take over.

7. Lack of a company culture

There is no happy company without happy employees. You may have a great business model and entrepreneurial skills, but the success of the company also depends on the staff.

It’s key to outline and implement a strong company culture from the beginning. And make sure that the people hired align with it.

Once in place, feed and maintain the culture mentality. Otherwise, you risk issues with high turnover. This has led to the internal collapse of many businesses in a shorter time span than two years.

8. Ineffective sales funnel

Getting leads is essential for any company, but your leads are worthless if they don’t convert. Many new companies focus on collecting data and leads and fail to nurture them properly.

To avoid bloating your sales pipeline , you need an effective sales funnel from beginning to end (and beyond!). It could vary depending on the industry, but be sure to nurture your leads as long as needed to complete the sale.

In the ideal sales funnel, leads convert when ready and become ambassadors of the brand. With a quality, automated system, you can sit back and watch it happen.

Here are a few ideas on nurturing leads:

• Send industry-related freebies (How-to Guides, Tools, White papers)
• Share relevant blog articles based on interest (personalization)
• Wish them a Happy Birthday! (Gift, Voucher)
• Set up a referral program with incentives
• Engage with leads on social media
• Use chatbot technology to answer FAQs when unavailable
• Newsletters (Old fashioned, but efficient!)

In other words, create and maintain a relationship even after the sale!

9. Bad marketing

In the early stages of a business, marketing is crucial. The key is to find the right balance between a reasonable budget and efficiency. Fortunately, this is possible thanks to digital marketing.

The two biggest advantages to investing in digital marketing campaigns are cost efficiency and measurable results (as opposed to traditional marketing methods such as print or tv advertising).

When setting up a marketing campaign, define the target audience, budget, and a realistic conversion rate. Again, if you need help, think about outsourcing for Google Ads or social media campaigns .

Many companies fail because of an inefficient marketing plan that allocates funds to ineffective channels or to ineffective content. And when it’s too late, it’s difficult to redirect funds to make up for the loss.

Awareness is key

As stated, some external factors that negatively affect a business are unavoidable, but there are many internal factors business owners can act upon to prevent failure. The first two years are critical to creating a perennial business.

Be aware of these reasons and don’t become a statistic!

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6 Reasons Why Small Businesses Fail and How to Avoid Them

7 min. read

Updated October 29, 2023

Roughly 20% of small businesses fail in their first year, according to recent U.S. Bureau of Labor Statistics data . About 50% fail in the first five years, and only one-third of new businesses are able to survive for 10 years. Research by the Small Business Administration found that about 1 in 12 businesses close in America every year.

If you’re a small business owner, another way to think about these statistics is that 80% of small businesses will survive their first year. Over five years, you have a roughly even chance of survival or failure. Looking out 10 years, you have a one-in-three chance of enduring.

What are the reasons businesses fail to thrive, given a 50/50 chance of survival and assuming a product or service for which there’s a demand? Let’s discuss six reasons businesses fail and some ways you can avoid business failure.

• 1. Leadership Failure

Your business can fail if you exhibit poor management skills, which can be evident in many forms. You will struggle as a leader if you don’t have enough experience making management decisions, supervising a staff, or the vision to lead your organization.

Perhaps your leadership team is not in agreement on how the business should be run. You and your leaders may be arguing with each other publicly, or contradicting each other’s instructions to the staff. When problems requiring strong leadership occur, you may be reluctant to take charge and resolve the issues while your business continues to slip toward failure.

How to Avoid Leadership Failure: Dysfunctional leadership in your business will trickle down and affect every aspect of your operation, from financial management to employee morale, and once productivity is hindered, failure looms large on the horizon.

Learn, study, find a mentor, enroll in training, conduct personal research—do whatever you can to enhance your leadership skills and knowledge of the industry. Examine other business and leadership best practices and see which ones you can apply to your own.

2.  Lacking Uniqueness and Value

You may have a great product or service for which there is strong demand, but your business is still failing. It may be that your approach is mediocre or you lack a strong value proposition. If there’s strong demand, you probably have a lot of competitors and are failing to stand out in the crowd.

How to Avoid Value Proposition Failure: What sets your business apart from competitors?  How do you conduct business in a way that is totally unique? What are your competitors doing better than you are? Develop a customized approach or service package that no one else in your industry is using so you can present it as a strong value proposition that attracts attention and interest.

This is how you build a brand . Your brand is the image your customers recognize and associate with your business. Your brand identity, including your logo, tagline, colors, and all the visible aesthetics and business philosophies that represent your company should be supported by your value proposition. It should separate you from the pack and present your individual perspective to your customers. Do everything you can to present that unique value proposition to your market so you can capture a market share and begin building your conversion rates.

To publicize your brand and set yourself apart, you will also need to step up your marketing plan and use as many venues as possible to present your brand to the public. You may be far better than your competitors but that won’t make any difference if your prospects don’t even know you’re in the game. Use social media, word of mouth, cold calling, direct mail, and other tried-and-true marketing techniques. Ensure you have a well-optimized online presence, develop lead generation and contact information capture techniques such as offering high-quality content on your site, a subscriber newsletter, and information giveaways.

3.  Not in Touch with Customer Needs

Your business will fail if you neglect to stay in touch with your customers and understand what they need and the feedback they offer. Your customers may like your product or service but, perhaps they would love it if you changed this feature or altered that procedure. What are they telling you? Have you been listening? Or is the market declining? Are they even still interested in what you’re selling? These are all important questions to ask and answer. Maybe you’re offering a product or service that is fallen well below trend.

How to Avoid Losing Touch with Customers: A successful business keeps its eye on the trending values and interests of its existing and potential customers. Survey customers and do market research and find out what their interests are and keep abreast of changes and trends using customer relationship management (CRM) tools. Effective use of CRM can help keep your business from failing.

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4.  Unprofitable Business Model

Akin to leadership failure is building a company on a business model that is not sound, operating without a business plan , and pursuing a business for which there is no proven revenue stream. The business idea may be good but failure may come in the implementation of the idea if there are no strategic guidelines in place.

How to Build a Good Business Model: Research and review the way other businesses in the industry operate. Develop a complete business plan that includes financial forecasting based on predictable revenue, strategic marketing, and challenge management solutions to overcome potential obstacles and competitor activities. Create a milestone chart with specific tasks and objectives assigned along the timeline so you can measure success, solve problems as they occur, and stay on track. A sound business model that incorporates best practices can help your business avoid failure.

5.  Poor Financial Management

SmallBizTrends.com, a business news resource, offers this infographic which states that 40 percent of small businesses make a profit, 30 percent come out even, and the remaining 30 percent lose money.

You must know, down to the last dime, where the money in your business is coming from and where it’s going in order for your business to succeed. Your business can also fail if you lack a contingency funding plan, a reserve of money you can call upon in the event of a financial crisis. Sometimes people start businesses with a dream of making money but don’t have the skill or interest to manage cash flow , taxes, expenses, and other financial issues. Poor accounting practice puts a business on a path straight to failure.

How to Avoid Financial Mismanagement: Use professional business accounting software like QuickBooks or Xero to keep records of all financial transactions, including every expenditure and all revenues received, and use this information to generate income statements (profit and loss statements). Even better if you use a business dashboard tool like LivePlan that makes it easy to monitor your financials. This is valuable information that you need to run your business, know where you stand at all times, and keep it operating in the black. If you lack skill in financial management, consider hiring a small business advisor and professional bookkeeper or certified public account to help manage your financial affairs.

6.  Rapid Growth and Over-expansion

Every now and then a business startup grows much faster than it can keep up with. You open a website with a trending product and suddenly you are inundated with orders you are not able to fill. Or perhaps the opposite is true. You are so convinced that your product is going to take the world by storm that you invest heavily and order way too much inventory and now you can’t move it. These are both additional paths to business failure.

How to Avoid Growth and Expansion Problems. Business growth and expansion take as much careful and strategic planning as managing day-to-day operations. Even well-established and successful commercial franchises such as fast-food restaurants and convenience stores conduct careful research and planning before opening a new location. They measure local and regional demographics and spending trends, future development plans for the area, and other pertinent issues before they move forward. You must do the same for your business to avoid failure.

Conduct thorough research to ensure the time is right and the funding is available for expansion. Make sure the initial business is stable before expanding to an additional location. Don’t order inventory you’re not sure you can sell but have a plan already in place to fill orders quickly should the demand present itself. The key to successful growth and expansion—and avoiding business failure—is strategic planning.

• Avoiding business failure starts with planning

If 50% of new businesses fail, then 50% of new businesses can succeed. Starting a business is an exciting endeavor that requires a clearly defined product or service and a strong market demand for it. Whether you desire to start a new business or you’re already running a business, you must understand that success depends on careful strategic planning and sound fiscal management that begin prior to startup and continue throughout the life of the business.

Clarify your ideas and understand how to start your business with LivePlan

Mike Kamo is the VP of marketing for Strideapp. Stride is a Cloud-based CRM and mobile app that helps small- to medium-sized agencies manage and track leads, as well as close more deals.

Table of Contents

• 2.  Lacking Uniqueness and Value
• 3.  Not in Touch with Customer Needs
• 4.  Unprofitable Business Model
• 5.  Poor Financial Management
• 6.  Rapid Growth and Over-expansion

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Strategic Planning Failure: Why It Happens and How to Avoid It

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There are more than  30 million small businesses  in the U.S. If I asked you to divide these companies into categories based on annual revenue, how many would fall into the $1-10 million revenue tier? How about $10-50 million or above $50 million?

These businesses comprise only about 4% of those in the U.S. The remaining 96% have less than $1 million in annual revenue. Unfortunately, only a small number of them will grow into the next tier. In fact, it’s so hard to move between categories, there are only 17,000 businesses with more than $50 million in annual revenue. Only 17,000 out of more than 30 million!

It leads you to wonder — why do some companies struggle while others blast through the ceiling and achieve phenomenal growth? What are common barriers that prevent companies from achieving this level of growth? The secret often lies in strategic planning.

In this article:

Top 28 Fatal Strategic Planning Program Flaws 

How to overcome strategic planning failure.

• Start Executing Your Strategic Plan With AchieveIt 

For some companies, strategic planning seems to be a rhetorical exercise in which everyone fills out a form at the beginning of each year listing the things they are going to accomplish. The forms are assembled into a tidy document and updated quarterly. It’s all very task-oriented. And while, yes, strategic plans contain tasks, without goals, objectives, and strategies to provide context, the tasks are meaningless. A strategic plan without measurable objectives is no strategic plan at all. 

Successful strategic planning means business elements are working together agreeably to contribute to these goals. For strategic planning to be successful, you need to understand the factors that play a role in strategic plan failure. We’ve gathered a list of the top 28 reasons why strategic plans fail. 

1. Premature Upscaling

Pushing your business outside of its limit is known as premature upscaling and may occur if you are impatient to implement a business venture, project, or strategy. Preparing your team to take on any kind of expansion before anticipating possible consequences can lead to disaster. Managing the effectiveness of your strategic plan means not taking it  beyond the reality  of what your business can handle. 

A practical internal organization should focus on a steady upscale by defining specialized roles, strengthening management structure, planning, forecasting, and sustaining culture.

2. Poor Managerial Skills or Lack of Leadership

Managers and leaders can heavily influence productivity, revenue, innovation, and turnover. Management that contributes to a lack of trust or low expectations can decrease employees’ motivation or performance, which can affect strategic planning. Managers can assist in creating a proactive environment by learning from their failures and encouraging experimentation. Promoting open communication and exchange of ideas may also help with improvement opportunities. 

Managers should be aware that  employees may not always come to them  when problems arise, so anticipating problems and engaging with employees to create solutions for strategic plans lets your team know they are a priority. Having suitable leadership can ensure your team’s commitment and buy-in to the process.

3. Zero Succession Plan

Many strategic plans are not executed well because the business doesn’t have a succession plan. A succession plan ensures the necessary resources and skills are available when needed for a business plan or transition. The absence of succession planning may leave your business exposed to  inefficient replacement options  for positions that need to be filled, as well as fewer training and opportunities for your hard-working employees.

Businesses with a  strong succession plan  may see more resolved conflicts, effective decision-making and a boost in employees’ qualifications to take over specific roles. 

4. Overwhelming Strategic Plan

A strategic plan that is too overwhelming may be just as ineffective as having no plan at all. Too many vague goals or action steps — such as “growth” or “increased revenue” — can create confusion and dilute specific instructions or paths to accomplishment. This lack of precision could make employees  less likely to make progress  on goals. A strategic plan can also seem overwhelming if it aims to accomplish too many objectives at once, making it more difficult to translate them into useful measures. 

Creating a specific plan with goals and means of achieving them may reduce the likelihood of concerns or the need for clarification in the future. Using specific objectives can help you develop a reasonable timeline for intended success. It may also assist your employees in feeling confident in their respective roles and positions.

5. Unrealistic Goals: All Vision, No Direction

Setting unrealistic goals may explain why your business strategy fails. Unrealistic,  immeasurable, or unquantifiable  aspirations can be difficult to put into action and contribute to a lack of organizational focus because employees may find it unmanageable to meet the requirements. Employees are more motivated by challenging but attainable and incremental goals that align with business resources and productivity. 

Aside from envisioning your goals, you need a plan for implementing them. So, after ensuring all the essential elements of your mission are accounted for in your goals, develop a plan for implementing them. This ensures your plan has a focused vision and a sense of direction. 

6. Focus on Structural Changes

A business that puts too much focus on structural changes may lose the opportunity to direct its energy toward decision-making and meeting goals. Rather than building new structures, it is important to work on developing effective processes for strategies. Structural changes may bring about more issues and conflicts that take away attention and time from the strategies that can help your business succeed. 

There are often limits to structural changes in organizational design, as it can take a long time to get everyone on board with the process to run smoothly. 

7. Lack of Empowerment

The formulation and execution of your business strategy may depend heavily on your employee’s confidence and positive thinking. Empowered employees may feel more motivated to collaborate and achieve a goal, which can have a direct impact on your strategic planning success. Leaders who implement empowerment may see an increase in connection and creativity. Developing an inspiring and innovative environment can increase adaptation to different work styles, which may lead to success.

8. Wrong Timing

A solid business plan considers when the time is right to administer action. Your business strategy may be equipped with the proper resources, planning, goals, and actionable measures. But if the timing in your market or industry is not optimal, it may be wise to contemplate implementing it at a different time. The timing of your  project often directly relates to success , so finding the ideal moment to bring your plan to life is important. 

9. Short-Term Planning and Losing Sight of Goals

In the hustle of day-to-day operations, employees may easily lose sight of the mission. This attention can hinder short-term goal planning when your employees only focus on daily activities rather than their purpose in the overall goal. 

Before establishing your business strategy, think about the big picture and general direction of where you want to grow. If you don’t set long-term goals, you may lose the ability to envision sustainability. Setting long-term plans and objectives can improve your short-term goals’ structures because you may be able to  narrow the focus  toward what you are trying to achieve. 

Most of the time, your business’s short-term goals will be very different compared to its long-term strategy, so you and your team should revisit goals regularly to keep everyone on track. Planning for your business’s future and adapting your daily actions to your strategic plan’s goals can strengthen your employees’ ability to maintain a broader perspective. 

10. Choosing the Wrong People or Relying Too Much on External Consultants

In any business, the employees and team members are the most important asset. Every business strategy, plan, and execution stage requires different skills, personalities, and capabilities. Choosing the wrong people to fill specific roles in your business plan may decrease productive methods and success.

A team of  external consultants  is almost always a good idea for collaborating on a business plan and ensuring success because strategic management decisions can be very challenging. However, strictly relying on external consultants, meaning those who are not a part of your business, may lead you to lose sight of your business goals and purpose. After all, no one knows your business better than the people involved in your internal organization.

The external structure, also known as the environmental subsystem, should interconnect with the internal structure of your business to maintain consistency and work to improve intended progress. Internal consultants may be more beneficial for your business, depending on the size of your project or business plan. They may have a better idea of how to allocate resources and take a specific approach.

11. Lack of Communication or Lack of Clarity on Actions Required

When strategies fail, it is often because of a lack of communication. Communication keeps everyone on the same page. To communicate effectively, you must understand what information is relevant and important when notifying your team of updates, issues, or changes on a project. 

In businesses where a lack of communication contributes to the limitations of strategic planning, employees may feel confused about their roles and responsibilities. They may also feel disconnected when attempting to collaborate, which can lead to poor execution and confusion on context and outcomes. A method of storytelling can be effective in this case to put facts, strategies, missions, or  operational planning  directives into a structure that people can relate to and understand. 

Another crucial part of communication is accountability. Around  91% of employees  would say effective accountability implementation is one of their company’s top leadership development needs. Clearly communicating what employers are accountable for is essential, considering  60% of workers  report higher levels of mistrust with leadership when faced with a lack of communication surrounding accountability.

12. Inadequate Monitoring

Monitoring the development of planning and progress for any strategy can keep you aware of when changes need to be made. Determine which factors will have a significant impact on the success of your business to create a timeline of when critical tasks need to be completed. Proper monitoring allows for the opportunity to notice alternative solutions and predict long-term performance. Keeping your strategies and objectives on track may help prevent problems and enable you to revise or update plans as necessary. 

Monitoring your financial key performance indicators (KPIs) is another great way to be proactive and add value to your daily activities. 

13. No Progress Reporting

Reporting progress is another effective means of communication that contributes to staying on track with meeting your goals. A progress report updates the right people on the status of certain projects or task completion. Without it, there can be confusion and concern surrounding productivity. 

Progress reporting can also provide an overview of your team’s accomplishments and areas that need improvement. Constructing a regular analysis of your team’s performance, spending and profits can provide insight into how you compare with competitors. 

14. Lack of Alignment

Strategic alignment means that all crucial elements of a business are working together to support long-term goals. If employee performance is not aligned with your company goals and important strategic plans, it may present another obstacle to success. Misalignment in your business can create a disruption in focus, unclear goals, and conflicting tasks. 

Employees need to understand how their responsibilities fit into the success of a strategic plan or mission. Creating clear, established intentions may help you develop alignment with what your business aims to accomplish. 

15. Strategy You Can’t Execute

Before wasting time, energy, and resources on a strategic plan, consider if it is truly worth executing. Vague ideas or goals won’t usually produce anything successfully, so analyze your plan to see if it is capable of creating real change. Your strategy should be flexible and leave little opportunity for disruption. 

Your business may be too focused on seeing rapid results that it may not take the time to develop capabilities and innovation techniques. A worthy, solid strategy will take time to develop and may even require fundamental changes to your business. 

16. Unforeseen External Circumstances

Unpredictable occurrences should, ironically, be expected. If your company is not comfortable with confronting unforeseen external circumstances, it may explain why your strategies fail. Learning to anticipate risks or unfavorable opportunities can strengthen your ability to prepare a more secure strategy in the future. It is wise for your business to continually adapt its resources to suit a changing environment. 

Leaders and managers should devise a plan that highlights any uncertainties or possibilities for changing demands and competition to reduce the chance of failure from an external source.

17. Flawed Strategy

Implementing an incomplete or inconsistent plan is another possible reason why your strategic plans fail. A poor match between strategy and organizational  core competencies  may prevent you from seeing the growth and success that you desire. Testing your strategy with logic and a discernable vision can help determine if there are flaws in your strategy and how to address them.

Look to past situations and failures to see where you might notice defects in your current business strategies. You may jeopardize your business’s advancement if you rush to execute a strategy that hasn’t been well thought out.

18. Allowing Planning to Kill Strategy

The planning process allows you and your employees to demonstrate the goals you have in mind and how they can be achieved. However, too much planning — or too much focus on it — might dilute the importance of your strategy execution. At some point, you need to shift the overall focus to the strategy itself and how it will be executed to meet the desired growth.

Many managers and leaders may take too much time during the planning process trying to perfect every tiny detail. While this is admirable, it can also cause a delay in getting your anticipated results. Strategy execution should not be confused with planning, as they are completely different parts of the process of strategic analysis. Planning usually consists of an organized list of initiatives with associated budgets, resources, and deadlines. The strategy involves implementing specific decisions that lead to sustainable competitive and financial advantages.

19. Disorganized or Poorly Written Plan

A poorly designed plan will most likely lead to poor execution, which may cause strategic plan failure. Sufficient research and development of a plan with expertise and direction can be a part of the process of refining and organizing it. A jumble of to-do lists that are not coordinated and have no stated objectives may only cause your team to take longer to come up with a proper arrangement. This is also where accountability comes in — Ensure team members understand their responsibilities. 

20. Incremental Thinking

While incremental goals and growth may be a positive aspect of strategic planning, incremental thinking is usually not. This method of thinking usually consists of waiting for immediate, linear results and is generally unrealistic. It’s a more traditional process that may cause you to expect progress because you think you are making the right decisions.

Before implementing your business strategy, consider practicing an exponential mindset. Exponential thinking allows you to assess your growth in terms of its journey rather than overnight results. Exponential projections are not always certain and may not always meet your expectations as reliably as incremental thinking, but they  focus on working differently instead of working better . You can practice patience and alignment in your business, bringing about the opportunity for innovation.

21. Insufficient Focus

Another fatal flaw in strategic planning is insufficient focus. Employees who have too many widespread tasks may not know what to prioritize or what objectives are most relevant. Staying consistent with communication and reflecting on your business’s values and mission can be a helpful reminder that keeps team members on track.

Leadership may also focus too much on internal issues that don’t relate to their goals, such as resolving conflicts and sustaining performance. Too much internal attention can mean leaders fail to acknowledge competition markets and trends in technology. Focusing on the necessary elements of your strategic plan is key to maintaining the dynamic in your business, but  70% of leaders review their strategy  on an average of only one day a month. Spending too little time focusing on your prime concerns may lead to strategic failure.

22. Prioritizing the Wrong Things

While outlining specific priorities and goals is essential for strategic planning, it is crucial to prioritize the right things. Your priorities should directly align with your strategic business plan and have an obvious connection to how your company will succeed through particular steps and tasks. Explaining your priority objectives in detail and why they matter to your organization can help you understand if they truly are important.

It’s also normal for priorities to change throughout the process of implementing your strategic plan. Your goals may occasionally need to be restructured due to industry changes or financial impediments, so it’s a good idea to revisit your primary concerns regularly to see if they still match up with your current progress.

23. Insufficient Research

A lack of proper research may present problems down the line when executing your strategy. This type of research may include competitive industry markets, a review of your company’s resources or a look at your company’s financial performance. It is important to consider all possible elements of your strategic plan so you can better predict challenges and obstacles.

Strategic research planning can also be helpful to  define the resource and budget needs and possible outcomes before beginning a project. Leaders who prioritize research help ensure that all the important elements of a plan are accurately measured and completed. Emerging industry trends and changes can also be identified and updated according to your business plans with appropriate research. A lack of research could lead to a deficient comprehensive strategic plan because of failure to highlight related interactions, pressure points, and dependencies.

24. Putting Financials Ahead of Ideas

Improper use of resources is another factor in the list of fatal flaws. Tracking financial performance keeps you prepared for unexpected or unplanned events. However, being so concerned with your cash flow that you neglect ideas that could grow your business can cause you to pause your business plan or scrap it altogether.

Consistent poor cash flow management can also prevent you from making impactful decisions, finding resolutions, and predicting a prospective financial outlook for your business. It may also keep you from being able to participate in new business opportunities. Staying on track with your finances and managing them sensibly may make it easier for you to take on new tasks and projects without seeing a depletion of resources.

25. Failing to Make Trade-Offs

Strategies require making decisions that are difficult but necessary. Making trade-offs is very common and essential in most businesses and involves choosing one option or action over another. This ensures that your revenue, time, energy, and resources are going to the tasks where they can make the most impact.

For example, if your employees work toward many different, widespread goals or missions, there may not be much progress on your primary strategic plan. Failing to make trade-offs can prevent you from being able to allocate your resources to your most important key projects and objectives. Trade-offs also allow you to  determine which goals may conflict with each other , which risks you are willing to take, and which ones are not worth the possible loss.

26. Putting Too Much Value on Your Central Idea

Putting too much emphasis on one goal also has drawbacks. While it’s important that your team keeps your central idea or goal in mind, it should be flexible and adaptable. Having a backup plan can help add some security to your strategy and address concerns from your team.

It is also crucial to remember that strategies cannot be perfect, and leaders and managers can’t know every conceivable aspect of what may occur in the future. Putting all of your focus into one central idea will not give you much room to modify or adjust when issues arise or variables change.

27. Using Unrealistic Models

Setting unrealistic goals is another reason why strategic plans fail. Goals or models that seem unattainable may decrease motivation in your employees and slow productivity performance. Setting actionable, measurable goals can make your team feel like they can accomplish something while being challenged at the same time.

Your strategic planning models should be aligned with your intentions, but they should also be flexible. Your employees should be able to develop these ideas and results upfront and be equipped to face unexpected obstacles. Use common sense and intuition in the decision-making process to create realistic models and goals.

28. Failing to Link Strategic Planning to Strategic Execution

A solid strategy usually consists of adequate planning, organization, and delegation of tasks. To see success, you need to connect your strategic plan to your strategic execution. When managers or leaders become strictly reliant on their strategic plans, it may become more difficult to adapt to the external environment due to increased rigidity and inability to emphasize action.

Failing to link strategic planning to strategic execution may also decrease innovation. Innovation is a common link between strategy and performance, which may help you keep that connection when moving from the planning to the execution stage. Another part of this link may incorporate reviewing expected results and ensuring everyone stays engaged with the procedure and implementation process.

Combatting any obstacle can feel like a challenge, but it can also show you how to strengthen your abilities and become more successful. Seeing your plans develop may reinforce your feelings of accomplishment, making you more confident and secure in your future strategies. Here are a few methods on how to overcome strategic failure and improve overall problem-solving in your business.

1. Reflect on the Failure

The trial and error process is vital to learning, growth, and success. In business specifically, it’s normal to encounter failure, and it’s something you’ll have to accept. Think of failure as an opportunity to learn, recover, and shift your mindset to your next steps. 

Experiencing failure can supply you with the ability to become  stronger and more knowledgeable  throughout the entrepreneurial learning process. Research suggests that failure can give you a better lens for future-orientated learning outcomes. Applying and utilizing what you have learned from your past mistakes can help you generate an early warning system that allows you to anticipate ways to correct your actions.

2. Take Responsibility

As a leader, admitting you have made a mistake or could have done something better is not always easy. But owning up to the situation instead of blaming outside factors will make you appear more responsible. Being willing to embrace accountability rather than focusing on a victim mentality can make you more resilient in the future. 

Taking accountability may even  produce positive results , such as:

• Improved solutions.
• A boost in creativity.
• Employee commitment and participation.
• Employee morale and satisfaction.

If you struggle with taking responsibility, think about the impact it may have on your employees. Setting a good example and enforcing the importance of accountability will provide a more solution-oriented environment, especially in the wake of a strategic failure. 

3. Create Feedback Loops and Get Feedback

It’s not always easy to hear or accept feedback from your peers. However, the value of feedback proves to be quite the opposite. If you struggle to appreciate the feedback process, know it can be essential for learning and developing at any stage of your career. When you receive knowledge and opinions from others, it can help you think of a new perspective or idea you hadn’t previously considered. 

Creating an environment that encourages friendly but constructive criticism can have many benefits, including:

• Providing clarity for employees.
• Acknowledging the hard work and effort of others.
• Communicating what can be changed.
• Reinforcing and motivating employees with innovative ideas.
• Encouraging employees to review and adjust their goals.

Receiving advice should be seen as an opportunity to overcome areas of weakness. The Pendleton Model suggests that an action plan or specific goal  should be the top priority  when giving or receiving feedback. This model can refine the communication process — the more feedback you receive, the more you can think and reflect on the most efficient improvement methods. 

4. Use Your Support Network

Building connections with people who have different opinions and perspectives is a great way to feel supported and manage stress. A study revealed that  social support can improve psychological resilience when you are faced with stress, adversity, or failure. With a positive social support network around you, you may be less likely to:

• Engage in risk-taking behaviors.
• Feel socially isolated, which can lead to depression.
• Use or rely on negative coping mechanisms.
• Have negative thoughts about yourself or your abilities.

A team of motivational peers, friends, coworkers, or family members equips you with a sturdy structure for authenticity and encouragement. 

5. Recognize That Strategies and Plans Can Change

The willingness to accept change is also something that requires effort and patience. To improve the culture of your business, organization, or practice, you must be open to change. This concept may seem difficult to implement if you are used to a specific structure, direction, or position. However, change is almost always a perfect opportunity to enhance productivity and efficiency.

When approaching change, it’s a good idea to think of it as you and your team conquering a challenge or creating a vision together. Celebrating the small wins, maintaining a positive attitude and staying focused on your goals will make embracing new and intimidating changes easier.

Venturing out into a new strategy or business initiative may cause you to long for the comfort of predictability and the traditional way of doing things. But change can also make you feel more empowered, strengthening your ability to adapt to your environment and make more conscious choices. 

6. Manage Business Expenses

Staying on top of your business expenses can prevent you from dealing with financial problems in the future. Creating a  money management plan  can keep your payments and charges organized. Having control over your finances will save you time and energy that you can instead devote to your business strategy. Examples of managing your business expenses can include:

• Having a dependable payroll system.
• Hiring a reliable accountant to assess financial performance.
• Having an accounting or bookkeeping system.
• Regularly check your financial reports, such as income statements and balance sheets.
• Ensuring you are adhering to federal, state, and local tax regulations.
• Managing cash flow.

You will have one less thing to manage if your business expenses are handled by a credible, trustworthy professional. 

7. Create an Improved Execution Process

Learning from past mistakes is a powerful tool for improving your future plans and initiatives. Individuals often  resist change , which may present problems such as counterproductivity and ineffective job performance, which is why many strategy implementations fail. 

Once you decide on your next step toward a goal, following up with attentive communication and follow-through is essential to staying on top of a successful strategy. A few steps to  creating an improved execution process  may include:

• Identifying critical vulnerabilities.
• Communicating priorities and success factors.
• Creating an outside perspective of your business.
• Considering financial impacts.
• Acknowledging competitors.

These steps may help clear up any miscommunication and create transparency within your business or organization. Knowing how to properly delegate and implement your vision and direction can be one of the most successful methods for overcoming failure. 

Prioritize Your Business’s Success With AchieveIt’s Strategic Planning Solutions

Any successful business understands the importance of a well-constructed strategic plan. At AchieveIt, we want to help you increase visibility, improve accountability, and establish uniformity with our strategic planning software. Our strategic planning management platform will allow you to turn your strategic plans into reality by providing tools that ensure your key plans and projects progress. With our software, you can spend less time collecting updates and more time making decisions to move your organization forward.

If you want to improve the way you execute your strategic business plans, contact us today or schedule a free demo to see how we can help you achieve more.

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4 Common Reasons Strategies Fail

• Andrea Belk Olson

Stop blaming execution, and start identifying the underlying flaws.

Just because a strategy is formulated, doesn’t mean it’s ready for hand-off to the front-line for execution. Instead of reactively addressing failures during implementation, leaders need to examine whether the strategy was on solid footing in the first place. This requires stripping away assumptions to avoid four core errors, which often plague a strategy’s feasibility for being put in practice: 1) not understanding the problem; 2) not understanding the organization’s capabilities; 3) not understanding the immovable pressures; and 4) not understanding the cultural landscape. Examine whether the strategy considers the context in which it must be executed, as this is where uncertainty proliferates, and address potential pitfalls preemptively. This will ensure the team has the tools to deliver the hoped-for results. Successful strategy execution is a product of the fastidiousness of the plan itself.

Business strategies often fail. This is well-know by now: According to studies , some 60–90% of strategic plans never fully launch . The causes of derailment vary widely, but execution consistently bears the blame. While that can be — and perhaps often is — a fair diagnosis, it isn’t the whole story. The strategy design itself can be the real problem, however difficult that might be to admit.

• Andrea Belk Olson is a differentiation strategist , speaker, author, and customer-centricity expert. She is the CEO of Pragmadik, a behavioral science driven change agency, and has served as an outside consultant for EY and McKinsey. She is the author of 3 books, a 4-time ADDY® award winner, and contributing author for Entrepreneur Magazine , Rotman Management Magazine, Chief Executive Magazine , and Customer Experience Magazine .

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Why do business plans fail?

Table of Contents

Bad product ideas

Poor partnerships , a lack of detail , unrealistic financial planning , how a simple app can help improve your business plan.

Unfortunately, not every business will be a success. The failure of businesses is usually due to some issue in their business plan, and there are hundreds of different issues a business plan could have.

This article will describe some of the most common reasons a business plan might fail and how you can avoid them. We’ll look at common pitfalls such as:

• Poor partnerships
• A lack of detail
• Unrealistic financial planning

Sometimes, a business plan fails simply because it focuses on bad product ideas. A bad product idea means that the product or service your business specialises in does not sell well, and the lack of sales leads to an income problem for your business.

Business plans containing bad product ideas usually come about due to a misunderstanding of the term ‘ unique selling point ’. A unique selling point is what makes your product stand out from the products of the competition. It’s a feature that makes the product better as well as being unique. 

Many bad product ideas come from individuals that focus too much on the ‘unique’ part of the term unique selling point. While it is important to have a different product from anything else on the market, make sure you also know what your customers want from a product .

While it’s nice to have help running your business, it’s important to find the right person for the job before you write a contract for a business partnership . If you create a business plan as a partnership and your partner fails to fulfil their responsibilities, your business will struggle to succeed.

There are three things you may want to consider if you’re trying to avoid poor partnerships. The first is your partner’s skill set: look for someone with talents related to your business idea as well as talents you don’t possess. It’s helpful to have a diverse collection of skills within your business. 

Secondly, make sure your potential partner is as passionate about the business as you are. If they aren’t, you may find that you end up doing most of the work or that they leave the business as soon as things become difficult. While measuring passion and emotional investment is challenging, finding a business partner that matches your feelings regarding your business plan is vital.

Finally, create an exit strategy. While you may have found a perfect business partner, you never know what difficulties you’ll encounter in the future. So make sure you know what to do if there is an internal conflict in your company that you can’t resolve peacefully.

When you write a business plan , you need to make sure that you plan for almost anything. One of the biggest reasons business plans fail is because they don’t account for certain situations.

It’s impossible to plan for truly unexpected problems, but a detailed business plan will account for most situations by listing off your company’s weaknesses during a SWOT analysis . SWOT stands for strengths, weaknesses, opportunities, and threats, and it’s a standard part of most business plans. 

By using SWOT to list weaknesses in your business plan and potential threats to your success, you can start planning ways to deal with problems. For instance, you might identify a lack of sales as a potential threat. To account for this, you could invest in marketing or reduce your prices. If your business plan doesn’t account for these sorts of situations, it increases its chances of failure. 

Another reason for lack of detail in a business plan is low-quality research or not performing research at all. Without researching the market and industry you operate in, you’ll struggle to learn about your competitors or understand your customers’ needs. Thorough research is an essential part of avoiding business plan failure.

Financial planning is essential in business. You might not know the future of your business, but with a decent financial plan, you’ll be able to avoid most obstacles to success. If your financial plan is poorly thought-out or unrealistic, though, it might not be as valuable.

Financial plans are all about mapping out your company’s growth. If you’re too optimistic about this growth, it can cause serious problems. Unrealistic expectations can cause unprepared businesses to go bankrupt very quickly.

For example, say you expect to be making £1,000 a week in sales revenue by your second week of business. Your financial plan relies on this for you to pay rent and buy supplies. If it gets to that week and you’re only making £500, you’ll not be able to pay the bills that allow your business to operate. 

To avoid these problems, try lowering your expectations. Even if you think you have a fantastic product idea, it’s better to prepare for the worst than plan for the best and run into trouble. If you create a conservative financial plan that expects some success but accounts for things like low sales, your business plan is much less likely to fail. 

One of the biggest parts of your business plan is the financial aspect. To create a business plan that’s unlikely to fail, you’ll need to make sure you have a good understanding of accounting and a way to track how you’re spending your money.

The Countingup app offers built-in accounting software with its business account so that you can manage all your financial data in one place. 

With additional features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here .

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How a great business plan will maximize your risk of failure

The business plan is a great execution tool. Yet, requiring a business plan during the early stages of idea development might maximize the risk of failure. Large organizations in particular still require business plans. That is an error. In this post we outline three reasons why companies should drop business plans in favor of a more rapid and iterative approach.

While business plans are less and less common in the startup world, they persist in large corporations. In large companies it’s not uncommon that a team of several people spends a couple of weeks developing a business plan. They will first spend time on market research. Then they will craft a detailed plan with an impressive financial spreadsheet looking 3-5 years ahead. Finally, all of this will be summarized in a beautiful slide deck to convince top leadership or investors of the brilliance of the idea.

Great business plans can look so good and have such convincing arguments that it becomes hard to doubt them. Unfortunately this false illusion of security may also maximize the risk of failure (or waste time and money at the very least). No company wants that. Let’s look at three reasons why requiring business plans is a bad idea.

1) Getting too granular too early = you risk wasting time

One of the dangers of writing a business plan is to spend too much time refining an idea before it is really proven. Unfortunately, “no business plan (however smart it looks) survives first contact with customers”, as Steve Blank the initiator of the Lean Startup movement likes to say.

Rather than refining an idea at the early stages, you should test it immediately and evolve it based on market feedback. Otherwise you risk wasting time working on refining an idea that nobody cares about. The problem is that you’ll only realize that much, much later. 

TIP: Keep your early ideas very rough (e.g. on one page with the Business Model and/or Value Proposition Canvas) and immediately test them. Gradually refine your ideas with increasing  evidence.

2) Selling an idea & plan to leadership or investors  = You risk getting locked-in

Where it starts getting dangerous is when a team sells their top leadership or investors a polished and refined business plan - before rigorously testing the underlying business model and value proposition(s) in the market.

When leadership or investors buy and finance a plan they expect that success is a mere execution problem. They expect that beautiful and detailed spreadsheet in the business plan to materialize exactly how you projected it. In other words, you just got locked into a plan that was entirely made up. You are forced to execute an idea that is yet to be proven. If you want to change direction later on, it will be difficult to convince leadership because you sold them something else.

TIP: Don't sell leadership a polished and refined business plan. Sell them an opportunity and a rigorous process that will turn your idea into an executable business model by producing market evidence. Show them how this approach will minimize the risk of failure, as opposed to a business plan which maximizes the risk of getting locked into one direction that is yet to be proven.

3) Hiring based on an idea & plan = you risk premature scaling

The biggest risk of business plans is that they may lead to premature scaling. This happens when you hire people and spend money on key resources based on a plan rather than market evidence. In other words, you get into "execution mode" before you fully finished the "search" for the right business model and value proposition(s). We wrote about this in a recent post on how Great Execution of Bad Ideas Kills Businesses . 

This type of premature scaling of great looking business plans can lead to enormous financial losses. My "favorite" examples are Flo TV by Qualcomm ($1+ billion loss) or  Better Place , a startup that aimed at getting people to use electric vehicles ($850 million loss).

TIP: Don't invest in execution until you have strong evidence that your idea will work. Otherwise you risk premature scaling and running out of money.

Burn your business plan before it burns you

At Strategyzer, we are no enemies of business plans if they are used purely for execution purposes. Unfortunately we've seen too much damage from business plans used during the early stages of idea development - particularly at large organizations.

There is no place for a business plan when you are still searching for the right business model and value proposition for your idea. It's simply the wrong tool for the task and it might even lead to maximizing your risk of failure.

Business plans should be replaced by a more dynamic approach until you have sufficient evidence that your idea will work. Only then should you consider crafting a business plan. Until then, we suggest you burn your business plan before it burns you.  

Does your organization still require business plans? What's the impact?

About the speakers

Dr. Alexander (Alex) Osterwalder is one of the world’s most influential innovation experts, a leading author, entrepreneur and in-demand speaker whose work has changed the way established companies do business and how new ventures get started.

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Start » strategy, 5 reasons small businesses fail (and how to avoid them).

Small businesses are on the rise, yet many of them fail within a year. Find out what preventatives are needed to avoid becoming a statistic.

Small businesses are the foundation of our economy. According to data compiled by the U.S. Small Business Administration , in 2022, small businesses comprised more than 99% of all American businesses. However, launching and maintaining a small business is not easy. According to the Bureau of Labor Statistics , 20% of new businesses close within their first year.

Understanding basic business fundamentals and common reasons behind small business failure can help you avoid those mistakes and increase your chances of success.

Lack of planning

A business plan is a document that outlines important information regarding operations, goals, and finances, serving as a guide for measuring progress and making necessary adjustments. Your plan should be well-developed long before products and services are available to customers. Failing to do so can leave your business unprepared to navigate market challenges.

When writing a business plan , include the following:

• An executive summary of your business and a clear company description.
• Information regarding your company’s organization and management structure.
• The products and/or services you will offer.
• Marketing and sales strategies.
• Financial projections for your business, as well as any funding requests.
• An appendix with necessary sources and additional information.

When crafting your business plan, highlight how you will attract and retain your customer base, what makes your company original, and the sales process. Once complete, review your plan regularly and update it when needed to ensure it remains relevant.

Financial challenges

Financial challenges are hard to avoid, and they can make it difficult for your business to flourish and remain profitable. Limited funding or inconsistent cash flow, combined business and personal finances, and issues with budgeting or establishing prices are common financial issues a small business may encounter.

Entrepreneurs should understand various funding options , such as traditional loans, personal loans, microlenders, crowdfunding, and investors. Depending on what stage your business is in, some sources of funding — including a combination of sources — may be more appropriate than others.

Once you’re funded, learn how to manage and track your finances . Having a clear understanding of where your money goes is essential for ongoing success.

[Read more: Cash Flow: What It Is, Why It Matters, and How to Maintain It ]

Budgeting for branding and marketing expenses is vital to the health of your business.

Poor employee management

A poorly managed business can lead to serious ramifications, hindering a company’s chances of success. Bad employee management is harmful to the health of the business and to the employees. It can lead to excessive turnover, stress and anxiety, reduced engagement, and overall poor bottom-line results.

Enhancing employees’ sense of autonomy, competency, achievement, and belonging are great methods to boost morale , build loyalty, and reduce turnover. Management should be trained regularly to build and enhance leadership skills — including providing feedback and recognition to employees to show appreciation for their performance and efforts.

Inadequate marketing

Budgeting for branding and marketing expenses is vital to the health of your business. It can be costly and ineffective if your small business has no branding and marketing direction or strategy, fails to attract customers, or even turns them away.

Identify and understand your market segment and determine how you want to approach potential customers. Test your marketing strategy by creating relevant content and campaigns. Finally, develop a plan to measure the success of your marketing efforts — including tracking metrics like overall website traffic, email open rates, and cost per engagement — and then adjust as needed.

[Read more: 5 Marketing Strategies to Embrace in 2023 ]

Failure to adapt to market changes

Adaptability is essential to keeping up with our ever-changing cultural and economic needs. Because change is unavoidable, business owners must avoid becoming complacent and adjust to market changes for longevity.

Some strategies to adapt to an ever-changing market include:

• Hiring creative and forward-thinking employees who understand and believe in your mission.
• Create a positive work environment providing opportunities for growth and development.
• Staying on top of market changes by conducting research and paying attention to what’s hot, trending, and relevant.
• Knowing your target audience, their needs, and their behaviors, as well as how they may change over time.
• Staying current with technology, and making sure what you are implementing benefits your brand.
• Continuously assess whether your products or services are outdated and decide if improvements — or even an entirely new product — are needed.

[Read more: 5 Qualities Successful Small Businesses Have in Common ]

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Subscribe for exclusive access, why do businesses fail here are solutions for 10 common causes..

Written by Grant Olsen | February 2, 2022

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There are all kinds of conflicting statistics and opinions for why businesses fail . The headline of one report might proclaim that “90% of businesses fail in the first 3 years,” while another asserts that by following their tips, “You can enjoy a 90% chance of success.”

It’s difficult to accurately aggregate the numbers and find global statistics on business failures, so we’ll use the United States as a microcosm for trends that are also relevant in Australia, New Zealand, Canada, the UK, and other parts of the world.

Here’s a look at survival rates when viewed at the end of the first, fifth, and tenth years:

• 80% of businesses survive their first year
• 50% of businesses survive 5 years or longer
• 33% of businesses survive 10 years or longer

While these statistics highlight the fact that there’s certainly a risk of failure, they’re higher than some of us might expect. Anytime you’re looking at a vast collection of disparate individuals attempting something difficult, you’re going to see similar trends.

For example, let’s look at how many first-time college students seeking a 4-year degree stay the course all the way to graduation day:

• 33% of students graduate with a bachelor’s degree in 4 years
• 57% of students have graduated with a bachelor’s degree by 6 years

Some of the remaining 43% of students who didn’t graduate within 6 years will likely go on to attain their degree in later years, but it’s too inconsistent of a number to show up in most studies. For thousands of different reasons, hundreds of thousands of students fail to attain their bachelor’s degrees.

So the percentage of businesses that survive 5 years or more is strikingly similar to the percentage of students who earn a degree by 6 years. Sure, things happen that derail many of the businesses and students. But at least half of them are still standing after 5-6 years.

Why Small Businesses Fail to Change

Just as many of those students who earned degrees switched majors during their college experience, it’s critical for business owners to maintain flexibility in their structure and operations. If the COVID-19 pandemic has taught us anything, it’s the immense value of a well-time pivot. Whether your change is compelled by a new idea or the pressures of the times, never hesitate to innovate.

As Dan Fries explains :

Sometimes a crisis, while always tragic, can force some positive effects. It might not feel like that right now, but by responding to COVID-19 will teach you some valuable skills. In other words, this is not the only crisis you are going to face as your business grows, and the lessons you learn in the next few months will be extremely useful when it comes to scaling your startup further down the road. In fact, some of the tools and processes above are likely to be relevant long after the current pandemic has passed.

When businesses embrace this open-minded approach, they usually find themselves among the 50% that are still strong after 5-10 years. As the old saying goes, “If you’re flexible, you’ll never get bent out of shape.”

Yet many business owners remain rooted in their old ways. It’s understandable that they believe in their products or services, and are attached to the business model. After all, it was these elements that inspired them to take entrepreneurial risks in the first place.

But if you love something, you need to take care of it. And part of nurturing your business is being willing to change directions when outside pressures are threatening it. Stubbornness can be mildly amusing in childhood friends or cranky great-uncles, but it can be devastating for a business.

Why do businesses fail when they resist change? Because they’re refusing to acknowledge the primacy of the customer. Let’s review a few examples of roadblocks to success that arose during the pandemic, and how they all connected back to the role of the customer:

• Lockdown prevents a restaurant from serving customers inside the building. This scenario has played out again and again in nations around the world. It presents many dilemmas, but none larger than the inability of a business to directly serve its customers. Successful restaurants found ways to provide new pickup and delivery options, serve their communities, and even send meal kits by mail. They kept providing a quality product, though it might’ve looked much different.
• The supply chain is disrupted. The inability to source the materials or ingredients necessary for your current model is problematic. But the main issue is that it prevents you from delivering what your customers are seeking. If replacements couldn’t be found for the supply chain, a pivot was required. For example, a bakery that couldn’t source eggs might stop selling baked goods and begin selling dry mixes to customers.
• Depleted finances make it harder for customers to make purchases. With customers in many areas struggling to meet financial obligations such as rent and mortgages, it’s no wonder that some had to curtail purchases. By finding ways to lower costs so you can lower your prices, introducing tiered pricing, or creating new product options altogether to meet your customers’ needs, successful businesses continued to meet the needs of those who historically had depended on them.

Whether you’re struggling with cash flow issues or have a broken supply chain, your ability to deliver for your customers will always be the real issue. And discovering new ways to meet their needs will always be the real solution.

The fact is that pandemics will emerge, trends will evolve, and economies will fluctuate. So if you insist on moving your business forward in the exact same way regardless of these external factors, you’ll instead find your trajectory rapidly nosing downward.

The alternative is to commit to meeting your customers’ needs no matter what occurs. While it won’t guarantee a smooth journey, this North Star will guide you through all manner of catastrophes and downturns.

9 More Reasons Why Businesses Fail

We’ve identified the inability to adapt to their customers’ needs as a major contributor to businesses that go under before reaching their 1-year, 5-year, and 10-year anniversaries. When your customer is kept at the forefront, all your other efforts will steer you in the right direction.

But there are many other specific risks facing young businesses. These are risks that you should anticipate early and be on the alert for as time goes on.

With that in mind, let’s now look at 9 other reasons why businesses fail:

1. Poor Planning

Coming up with a great business idea is only the first step because it can’t go anywhere unless it’s supported by a solid plan . Outline where you’ll go in your first month, first 3 months, first year, and first 3 years. Make the milestones measurable so that you’ll know if you’re on track.

Of course, things will occur that necessitate updates to your plan. But the point is that you have a master document that outlines how you’re going to stand out from the competition, how you’re going to deliver value to customers, how you’re going to build your culture, and how you’re going to ultimately thrive.

2. Hiring the Wrong People

We get it—there’s a lot of pressure to build your team in a timely manner so that you can launch a business. But rushing this stage can kill your chances for long-term success.

You need to find people who believe in what you’re doing and have the skills to improve the ways you’re doing it. In the crucial early stages of a business, negative employees can quickly sink morale and overall performance.

3. Failing to Foster a Good Culture

As you assemble your team, communicate openly about the culture you’re seeking to build. Ask their opinions and make a point of incorporating new ideas from your team. The businesses that prioritize profits over people or have a leaders-versus-employees dynamic often fall by the wayside because their toxicity trickles right out of the office and can be sensed by suppliers, partners, and ultimately, customers.

4. Growing Pains

Plenty of defunct companies launched with a strong culture but lost it as the company scaled. There’s obviously no way to maintain all your team’s perks and traditions as new employees swell the ranks, but you can keep the heart of who you are.

Make sure that you continue seeking your team’s input and act on their ideas. New hires will bring innovative suggestions to make things better, while the old guard can share the things that you should most think about retaining.

5. Failure to Stand Out

Even if your business idea is a gem, you’ve still got to communicate it effectively to your audience. Otherwise, you’ll just get lost in the shuffle.

Using the market research from your business plan, craft a unique selling proposition that boldly articulates what makes you different from the rest. Questions to answer include:

• What unique value do I offer?
• Why is my solution better for customers?
• How can I communicate these important differences?

The more you can differentiate your brand, the better your chances for success.

6. Not Focusing on the Essentials

Plenty of businesses lose their way in the first year as distractions pull them from the very things that give them a competitive edge. For example, if your quirky product packaging is beloved by customers, don’t ditch it as your business grows. Instead, find ways to make the packaging more efficient so that it complements your efforts to scale.

When your business stays focused, you’re better able to deliver on your unique selling proposition and to adapt to unforeseen bumps in the road.

7. Not Controlling Expenses

Launching a business is expensive. And growing that business involves a whole new set of financial demands. So it’s understandable that many businesses struggle to keep up with the pace.

You’ll put yourself in a much stronger position by carefully watching your expenses . If something doesn’t help you deliver an even better experience to your customers, it might not warrant the cost. This goes for everything from Netflix on the breakroom television to the vehicles you rent on business trips.

8. Not Managing Inventory

Balancing acts are hard enough for any person, which is why those who perform on the trapeze are referred to as “artists.” But business owners must control the inventory so they don’t lose sales from insufficient numbers or burn through capital by allowing too much inventory to pile up.

You can avoid these fates by investing in inventory management software that helps you track items through the supply chain, in your warehouse, and all the way to final deliveries .

9. Inadequate Profit Margins

It’s possible to bring in substantial revenue and still find yourself in financial danger. One of the factors that have claimed many young businesses is inefficient processes and poor pricing strategies that lead to low profits.

Your business provides distinct value to customers, so you should feel confident setting prices that reflect this fact.

Get the Skills That Won’t Let Your Business Fail

Want more strategies to help your business excel? We’ve prepared a library of free business courses that cover everything from finance to negotiations to advertising. Taught by proven entrepreneurs from a range of industries, they provide the type of insights that usually take years to acquire. In this way, you can fast-track your success and avoid many of the threats that impact other businesses in their early years.

About Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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Why Do Some Businesses Fail?

Small business owners must mitigate company-specific risks while also bringing a complete product or service to market at a competitive price point for their target customer base. There are also cash flow strategies to navigate, employees to hire, invoices to pay, and many other considerations that go into running a successful business.

Managing these details can be especially daunting for startup business owners. Small businesses across a broad range of industries obviously perform well and maintain profitability, yet 18% of small businesses fail within their first year and 50% go out of business within five years. Approximately 65% of small businesses don’t make it to their 10 th year in business. [1]

Once any financial, personal, market, competitive and/or operational risks are addressed, small business owners can enjoy the unique rewards of entrepreneurship. Those benefits range from unlimited income-producing opportunities, the ability to “be your own boss,” and the pride of ownership that comes with building your own company.  

5 Reasons Small Businesses Fail

To best prepare for the rigors of starting and running a sustainable business, entrepreneurs should be aware of the potential risks, determine which of them are most relevant to their own personal situation and then plan accordingly. Here are five reasons why most small businesses fail and some advice on how to avoid these risks:    

• Lack of a solid business plan. Ben Franklin once said, “If you fail to plan, you are planning to fail,” and nowhere is this more evident than in the business arena. In fact, the National Federation of Independent Business (NFIB) says companies that put a plan in place early stand the best chance of success. Entrepreneurs use their business plans to outline their goals and objectives, secure funding, identify their potential markets, and track progress and adjust accordingly. “It’s common for new entrepreneurs to start a business related to their expertise and previous employment, or a favorite passion, pastime, or hobby,” the NFIB says. “But detailed market research and a thorough evaluation of your competitors must be done during the planning process, and businesses must be prepared to adapt to market changes on the fly.” [2] At a bare minimum, the plan should include an executive summary, description of the business, marketing strategy, and financial projections.
• They can’t find the startup or growth funding that they need. According to Skynova®, an invoice template provider, half of all startups failed in 2022 due to insufficient funding or investor interest. “Nearly as many business owners simply ran out of cash,” the company says. [3] The NFIB concurs, and says that a lack of startup funds—or, being unable to come up with adequate financing—are both common reasons for business failure. “If you lack the cash or assets to start on your own, like most businesses, you will need to borrow,” it says.    
• Poor cash flow. According to SCORE [4] , 82% of all small businesses fail due to cash flow problems. When money gets tight, paying yourself, your bills, the payroll and other financial obligations can be extremely difficult. This is why companies of all sizes keep a close eye on cash flow, or the net cash and cash equivalents currently flowing both in and out of your business. SCORE’s strategies to avoid cash flow problems include developing a minimum viable budget, protecting your credit (i.e., in case you need a loan to cover the bases when money gets tight), effectively managing your inventory (for product companies), and maintaining cash reserves for lean times. 
• Inadequate management. It’s not at all unusual for a small business to be run by the same person who envisioned the idea, opened the company, and then worked hard to nurture and grow the entity over time. Along the way, that person probably wore a lot of hats: owner, manager, accountant, marketer - the list goes on. Unfortunately, this “chief, cook, and bottle washer” mindset can lead to one more reason why small businesses fail: lack of good leadership and management. “While the owner may have the skills necessary to create and sell a viable product or service, they often lack the attributes of a strong manager and don't have the time to successfully oversee other employees,” Investopedia points out. “Without a dedicated management team, a business owner has greater potential to mismanage certain aspects of the business, whether it be finances, hiring, or marketing.” [5]  
• Sometimes life just gets in the way. This “soft” risk that may not always show up on a business survey or report can impact a business’ lifespan. Because small business owners spend much of their time and effort on their companies, life-changing events like health problems, divorce, a new addition or a death in the family may adversely impact the business itself. In fact, when No Joke Marketing’s Michael Tasner asked over 100 entrepreneurs why their businesses failed, nearly 70% of them said their companies hurt their personal lives, or the other way around. To mitigate this risk, he suggests matching your business to your unique personality (e.g., he built a lifestyle marketing agency and designed its growth strategies around his lifestyle). He avoided trading off business success for life’s important experiences and garnered moral support from other business owners who may be dealing with similar issues or challenges. “Connect with like-minded people and share your personal and professional trials and tribulations,” Tasner adds. [6]   

When you know what small business owners have gone through to keep their companies afloat and headed in the right direction, you can better plan your own path to success. By understanding the financial, planning, and even the personal complexities associated with business ownership, you’ll be better prepared to tackle the challenges head-on, move past them, and increase your odds of long-term success.  

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Important Legal Disclosures and Information

1. Chamber of Commerce Team, Small Business Statistics, https://www.chamberofcommerce.org/small-business-statistics/  

2. NFIB, Why Do Small Businesses Fail?, March 20, 2017, https://www.nfib.com/content/resources/start-a-business/why-do-small-businesses-fail/#:~:text=Common%20reasons%20for%20failure%20include,selection%2C%20or%20even%20bad%20employees.  

3. Skynova, Why startups failed in 2022, https://www.skynova.com/blog/top-reasons-startups-fail  

4. Sutter, Brian, SCORE, The #1 Reason Small Businesses Fail - And How to Avoid It, https://www.score.org/resource/blog-post/1-reason-small-businesses-fail-and-how-avoid-it  

5. Horton, Melissa, Investopedia, The 4 Most Common Reasons a Small Business Fails, https://www.investopedia.com/articles/personal-finance/120815/4-most-common-reasons-small-business-fails.asp  

6. Tasner, Michael, Entrepreneur, 3 Reasons That Might Cause Your Small Business to Fail, and What to Do About Them, https://www.entrepreneur.com/leadership/3-reasons-that-might-cause-your-small-business-to-fail-and/374577 

These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions. This site may provide reference to Internet sites as a convenience to our readers. While PNC endeavors to provide resources that are reputable and safe, we cannot be held responsible for the information, products or services obtained on such sites and will not be liable for any damages arising from your access to such sites. The content, accuracy, opinions expressed and links provided by these resources are not investigated, verified, monitored or endorsed by PNC.

PNC is a registered mark of The PNC Financial Services Group, Inc.

Common Reasons Why Small Businesses May Fail

TriNet Team

Small businesses are invaluable to the U.S. economy. They create a substantial amount of jobs, foster economic diversity and drive innovation. Based on this statistic , 1 in 5 businesses do not succeed in the first year. While those odds may seem intimidating, business should keep in mind of these top 12 common reasons to be aware of that can be pitfalls to small businesses.

12 Common Reasons

Most business pitfalls come down to three core issues: money, planning and people. That covers a lot of ground, though. So let's break it down into more specific reasons, causes and solutions.

1. Lack of capital or funding

Startup and operational costs are going to be the first, most likely largest hurdle for most entrepreneurs. Without sufficient funding, a business might not be unable to maintain inventory, invest in marketing, or manage cash flow fluctuations. And all of that can lead to more operational challenges. And without adequate capital, the business won’t be able to deal with unexpected expenses (which always seem to happen, right?).

What to consider : Thorough financial planning, including realistic budgeting and cash flow projections can help an entrepreneur understand true funding requirements. Dogged research will help you get real numbers rather than hopeful guesses. A capital buffer helps, too. Think about exploring diverse sources such as loans, investors, grants, or crowdfunding for financial protection. Keep strict control of expenses, prioritize essential spending, and have a contingency plan for financial downturns.

Employee handbook? Get it done.

2. cash flow problems.

Cash flow problems can directly affect the company’s ability to meet its immediate financial obligations. Without adequate cash on hand , a business may struggle to pay for essential expenses like inventory, rent, utilities, or employee salaries.

This can lead to a cascade of negative consequences, such as the inability to deliver products or services to customers . In turn, this can harm the business’s reputation and lead to a loss of sales. Persistent cash flow issues might also prevent the business from investing in growth opportunities, ultimately stifling its potential.

What to consider : a small business should:

• Diligently monitor its cash flow by using detailed budgets and financial forecasts to help anticipate and plan for periods of tight liquidity.
• Implement invoicing and collections processes to help ensure timely payments from customers.
• Maintain a reserve of cash to help cover unexpected expenses or emergencies .
• Consider other financing options.

3. Bad management team

Have you ever had a bad manager and noticed how it affected the business as a whole? Poor decision-making, inefficient processes and bad communication are some of the most common outcomes from poor management . This can result in a decline in product or service quality, a drop in customer satisfaction and low employee morale . That last item could result in poor performance and/or the loss of talented employees. Ultimately, it can sabotage a company from the inside out.

What to consider : Prioritize hiring skilled managers who align with the company's vision and core values. Think about hiring for " culture add " vs. "culture fit"—that is, hiring someone who would bring something new to your management team rather than someone who "matches the vibe" of your existing team. After hiring, continuous training and development programs can also enhance management skills. Implement a clear accountability structure with measurable goals to help gauge whether managers are aligned with the business's objectives.

4. Weak business plan

Successful business owners can tell you just how important it is to have a well-strategized, researched, dynamic plan. That's because a bad business plan can be a primary factor in the failure of a small business. Plans that were based on unrealistic assumptions, inadequate market research, or flawed financial projections have doomed many companies. Plans often lack clear objectives and strategies for growth, which can lead to haphazard decision-making and resource allocation.

Even the best planners can't account for every possibility, however. Startups may not succeed because they stick too closely to a plan when market conditions or consumer preferences change. An inability to adapt —whether it's to technological advancements, competitive pressures or economic fluctuations—can leave a business lagging behind more agile competitors.

What to consider: Every aspiring small business owner should consider conducting an extensive market research to inform a comprehensive and adaptable business strategy. If you're starting a business and need some tips on developing a business plan, the Small Business Administration is a great resource. Winging it is not a recipe for success. The detailed answers you find as you work on your plan can help you avoid many problems. Seek feedback from business advisors or mentors to ensure the plan is realistic and achievable—and positions the company for sustainable success.

On the other hand, the plan should be a living and breathing document. Regularly review and update your business plan as the market changes and your business evolves. Flexibility in operations and contingency planning can help the business pivot effectively.

5. Bad location or bad internet presence

The wrong location can render a small business invisible to potential customers , limit foot traffic and reduce the likelihood of spontaneous purchases. Similarly, a weak online presence in today’s digital age may cause a business to miss out on a vast customer base that shops and seeks services primarily online.

According to Forbes , nearly 1 out of 3 businesses still don’t have a website. This is an interesting statistic considering that over three-quarters of shoppers visit a business’s website before their physical location. The reality is that the web has become the consumer’s first stop.

What to consider: Before choosing a brick-and-mortar location, conduct thorough location analysis. Consider factors like foot traffic, target demographic, accessibility and proximity to competitors before setting up shop. For building a presence in the digital realm, invest in a user-friendly, search engine optimized website. It may also help to actively engage as a brand with customers online. Consider using online advertising targeted to your market to improve visibility and customer reach. Online engagement metrics and customer feedback can help guide adjustments to improve online strategies.

6. Misjudging the competition

Many businesses tend to misjudge their competition. This may lead a business to offer products or services that are not differentiated enough to attract customers. This oversight may result in a failure to capture a significant market share, especially if competitors have stronger value propositions or more aggressive marketing strategies.

What to consider: Continuous and thorough competitive analysis can help a business owner understand the strengths, weaknesses, strategies, and customer base of its competitors. Consider analyzing competitors' marketing efforts, product developments and pricing strategies. With this information, it can help you differentiate your company's product or services and adjust your own strategies proactively.

7. Misjudging the market

A product or service doesn't always resonate with its target audience . In addition, there just might not be enough demand for even a great product. As a result, the business may struggle to sustain operations if it cannot meet the needs or desires of the marketplace at the right price.

What to consider: A small business should consider validating its product ideas through customer interviews, surveys and market testing before and during the development process. Pair this alongside ongoing market research to stay attuned to shifting trends and preferences. Consider being flexible to pivot or make changes to products or services in response to customer feedback and market demands to make sure an offering meets a genuine and current market need.

8. Pricing issues

If the prices are set too high, potential customers may be lost and sales volume suffers. If prices are set too low, it can undermine profitability and the perceived value of the offering. Incorrect pricing can also signal a misalignment with the target market's expectations and spending capacity, making it difficult for the business to sustain itself long-term.

What to consider: What you need is a "goldilocks" standard when it comes to pricing. Conduct comprehensive market research to understand the pricing landscape, including the price points of direct competitors and the perceived value of their offerings to customers. Analyze your cost structure to help determine the lowest sustainable price while ensuring a reasonable margin.

If pricing issues persist, reverse engineer your prices . Determine your costs of goods sold (COGS), operating expenses and salary. Your product’s price should be at least high enough to break even, but you want to make a profit too.

To help balance profitability with market competitiveness, consider using dynamic pricing strategies, regular reviews of pricing models in response to market changes and clear communication of the value proposition.

9. Unsuccessful marketing initiatives

Unsuccessful marketing initiatives can be a pitfall for a small business by draining financial resources without generating the needed customer interest or sales. Poorly targeted or executed campaigns that fail to resonate with or reach the intended audience may lead to low brand awareness and a weak customer base. Ineffective promotion may prevent a business from establishing a strong market presence or achieving the necessary revenue to remain viable. Ill-conceived marketing can even do more harm than good—possibly driving customers away rather than pulling them in.

What to consider :

• Clearly define your target audience and tailor marketing strategies to help engage that specific demographic using data-driven insights.
• Set measurable goals for each campaign.
• Conduct A/B testing to help determine the most effective messages and channels.
• Use analytics to continuously assess and adjust campaigns for optimal performance.

10. Weak product or service

If a product or service doesn't meet customer needs or expectations it might get poor customer reviews, negative word-of-mouth and a tarnished brand reputation. It won't sell. And one bad product or service can drag down results across your entire business. In a competitive market, a product or service might be fine, but if it's inferior to the competition the company is in trouble.

What to consider: Start with a minimum viable product , and always look for ways to improve it. If you have the right product-market fit, consider focusing on creating a better product to help market to more customers. Consider investing in rigorous product development and testing, as well as quality control. Ensure that what you're offering not only meets but exceeds market standards and customer expectations. Maintain a commitment to quality, relevancy, innovation and competitiveness.

11. Bad timing

There are many ways that bad timing can be a pitfall for a business. You might launch a product or service before the market is ready for it. You could miss the optimal market entry point, after competitors have established dominance. You might invest heavily in expansion just before an economic downturn. One more example: launching too early, before your product or service is ready. These all can result in financial hardships that the business may not be able to overcome.

What to consider: Conduct thorough market research and trend analysis to help identify the most opportune moments for product launches, expansions, or other significant business moves. Keep up on economic cycles, industry trends and consumer behavior patterns to align business decisions with market readiness. Flexibility in timing and having contingency plans can also help a business adapt to unexpected market shifts or delays.

12. Burnout or lack of passion

It takes energy and creativity for any new business to thrive and innovate . Without it, business owners may neglect essential tasks, fall into poor leadership habits and fail to respond effectively to competitive challenges. Consequently, a business can suffer from decreased productivity and a dying company culture.

What to consider: A healthy work-life balance has become the gold-standard, especially when "work from home" settings can make those boundaries hard to maintain. Consider setting work schedules that aligns with your business, delegate tasks when possible and take regular breaks to recharge. Establishing a strong support network, including mentors, peers and a motivated team, can help business owners maintain enthusiasm and find new perspectives. It's also beneficial to periodically reassess personal and business goals to make sure they remain aligned with one’s passions and motivations.

Help for small businesses

Running a business is no picnic. Fortunately, TriNet can help simplify HR operations for small and medium-sized businesses, providing comprehensive HR solutions and expert advice in key HR areas such as employee relations and effective performance management strategies to help small businesses manage their workforce. With TriNet's support, small business owners can navigate the complexities of HR and gain expert advice which helps businesses better focus on growing their business.

This communication is for informational purposes only, is not legal, tax or accounting advice, and is not an offer to sell, buy or procure insurance.

This article may contain hyperlinks to websites operated by parties other than TriNet. Such hyperlinks are provided for reference only. TriNet does not control such web sites and is not responsible for their content. Inclusion of such hyperlinks on TriNet.com does not necessarily imply any endorsement of the material on such websites or association with their operators.

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10 Reasons Why Small Businesses Fail (and How to Avoid them)

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‘Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.’

Eric Ries , author of ‘The Lean Startup’

Small companies struggle for a variety of reasons. Starting a company is difficult, and there are several statistics on the survival rate of startup companies available, such as that tust about 20% of new companies make it through their first year of service, or that within the first five years, half of smal l  companies collapse. Those figures aren’t encouraging. Small business survival is much more of a concern last year (2020) due to coronavirus-related revenue declines.

The argument is that, while these figures might have some validity, you should not let them affect your entrepreneurial spirit. Instead, aim to comprehend the primary causes of small business failure. You will stop making the same mistakes as others if you understand their mistakes.

We have compiled the list of some of the main reasons why small businesses fail.

• No Business Plan

Many entrepreneurs start small businesses based on a product or service they know and enjoy, and many disregard advice to write a comprehensive business plan, believing that their passion and imagination are the most important requirements. Company plans, on the other hand, aren’t the same as classwork. For a small company, a business plan is important. From funding to operations, your business plan will assist you in almost every aspect of your company. You can use your business plan as a reference and checklist during your small business journey if you start early. You’ll research and appreciate key areas for growth with a successful business plan. It must be accurate and focused on actual, reliable data as well as contain informed forecasts for the future.

Your business plan should include the following elements:

• Business model – company description, vision, unique selling proposition , priorities, and success factors
• Market research and market competition
• HR plan and requirements
• Problems and solutions that may arise
• Financial plan: capital equipment and supply list , balance sheet, income statement, and cash flow analysis, as well as revenue and cost forecasting
• Promotional, marketing, and advertisement campaigns
• Managing and budgeting for business expansion

A business plan is also required by most bankers if you are seeking additional capital for your company.

If you are confused or do not know where to start with your business plan, try Planium Pro , a solution that was designed specifically to assist small business owners and entrepreneurs to write business plan quickly and efficiently, it has all the necessary structure, tables, graphs and analytical tools to lay out your path to success.

• No Market Need

According to CB Insight , 42% of the startups fail because there is no market need. Even the best business plans will struggle if there isn’t a demand for what you’re selling, or if the market vanishes due to economic changes or natural disasters. Although you can’t foresee disasters, you can decide whether there is a demand for what you want to sell and whether that market is large enough to be profitable before you start a company. Remember that ‘everyone’ isn’t a business. The market must be a distinct category of consumers that you can target with the marketing dollars and money you have at your disposal.

Here are some of the most common signs of the problem:

• There isn’t a strong enough value proposition, or convincing case, to entice the consumer to make a purchase.
• The market timing is not right. You may be a few years ahead of your competition, and they aren’t ready for your solution at this time.

To avoid business failure after launch, entrepreneurs must track their demand and customers’ evolving needs on a regular basis.

• Poor Management Team

Poor management is cited as the number one explanation for business failure in several reports. Finance, buying, sale, production, and recruiting and managing employees are all areas where new business owners often lack specific business and management skills. The company will fail and go out of business if the owner does not realise what they don’t do well and seek help. Small business owners may either educate themselves about the skills they lack, recruit qualified workers, or outsource work to competent professionals to solve the issue.

A bad boss is the reason for 57%  of workers quitting their jobs. Another 14% have quit several jobs due to poor management. What are commonly referred to as ‘soft skills’ turn out to be crucial lessons for managers, particularly those who are new to running a company. When you take on a leadership role, you should consider learning skills such as active listening, empathy, motivation, communication, and compromise.

How can you hone your leadership skills? Fortunately, there are many services available to you.

• Online training and courses, such as those offered by LinkedIn .
• Entrepreneurs’ Association  is an example of a peer-to-peer organisation.
• SCORE will assist you in finding small business mentoring.
• Running Out of Cash

The CEO’s job is to figure out how much cash is left and whether it can get the business to a point where it can secure funding or become cash flow positive. New business owners often misunderstand cash flow or underestimate the amount of capital required to get their venture off the ground. As a result, they are forced to shut down before having a chance to succeed. They may also have an unreasonable view of incoming sales revenue.

Keep in mind that cash flow and profit are not the same thing. You can be profitable and yet be cash-strapped. Profit examines the current status of your revenue, including any sales that have yet to be processed by your accounts receivable department. If you ignore the cash flow, you’re missing the money you already have. That’s the money you’ll use to cover day-to-day expenses including paying invoices, bills, and staff.

It’s important to control accounts receivable in order to concentrate on cash flow as a company grows and scales. When businesses struggle to make cash flow changes as they expand, they are more likely to run out of operating capital. And if you’re short on cash, it’s almost impossible to stay ahead of invoices and pay your employees.

• Unsustainable growth

Overexpansion is a leading cause of business failure. It occurs when business owners conflate success with how quickly they can grow their company. It’s best to concentrate on slow and steady progress. Rapidly growing businesses have been the source of many bankruptcies.

Taking on more jobs than you can manage depletes your working capital and normally leads to a drop in quality. You’re stressed, and the product or service suffers as a result. Instead, choose your customers carefully and plan how you’ll repay each business loan. It’s a necessary part of running a company to be able to say no.

At the same time, you don’t want to stifle growth. Allow your performance to help you set the right calculated pace once you’ve built a strong customer base and good cash flow. Inability to meet consumer needs on a timely basis, as well as workers unable to keep up with production demands, are two signs that an expansion might be necessary.

A successful company is not something that can be left to chance or luck. From the start to the end of your company’s life cycle, you’ll need a well-defined business strategy, strategic operations, and sound financial management.

These mentioned failure reasons should give you a bit of a grasp on how to turn around a struggling small business and avoid being a failure rate statistic. Although you may not be able to escape all of the reasons mentioned above, it is critical to be aware of them and plan ahead of time how you will address each one and emerge victorious.

Other Resources

• ‘Key Reasons Why Small Businesses Fail’ , by Silas Titus, https://www.summitbusinesssolutions.ws/docs/reasons_biz_fail.pdf
• Axman, A., 2003, Entrepreneur magazine’s Small Business Advisor, Entrepreneur Media.,
• Jacksak, S.M., 1998, Start, Run and Grow A successful small business, 2nd Ed. CCH Inc. publishing
• ‘What is business failure? A philosophical perspective’, Joni Salminen, Qatar Computing Research Institute, https://www.researchgate.net/publication/314134805_What_is_business_failure_A_philosophical_perspective

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Top 7 Reasons Why Strategies Fail

Why strategic plans fail

How many times have you seen a strategic plan launch to great fanfare and optimism, only to be forgotten about within a few months?

We're going to tell you some of the most common pitfalls we see as to why strategic plans fail, to help you ensure that your plan isn't one of them! 

1. Lack of buy-in from the team

You can't execute a strategy alone! Indeed, as the owner of your strategic plan, you should really be one of the least important people when it comes to execution.

Why? Because ideally, you will keep yourself at arms-length from much of the delivery to allow you to retain perspective and a strategic lens. This only serves to heighten the importance of team buy-in.

A common mistake here is to underestimate the size of your 'team' when it comes to having them buy into the plan. If you have a team of 5, things are fairly easy - all 5 need to be bought in. If you have a team of 50 - things get trickier.

Often we see strategy leads doing a great job of gaining support from their immediate colleagues and direct reports, but a lousy job of ensuring that support cascades throughout the organization.

If you only have buy-in from 5 out of your 50 strong teams, then either your strategy will fail through lack of resources - or worse, if it succeeds with that level of buy-in, it probably means that it was nowhere near ambitious enough in the first place!

Tools like Cascade have of course been designed explicitly to help you get that buy-in

Even if you're not using a cloud-based solution to help your planning/execution, there are a couple of simple things you can do to help you succeed.

A lot of people assume that communication is a key part of this process - and of course, they're right.

Before you get to the communication stage, you need to start gathering feedback and inviting contributions from your team into any new strategic plan. Make sure that the first time your team hears about the plan isn't when it's finished!

Use tools like surveys, meetings, and face to face discussions to gather feedback from your whole organization on topics like:

- The organization's strengths and weaknesses - How do they feel about the current Vision of the organization - Who they admire in the industry (competitors) and why

Involving people as early as possible will make the next phase of the process (communication) go so much more smoothly! When it comes to that phase, the key is to communicate early and often.

We often see plans kick off with a flurry of workshops and activity, only to see communication tail off rapidly as people return to business-as-usual activities.

Schedule regular strategy sessions with your team, and stick to them.

Failure to address a lack of buy-in early is the single biggest reason why strategic plans fail!

2. Unclear Objectives

Failure of strategic planning can come about due to unclear objectives.  Coming up with ideas about what your organization needs to do and knowing how to do it aren't usually a problem.

Clearly structured plans with well-written objectives are much rarer than they should be! We've written an entire blog post on creating well-crafted Strategic Objectives - you can also download ours on the topic.

As such, I'll only cover the basics here. In our experience, well-written objectives are those which:

- Have a clear link to the Vision of the organization - Contain a clear action (a verb), a metric where possible, as well as a tightly defined window of execution (a start and end date) - Have a single owner or captain - others can collaborate of course, but a single owner avoids ambiguity - Are reported on a bare minimum of monthly at a regular strategy session or board meeting

A good way to 'test' the clarity of your objectives is to ask various people throughout the organization whether they remember and can clearly articulate them - as well as clearly describe how their own work and tasks relate back to a given objective.

If people are able to form this link, then not only is it likely that they are clear about the objective itself, it also suggests that your cascading process has worked effectively.

3. Failure to Account for Business as Usual

Pragmatism is a key part of any successful plan. Often when organizations create new plans, they get caught up in the excitement of the 'new' and forget to allow enough time to manage existing business activities. There are two ways that you can deal with this:

• Include BAU activities as part of your strategic plan. In theory, a well-written plan with clear Focus Areas should encompass the vast majority of your BAU activities. Managing clients and such-like may not form part of the high-level organizational goals - but I'm pretty sure that 'Client Satisfaction' would. Just be careful not to write your new plan to 'fit' against your BAU - define what you want to achieve/change first, then see you how BAU goals fit into this.
• State clearly that your strategic plan does NOT account for BAU activities. This is probably simpler than (a) but it does have some pitfalls attached. If you're not careful, you can end up creating a divide in your organization, with some individuals focused on BAU and others on strategic change. This is in stark contrast to point number 1 - where I strongly argue that total buy-in is key to successful execution!

4. Loss of Momentum

We've alluded to this already, but so often with strategic plans, we see a great deal of enthusiasm at the start of the process, followed by a gradual tailing off and return to business as usual.

Delivering against all of the points above (and below) will help immensely in making sure this doesn't happen to you - but here are a few other tips you can employ to stop your plan from falling into a black hole:

• Schedule regular 'Strategy Meetings' into the diary - ideally weekly. Use the word Strategy in the meeting title - that way whenever anyone looks at their schedule for the week, they'll be reminded about the importance of delivering against the plan.
• Allocate specific days or even half days to 'Strategy Work' - this can apply to marketers, salespeople, developers, it really doesn't matter. Create a block of time in everyone's diary (say a Friday afternoon) where they agree to not respond to emails or do any kind of admin, but instead will work solely on aspects of delivering the strategic plan. More importantly, don't let people start ignoring or canceling this time! Be pragmatic enough about your workloads to ensure that this strategy time is NOT the first thing to go when things get busy/hectic - because that sends absolutely the wrong signal about how you value strategy over BAU.
• Find a third party to act as a strategic mentor. This doesn't have to be a paid-for consultant or anyone with formal training - it could just be a friend or family member. Essentially the goal here is to have someone who is untouched by business as usual activities who will regularly ask you questions about where your plan is up to.  It's key that this person is NOT inside your organization to allow them enough distance and space to be untainted by the day-to-day pressures of running the organization.

5. Unwillingness to Iterate

Another vote for pragmatism here. It is pretty unlikely that you'll get your strategic plan 100% perfect on the first attempt. Smart leaders constantly have their ear to the ground, listening to threats and opportunities and moving quickly to adjust plans accordingly. Your strategy should be no different.

Think of your plan as a living breathing thing. It's one of the reasons that cloud systems are becoming so popular for strategic planning because rather than creating and printing a plan than putting it on a wall somewhere, they encourage you to constantly adjust and tweak the plan in a real-time environment.

All of that said, you do need to avoid changing the plan so much or so regularly that you lose credibility with your people. Changes should be iterative rather than dramatic. On only very rare occasions should you be looking to make changes to your Vision, Values, or Focus Areas.

6. Lack of Alignment

Effectively communicating your strategic plan isn't the same thing as ensuring alignment. Alignment means that everyone in the organization can clearly (and accurately) articulate how their own set of goals and tasks are contributing to the strategic plan.

Measuring alignment can be hard if you're using manual strategy and goal tools such as Excel or even pen and paper. In Cascade , we've developed a proprietary formula for calculating the level of alignment in your organization by measuring the amount of work-effort people are putting in against each of the organization's strategic goals.

Even without a system to help, you need to ensure that whenever you meet with your people to discuss their goals - you're constantly challenging them as to the why of what they're doing - not just the how or the what.

One way to help drive alignment is to create a clear strategic framework and ask people to 'categorize' their activities into that framework.

For example, if 'Innovation, Service, and Growth' are the Key Focus Areas of your strategic plan, have people clearly state which of these aspects their various work projects, goals, and tasks fall into.

Run your team meetings using this structure, slotting in progress updates and agenda items under these headings.

7. Failure to Celebrate Success

Last but certainly not least, is one of the nicest and most rewarding (but so often overlooked) things that you can do to successfully deliver your plan. Celebrate!

Sometimes we get so caught up in the doing and the final outcome, that we fail to recognize the great things we achieve along the way. By celebrating success in delivering our strategy, we reinforce a culture that highlights the importance of strategy to the whole organization.

Let's say you have 10 strategic objectives that make up your plan - at a minimum, you should be celebrating every time you achieve one - even if that means once per month or more regularly.

It doesn't have to be anything huge - it could be a team lunch, an early office departure on a Friday afternoon, or maybe a reward (monetary or otherwise).

Don't be too finicky about 'who' gets to celebrate - this needs to be a whole-team celebration, even if one person or team did more than the rest. Why? Because the whole point of this article is that it is your team who will deliver your strategy, not one single person.

Summary of why strategic plans fail

There are undoubtedly a whole host of other reasons why strategic plans fail - but in our experience of working with hundreds of strategic plans, these are by far the most common - but thankfully, also the easiest to avoid! We'd love to hear your thoughts on this list and your suggestions for additional pitfalls we can all strive to avoid.

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Let`s get social, common reasons why businesses fail: understanding the key factors.

Last Updated on: 22nd November 2023, 02:02 am

Many entrepreneurs dream of starting their own business and being their own boss. However, the harsh reality is that not all businesses succeed. In fact, statistics show that the majority of new businesses fail within their first few years of operation.

There are many reasons why businesses fail, and it is important for aspiring entrepreneurs to be aware of these common pitfalls. One of the main reasons is lack of market demand. It is essential for a business to have a product or service that people want or need. Without a strong market demand, a business will struggle to attract customers and generate revenue.

Another common reason for business failure is poor financial management. This can include inadequate cash flow, overspending, and failing to plan for unexpected expenses. Without proper financial management, a business may struggle to pay its bills and stay afloat. It is crucial for entrepreneurs to have a solid understanding of financial management and to seek professional advice when needed.

Understanding Business Failure

Business failure is a common phenomenon that affects many entrepreneurs worldwide. Understanding the reasons why businesses fail can help entrepreneurs avoid pitfalls and increase their chances of success. While there are many reasons why businesses fail, some of the most common ones include:

• Poor management: Poor management is one of the leading causes of business failure. This can include a lack of leadership, poor financial management, and a failure to adapt to changing market conditions.
• Lack of funding: Many businesses fail due to a lack of funding. This can include a failure to secure investment or loans, or simply running out of money before the business becomes profitable.
• Failure to innovate: Businesses that fail to innovate and keep up with changing market trends are at risk of becoming irrelevant. This can lead to a loss of customers and revenue.
• Competition: Competition can be fierce in many industries, and businesses that fail to differentiate themselves from their competitors may struggle to survive.
• Economic conditions: Economic conditions can have a significant impact on businesses, particularly during times of recession or economic downturns. Businesses that are not prepared for these conditions may struggle to survive.

It is important to note that business failure is not always a result of poor decision-making or incompetence. External factors, such as changes in the economy or market conditions, can also play a significant role in business failure.

By understanding the common reasons why businesses fail, entrepreneurs can take steps to mitigate these risks and increase their chances of success. This may include seeking out funding and financial advice, investing in innovation, and staying up-to-date with changes in the market.

Importance of a Robust Business Plan

Creating an effective business plan.

A well-crafted business plan is essential for the success of any business. It serves as a roadmap that outlines the company’s goals, strategies, and tactics for achieving success. A business plan also helps to identify potential risks and challenges and provides a framework for decision-making.

Creating an effective business plan requires careful planning and research. It should be a comprehensive document that covers all aspects of the business, including market analysis, financial projections, and marketing strategies. The following are some of the key components of a robust business plan:

Market Analysis

A thorough market analysis is essential for understanding the competitive landscape and identifying potential opportunities and threats. It should include an assessment of the target market, customer needs, and industry trends.

Financial Projections

Financial projections are a critical component of any business plan. They provide a roadmap for revenue growth, profitability, and cash flow. It is important to be realistic when projecting financials, as overestimating revenues or underestimating costs can lead to significant challenges down the road.

Marketing Strategies

Marketing strategies are essential for reaching and engaging with customers. A robust business plan should include a detailed marketing plan that outlines the company’s target audience, messaging, and promotional tactics.

In summary, a robust business plan is essential for the success of any business. It provides a roadmap for achieving success and helps to identify potential risks and challenges. Creating an effective business plan requires careful planning and research, including market analysis, financial projections, and marketing strategies.

The Role of Market Research

Market research is an essential component of any business strategy. It provides valuable insights into the market demand, customer base, and trends that can help businesses make informed decisions. In this section, we will discuss the two critical roles of market research in the success of a business: understanding your target market and monitoring market trends.

Understanding Your Target Market

One of the most significant reasons why businesses fail is a lack of understanding of their target market. Market research allows businesses to gain a better understanding of their customers’ needs, preferences, and behaviours. By conducting market research, businesses can identify their target audience, their buying habits, and the factors that influence their purchasing decisions.

Market research can be conducted through various methods, including surveys, focus groups, and online research. By gathering data from these sources, businesses can create a customer profile that outlines their target audience’s demographics, needs, and preferences. This information is vital in creating marketing campaigns that resonate with their target market.

Monitoring Market Trends

Another critical role of market research is monitoring market trends. Business environments are constantly changing, and it is essential to keep up with the latest trends to remain competitive. By monitoring market trends, businesses can identify emerging opportunities and threats that may affect their operations.

Market research can help businesses identify the latest trends in their industry, such as new products, services, and technologies. By staying up-to-date with the latest trends, businesses can adapt their operations to meet changing market demands and remain competitive.

In conclusion, market research plays a crucial role in the success of a business. By understanding your target market and monitoring market trends, businesses can make informed decisions that will help them remain competitive in a constantly changing business environment.

Customer Value and Satisfaction

Customer value and satisfaction are essential components of any successful business. If a business fails to meet the needs and expectations of its customers, it will ultimately lead to its downfall. In this section, we will explore the importance of customer value and satisfaction in the success of a business.

Identifying Customer Needs

One of the key reasons why businesses fail is the failure to identify and meet the needs of their customers. A business that does not understand its customers’ needs is unlikely to provide products or services that meet their expectations. Therefore, it is essential for businesses to conduct market research to identify their customers’ needs and preferences.

Market research can be conducted through surveys, focus groups, and other methods. By gathering data on customer needs and preferences, businesses can tailor their products and services to meet those needs. This will help to increase customer satisfaction and loyalty, which are crucial for the success of any business.

Ensuring Quality of Products and Services

Another important factor in customer value and satisfaction is the quality of products and services. Customers expect to receive high-quality products and services that meet their needs and expectations. If a business fails to deliver on this, it will result in dissatisfied customers and ultimately lead to business failure.

To ensure the quality of products and services, businesses must have processes in place to monitor and maintain quality standards. This can include quality control checks, regular inspections, and ongoing training for employees. By maintaining high-quality standards, businesses can improve customer satisfaction and build a loyal customer base.

In conclusion, customer value and satisfaction are critical components of any successful business. By identifying customer needs and ensuring the quality of products and services, businesses can improve customer satisfaction and build a loyal customer base. This will ultimately lead to increased revenue and long-term success.

Financial Management

Effective financial management is crucial to the success of any business. Poor financial management can lead to a range of issues, including cash flow problems, inadequate funding, and even bankruptcy. This section will explore two key aspects of financial management that businesses must pay close attention to: maintaining healthy cash flow and securing adequate capital and funding.

Maintaining Healthy Cash Flow

Cash flow is the lifeblood of any business. It refers to the movement of money in and out of a business, including income from sales, expenses, and investments. Maintaining healthy cash flow is essential for businesses to meet their financial obligations, such as paying suppliers, employees, and taxes.

One of the most common reasons why businesses fail is due to poor cash flow management. For example, if a business has too much money tied up in inventory or is not collecting payments from customers on time, it can quickly run out of cash. To avoid this, businesses must closely monitor their cash flow and take steps to improve it if necessary.

Some strategies for improving cash flow include:

• Reducing expenses: Businesses can reduce expenses by negotiating better deals with suppliers, cutting unnecessary costs, and improving efficiency.
• Improving collections: Businesses can improve collections by invoicing promptly, following up on overdue payments, and offering incentives for early payment.
• Managing inventory: Businesses can manage inventory by forecasting demand, reducing excess stock, and optimizing supply chain management.

Securing Adequate Capital and Funding

Securing adequate capital and funding is another critical aspect of financial management. Businesses need capital to start, grow, and expand their operations. However, securing funding can be challenging, particularly for new or small businesses.

There are several options for businesses to secure funding, including:

• Bank loans: Businesses can apply for loans from banks and other financial institutions. However, loans often require collateral and can be difficult to obtain for new or small businesses.
• Venture capital: Venture capitalists provide funding to businesses in exchange for a share of ownership. However, venture capital can be expensive and may require businesses to give up control.
• Crowdfunding: Crowdfunding allows businesses to raise funds from a large number of people online. However, it can be challenging to stand out among the many crowdfunding campaigns.

In addition to securing funding, businesses must also manage their finances effectively to ensure they can repay any loans or investments. This includes creating a budget, monitoring expenses, and forecasting cash flow.

In summary, financial management is a critical aspect of running a successful business. By maintaining healthy cash flow and securing adequate capital and funding, businesses can avoid common financial pitfalls and set themselves up for long-term success.

Effective Leadership and Management

Building a strong management team.

One of the key factors in the success of any business is having a strong management team. This team should be made up of individuals who have the skills and experience necessary to lead the organisation in the right direction. Effective leaders are those who can inspire and motivate their teams to achieve their goals. They should also be able to make tough decisions when necessary, and be willing to take responsibility for the outcomes of those decisions.

To build a strong management team, businesses should look for individuals who have a track record of success in their respective fields. They should also look for people who have the ability to work well with others, and who are willing to collaborate and share their knowledge and expertise.

Developing a Clear Vision and Mission

Another important aspect of effective leadership and management is having a clear vision and mission for the organisation. A vision is a statement of where the business wants to be in the future, while a mission outlines how it plans to get there. These statements should be communicated clearly to everyone in the organisation, so that everyone is working towards the same goals.

Having a clear vision and mission can help to keep the organisation focused and on track. It can also help to motivate employees, as they will feel that they are working towards something meaningful and important.

Cultivating a Positive Organisational Culture

Finally, effective leadership and management involves cultivating a positive organisational culture. This means creating an environment where employees feel valued and supported, and where they are encouraged to be their best selves.

To cultivate a positive organisational culture, businesses should focus on building strong relationships with their employees. This involves listening to their concerns, providing opportunities for professional development, and recognising and rewarding their achievements.

By building a strong management team, developing a clear vision and mission, and cultivating a positive organisational culture, businesses can set themselves up for success. Effective leadership and management are essential for any business that wants to thrive in today’s competitive marketplace.

Embracing Innovation and Technology

In today’s rapidly evolving business landscape, embracing innovation and technology is crucial for any business to survive and thrive. This section will explore two key aspects of this: Staying Ahead with Innovation and Leveraging Technology for Business Success.

Staying Ahead with Innovation

Innovation is the lifeblood of any successful business. It is what drives growth, attracts customers, and keeps businesses relevant in an ever-changing market. However, many businesses fail to innovate and instead rely on outdated strategies and products.

To stay ahead of the competition, businesses must foster a culture of innovation. This means encouraging creativity, experimentation, and risk-taking. It also means being open to new ideas and embracing change.

One way to foster innovation is to invest in research and development. This can involve creating new products, improving existing ones, or exploring new markets. It can also involve partnering with other businesses or universities to share knowledge and resources.

Leveraging Technology for Business Success

Technology has revolutionised the way businesses operate. From cloud computing to artificial intelligence, there are countless tools and platforms that can help businesses streamline their operations, reduce costs, and improve their products and services.

Startups, in particular, can benefit from technology. By leveraging the latest tools and platforms, startups can quickly scale their operations, reach new customers, and compete with larger, more established businesses.

However, it’s important to note that technology is not a magic bullet. Businesses must still have a solid strategy and a clear understanding of their customers’ needs and wants. Technology should be used to support these goals, not replace them.

In conclusion, embracing innovation and technology is essential for any business looking to succeed in today’s fast-paced market. By staying ahead with innovation and leveraging technology effectively, businesses can stay relevant, attract new customers, and achieve long-term success.

Strategic Business Decisions

Strategic business decisions are crucial for the success of any business. A well-planned strategy can help a business to stay ahead of the competition and achieve its goals. However, making the wrong decisions can lead to failure. In this section, we will discuss some common strategic business decisions that businesses make and how they can affect the success of the business.

Choosing the Right Business Model

Choosing the right business model is one of the most important strategic decisions that a business can make. A business model is the way in which a company generates revenue and makes a profit. There are many different business models, and each has its own advantages and disadvantages.

For example, a business can choose to sell products directly to consumers or sell products through retailers. A business can also choose to offer services instead of products. When choosing a business model, it is important to consider the target market, the competition, and the resources available.

Understanding and Navigating Competition

Competition is a major factor that can affect the success of a business. It is important to understand the competition and how to navigate it. This can involve researching the competition, identifying their strengths and weaknesses, and developing strategies to differentiate the business from its competitors.

For example, a business can offer better customer service, lower prices, or higher quality products. It is also important to monitor the competition and make changes to the business strategy as necessary.

Planning for Business Expansion

Business expansion is another strategic decision that can affect the success of a business. Expansion can involve opening new locations, introducing new products or services, or targeting new markets. However, expansion also involves risks and challenges.

It is important to plan for expansion carefully and consider factors such as market demand, competition, and resources. A business should also have a clear plan for financing the expansion and managing the risks involved.

Overall, making strategic business decisions is crucial for the success of any business. By choosing the right business model, understanding and navigating competition, and planning for business expansion, a business can increase its chances of success.

Challenges Faced by Small Businesses

Survival rate of small businesses.

Small businesses face a tough battle to survive in today’s competitive market. According to the Small Business Administration, only about half of new businesses survive for five years or more. The survival rate drops to one-third after ten years. This is due to several factors, including insufficient capital, poor management, and lack of experience.

Impact of Covid-19 Pandemic on Businesses

The Covid-19 pandemic has had a significant impact on small businesses. The lockdowns and restrictions have forced many businesses to close their doors permanently. According to a report by Yelp, over 160,000 businesses have closed since the start of the pandemic. The impact has been felt across all sectors, including retail, hospitality, and tourism.

Small businesses have had to adapt to survive during the pandemic. Many have shifted to online sales, delivery services, and curbside pickup. However, these changes require resources that many small businesses do not have. The lack of financial support from the government has also made it difficult for small businesses to stay afloat.

In conclusion, small businesses face several challenges that make it difficult to survive in today’s market. The Covid-19 pandemic has only added to these challenges, forcing many businesses to close their doors permanently. However, with the right resources and support, small businesses can overcome these challenges and thrive.

In conclusion, there are various reasons why businesses fail. It is important to note that having business acumen, entrepreneurship, learning, and flexibility are crucial factors that contribute to the success of a business.

However, even with these factors in place, businesses can still fail due to external factors such as economic downturns, changes in consumer behaviour, and new competitors entering the market.

One of the most common reasons for business failure is a lack of cash flow. Business owners must ensure that they have enough cash reserves to cover unexpected expenses and maintain their operations during difficult times.

Another reason for business failure is poor management. Business owners must have effective management skills to ensure that their business is running efficiently and effectively. This includes managing finances, employees, and resources effectively.

Finally, businesses can fail due to a lack of innovation. In today’s fast-paced and ever-changing business world, it is important for businesses to continuously innovate and adapt to new trends and technologies. Failure to do so can result in being left behind by competitors and ultimately, failure.

Overall, it is important for business owners to be aware of these common reasons for business failure and take steps to mitigate the risks. By having a solid business plan, effective management skills, and a willingness to adapt and innovate, businesses can increase their chances of success.

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7 reasons why some business plans fail.

Salmaan Mian

• August 23, 2021
• Business business plan business plans
• 7 Reasons Why Some Business Pl ...

Often enough, some business plans fail to achieve their objectives. Whether the plan is for securing a loan or investment or hiring new senior staff, there are few reasons why business plans fail.

This blog will examine the 7 main reasons why some business plans fail and what you should avoid doing when writing one.

Introduction

Business plans fail for various reasons. They have to be carefully thought out and well written with minimal mistakes. They should start with a great business idea and contain comprehensive market research and analysis. Sections on the operations, team and financials are also crucial and have to be well presented .

Many common mistakes can make business plans fail to achieve objectives . Business plans fail due to common mistakes range from spelling and grammatical errors to more fundamental issues such as a flawed business idea.

Business plans are different for each company, whether you are looking to create a business plan for a restaurant or a new tech start-up, you should tailor the business plan and avoid these common mistakes.

1)    Bad Business Ideas

One of the primary reasons why business plans fail is due to bad business ideas. Most ideas sound great in theory however sometimes they are simply not viable. Furthermore, some founders do not realise they have invested in a bad idea once it is too late.

To ensure that a business idea is feasible and can be turned into a reality, you should use product validation . Before officially launching the business, founders can do thisby approaching potential target consumers, potentially saving time and money.

2)    Inexperienced Team

Some business plans may present a strong argument for a new business and its need in the market. Instead, some business plans fail to present an appealing team that has the competencies and experience required to execute the business plan and successfully grow a business.

To ensure your business does not fail for this reason, you should create a detailed operations section in which details of the team are included. The section should highlight all the skills, experience, and expertise of the management team so readers also believe in them as well as their vision.

Investors will occasionally reject proposals from start-ups with inexperienced teams. Some investors want to be certain that your team has the relevant qualifications, capacity, and knowledge to manage the business. It is crucial to present an effective, capable, and complete team in a business plan to convince users this will be successful.

3)    Ineffective Executive Summary

The first section of a business plan will usually always be an executive summary. This section is should grab the reader’s attention and convince them to continue reading. However, having a bad executive summary can discourage users from continuing to read the business plan and cause it to fail.

Some users only read the executive summary which emphasises why it is so important to create a high-quality section. If the executive summary is weak, then it will leave a bad first impression for the users and make it difficult to recover from.

To create an effective executive summary , you should write it once the rest of the business plan is complete. This will allow you to summarise the entire document and create a captivating introduction for your users.

4)    Bad Financials

Financial forecasts are a key section of a business plan as they provide details on profitability, potential growth, and long-term vision for the business. The financials are usually the most interesting section of the entire document for investors and creditors. Pro-forma profit and loss statements, break-even, and return-on-investment calculations are all parts of the financials in an effective business plan .

If you fail to prepare a pitch deck and the financials in a business plan, investors are unlikely to take your pitch seriously so it is essential to focus on these sections if you are looking to raise capital.

Preparing financials will require time and research. They should be realistic, backed with research and accurate. It is important to clearly highlight these details as investors will also want to know what you will be spending their capital on.

5)    Spelling and Grammar Mistakes

Correct spelling, grammar, and punctuation are paramount when creating a business plan. Although users of a business plan do not expect business directors to be wordsmiths, they pick up cues about the underlying business and its owners by scrutinising a business plan. When they read a plan with spelling or grammatical errors, it could directly affect their decision.

Proofreading the document multiple times or hiring professional proofreaders will help avoid spelling, grammar, and punctuation mistakes. This will minimise mistakes and by extension, improve the appeal of the business and its directors. Software like Grammarly can also be used to correct spelling and grammar mistakes.

6)    Lack of Market Research

It is important to back your research with facts and statistics, it’s equally important to ensure your facts are true. Business plans should contain everything about your business your market, customer habits, competitors, size, and market share as well as overall market trends.

Often enough, some business plans fail if they do not contain adequate market research and analysis. You should prepare figures, charts, and statistics to support any assumptions or projections made.

Most investors and creditors will check your figures against the industry data for confirmation, so it is crucial they are correct and up to date. Investors will refuse to invest if their data does not match your market research and analysis.

7)    Poor Presentation

Even if your written content is flawless, the presentation has to match up. Presentation mistakes such as uneven margins, missing page numbers, charts and graphs without labels, or a missing table of contents can all put off potential investors or lenders. Rereading the document thoroughly can help correct these simple mistakes.

If in doubt, you should ask someone else to check your plan before presenting it to an investor or creditor. Remember that while you will spend significant time working on your plan, most readers will quickly read the document before they make an initial decision about it. This highlights the importance of having a neat presentation without obvious omissions.

A state-of-the-art pitch deck software, available on Android and iOS , could be used to improve your pitch deck presentation. The use of this software can significantly enhance your presentation when combining a pitch deck and business plan for investors.

What to avoid when creating a business plan

• Having an uninteresting executive summary
• Spelling and grammar mistakes
• Showing a lack of market knowledge
• Unrealistic financial projections
• Poor presentation

If you are worried that perhaps your business plan fails, you should seek professional help. Professional business plan experts can help guide you through the entire process by providing feedback, and presenting your plan in an attractive, professional, and effective structure.

Ultimately, to maximise your chances of successfully achieving your objectives with a business plan, you have to ensure a few key details. Firstly, you need a solid business idea with extensive market research and financial planning . You will also need to avoid making spelling and grammatical errors as well as present the business plan methodically. Although not a guarantee, following these details will significantly improve your chances of success.

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