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Five Top Reasons Small Businesses Fail

GovWorks once raised over 60 million dollars in venture capital and still found a way to fail. While money can be the most logical of reasons why businesses fail, the truth is that there are even more intricate reasons.  For businesses that have failed in the past, understanding the reasons why they failed is important to help them move forward.

If you’re in this category, any of these 5 reasons could be the reason you did. Also, if you haven’t failed before or just starting out, you need to understand the various mistakes that can be costly for your business. All are detailed in this article.


This is the primary reason why single-founder businesses are the riskiest. As a sole proprietor, you only answer to yourself. While this might seem like a great thing if you like to answer to yourself, it can become a pitfall. The qualities of a manager aren’t the same as that of an entrepreneur.

A manager or a management team typically manages hiring, finance, and employees while a business owner focuses on product building.

About 1% of entrepreneurs are able to function as both managers and business owners in the first few years of the business. While certain entrepreneurs can be spontaneous enough to handle being a business owner and manager in the first year of their business, a time will come where it will just be too much to handle.

Apple succeeded because of the partnership between Steve Jobs and Steve Wozniak. They both understood that they each couldn’t be everything individually. While Wozniak was a mechanical genius, Jobs was a creative genius who knew how to sell his creation.

Management is the number one reason businesses fail.

Take Laurel & Wolf, for example, a $35.8 million startup that failed due to operation and management challenges. It’s not advisable to perform the job of business owner and manager at the same time as it will not lead to a happy ending.

Management has also lead to the failure of hundreds of other businesses in times past, and it wasn’t just because of the aforementioned reason. Having a shitty management team will and has led to business failures.

Also read: Effective Time Management: Healthy Habits To Cultivate

Business planning

Startups often overlook the importance of an acute business plan.

Let’s face it; yes, you know your product, and customers, so why would you need a business plan, right?

The thing is, a business plan is so much more than just your companies product, vision, and mission. Many startups who have ignored the place of the ideal business plan have paid for it with their investments – money, time, and effort. They’ve seen failure creep upon them.

A business plan provides a clear business description of the intricate details of how you hope to manage your business.

Not just for you but for team members, investors, and even employees. It sends a powerful message about what your company is all about and where you are headed.

From employee management needs to your firm’s capital needs, your business plan needs deep insights on current market needs, the competition, projected cash flow, and most especially, budget. The latter is what gets most startups down today. Not being in tune with how much their business really needs.

When you hop into a wagon, thinking you can afford the cost, it will become a sore experience when you get stranded in a place you have never been before because you miscalculated your fare.

Also read: How To Spend Money As A Startup Business


Marketing is the core of every business.


Well because it doesn’t matter how great your product is; if you can’t sell it, your business is unsuccessful.

While many companies have failed because of any of the five reasons listed in this article, none is compared to the number of businesses ruined by poor marketing.

With marketing, its not just about your product. It’s about the pricing, the audience, the marketing channels, and packaging. Many startups begin their business by thinking all it takes to succeed in business is selling a great product or service. This mentality has only led to more failure than success.

Also read:  How To Set Prices For Your Products And Services


Another reason small businesses fail is due to lack of consistency. Being an entrepreneur is neither an escape from the 9-to-5 nightmare nor a quick money scheme, I often tell young entrepreneurs.

In recent times, many have become entrepreneurs because they have bought the illusion that having your own business is the most lucrative of ventures.

They venture into the business world with such mentality end up with disappointment. Soon, they discover than being an entrepreneur demands more time and dedication than their 9-to-5. They try to keep up with the facade for a while but eventually, realize that being an entrepreneur is not for them. They lack the drive, zeal, and commitment that comes with being an entrepreneur.

Consistency is the bedrock of all lasting success. When you put up the work every day, one day, it is bound to pay off. There are no overnight sensations in this venture. You can be the next Jeff Bezos, but it will take time.

Also read: How To Deal With A Bad Business Day

Commitment to learning

When it comes to owning a business, there is no place for complacency. Yet another reason that small businesses fail is due to the lack of commitment to learning.

Successful business owners are always in search of more innovative ways to delight their customers, as well as to make their products better.

Business owners have to realize that their product is never perfect and to stay competitive, they have to commit to learning.

They must be aware of the latest trends in their industry, always innovating, and learn to implement processes that increase the effectiveness of their day-to-day operations.

Businesses that outright refuse to learn and evolve soon become archaic business models replaced by more innovative ventures.

By committing yourself to learning and innovating, you’re committing yourself to success in all parts of your business.