Top 9 Primary Reasons That 45% Of New Businesses Fail

Before we get started with the top reasons why new businesses fail, let’s see how many new businesses actually fail early on.

According to a small business failure report by SBA, 20 percent of the new businesses fail early on – say in the first 1 or 2 years. The percentage increases to 45 percent in the following four years.

It’s a huge number.

Frankly speaking, no one starts a business to fail. Then why do businesses fail early on?

Do business owners quit their own?

No. But there are some primary reasons for which new businesses fail.

Usually, business owners don’t understand that success and failure always have blueprints. Success or failure depends on which path they chose.

For instance, if you are a business owner and you avoid these primary reasons for which new businesses fail, you will surely succeed in the longer run.

Temporary ups and downs are parts of the business.

Now let’s dig deep into the top nine reasons that don’t let new businesses grow initially. We have also discussed what you should do to make your business successful.

Top 9 Reasons Why New Businesses Fail

Basically, there are nine reasons why most new businesses fail. But the top five reasons we discussed below have significantly damaged new businesses more than any other reason.

Lack of Knowledge

Lack of knowledge
Knowledge is power.

The Lack of knowledge is the primary reason that so many new businesses fail early on. Here knowledge means looking at every possible aspect of your business to make it happen successfully. It demands extensive research. That’s what new business owners don’t do.

In fact, we human beings are always in a hurry. We don’t want to waste time, stopping by and exploring something deeply. We simply want to get results, which becomes the most significant reason behind small business failure.

We don’t rely on research in our routine life; we believe in the information we get from anywhere without authenticating the source, but this doesn’t work in the business.

Business demands you to look at every aspect that belongs to your business. Your business growth is just like human growth; if you don’t find the right growth hacks, the right food, and the right atmosphere, it can’t be healthy. Indeed, it will suffer a lot in the upbringing. Isn’t it so?

So to build a successful business that doesn’t fail in your life until you turn it off, you should give it time to research it even before starting it.

Your research will become the pillars of the building you’re constructing.

Now the question is, how to start your research? Here are some must-to-know questions that you should explore before starting your business so that it doesn’t fail.

  1. Why do people succeed in this business?
  2. What are the top reasons some of them couldn’t follow?
  3. How much space is there in the market?
  4. Why would people prefer your product?
  5. Can you provide something better at cheaper rates?
  6. What exactly do you want from your business? Build a Brand, double your money, or what?

Once you’re done with these questions, with sincerity, then you’re far more secure than 60% of the new businesses start along with you.

If you don’t have much time for all of that, it’s better to take advantage of external consultants who will research and will provide you with a strategy for your business growth.

Lack of Support

Lack of support
Support leads to success.

Appreciations and support play a vital role in your business success. If you don’t have a supportive atmosphere around you, it will surely be a challenging one.

Support can be of any aspect; it could be those who have no concerns with your business (your friends and family) and those belonging to your business (your teammates). You need support from both sides.

Sometimes when we are starting something entirely new, most people resist it. Your friends and family won’t believe in your idea. Hence you won’t get the support you might need in the challenging early days.

It was also too challenging for me when I started my blog until I started making money.

And if you lack support from your teammates, how can you expect something good?

In any case, you should find people who could believe in you, encourage you, appreciate you for what you have done. At least start it with much passion because passion helps us keep running.

If it’s magical or illogical for you that moral support plays a vital role in your business success, keep in mind we are humans, we are actually emotional animals. We need emotional satisfaction for something we are working on so that we could keep working on it.

Otherwise, if you couldn’t get results in the early days that you shouldn’t even expect, you might change your mind and quit your startup.

This is what happens with many new businesses.

Lack of a Business Plan

Lack of a business plan

If you don’t have a business plan, you can’t succeed; at least you will pay more for getting less.

Most small business owners claim that they have their business plans in their minds, which actually means they don’t value their time and business too much.

If you don’t have time to make a road map for something you want to run for long, you’re not supposed to be sincere with it.

The other benefit of a written plan is that it saves your 10% effort. That’s not over. When you have a written plan for something, you are far more precise about everything than a dusky plan in your mind.
Your business plan is a roadmap to monitor everything. You can practically watch what you had expected and how things are going. But if you don’t have it, you can’t measure your success or failure; you can just suppose it to be running fine.

You also face many other troubles that can result in a significant loss.

For example, when you don’t have a well-defined financial plan, you can’t decide how much money you should spend on each department to let it run smoothly. Otherwise, while preparing a perfect business plan, the planner keeps the significance of each department in mind.

Lack of Finances

Lack of finances

It’s among the top reasons that new small businesses fail in the very early years. If you don’t have the required finances in your pocket, you can’t feed your business, and as a result, it won’t yield anything.

In most cases, especially for small businesses, people don’t keep the required money to start a business in their pockets.

For example, according to “The Small Business Bible“, you should keep 6 months’ expenses of your new business as a budget to start it and shouldn’t expect anything in the first 6 months.

Still, in most cases, new startup owners plan to make profits from the very first month and keep that hypothetical profit as a part of their budget.

When things don’t go the way they expected, maybe, because of the lack of appropriate knowledge or because of any other reason, they suffer a significant loss.

So always one should keep a budget of a couple of month’s expenses.

Poor Marketing Strategy, or Lack-there-of

The right Marketing strategy is the pillar of any business success.

Your customers can only know if you tell them you are available. Whether you are a local startup, national or international enterprise, or an online company, you need to market yourself.

There are methods to market a business.

  1. Traditional Marketing
  2. Online Marketing

Many businesses fail due to a lack of the right marketing strategy or the lack thereof.

Yes, that’s true.

Even if you don’t follow the trending marketing strategies and advanced technology to market your business, you can’t get great results.

For instance, you are an auto dealership business somewhere in the United States.

You are working utilizing traditional marketing strategies, but you aren’t aware of digital marketing strategies. That means you lack behind in your field.

Here are the reasons.

  1. In research, it’s discovered that 95% of car buyers use the internet in their purchase journey.
  2. Traditional marketing is 10 times more expensive than digital marketing for an auto sale.

Thus even inappropriate marketing can get you at a loss and hence fail.

Poor Management:

Among many other reasons, poor management is another top reason that so many small businesses fail.

The leading cause behind poor management is a lack of communication with employees.

If you are not in touch with your employees at all, or you don’t want to listen to them. It will create a lot of stress, and hence your employees can’t be sincere to your company.

Bad Location:

Among the top primary reasons for new business failure and success, no one can ignore the bad location.

Location does matter a lot in business failure and success—especially when the business widely depends on the area you choose.

For instance, location means a lot for laundromat businesses. If you can’t choose the right location, your laundry business will fail.

Location is basically a part of your marketing strategy.

But you should be on it even before starting it.

Here are some guidelines to know if a location is good or bad for a business

  1. It’s not a relevant market
  2. It’s not easily accessible
  3. Lacks parking (essential for some business types)
  4. It’s not fit for marketing purposes

There could be even other things to consider when you research a location for your business.

Location research is different for different types of businesses.

Sometimes, being in a competitive market helps, and sometimes it’s ruining your business. That’s why it’s all up to your business.

Let’s take two examples to see the difference.

If you are a clothing brand in a clothing market where so many clothing brands are already there, it helps. The reason is that it already has customers and you need a space to get a share of it.

The other example is of car dealership business. If you got a car dealership or franchise, you find a place alone available for a large society. It will yield massive profits.

Hence, location research isn’t that simple, and that’s why it’s one of the top reasons so many new small businesses fail.

Lack of Flexibility

We have a great example of failure for this reason. It’s the failure of Nokia.

Nokia was a company that had the most expensive phones in its peak time. They planned to focus on rich families. They are doing great unless technology revolutionized everything.

Nokia remained rigid to advancements and hence was sold.

So lack of flexibility is also one of the top reasons that businesses fail.

Lack of Patience

Lack of patience

Patience is a pillar of business success.

Let me give you an example for a better understanding. The majority of the bloggers who join blogging don’t make money from it and quit it quite sooner because they don’t understand that blogging takes time. Blogging depends on SEO, and SEO is something that takes up to 6 months to get your results. In blogging, things don’t change overnight.

The same is true for every business; when you just started a business, it always takes time to become a part of that market. People’s minds change pretty slowly. You might have to wait for years to become a brand. But most of the new businesses are in a hurry to get results as others are getting. They don’t see the effort someone made to get that position.

If you don’t have the patience to work on it for long, you shouldn’t expect something great because those in a hurry make more mistakes. So it’s a pillar of business success to work with passion and patience.

Final Thoughts

You must have already known how many new businesses fail. Up to 45% of the new businesses fail in the early years. This terrible information convinced you to find out what is the primary reason that so many new businesses fail. Isn’t it so?

There are nine reasons new businesses fail. All of those reasons play a crucial role in any business failure and success.

But if you want to know only one reason for which new businesses fail, then the top reason so many new businesses fail so early is a lack of knowledge.

People don’t research when they start their businesses. They even don’t want to listen to anybody who tells them that they may make mistakes, and may fail.

I understood this philosophy after making so many mistakes, but today, I never start anything without significant research.

Knowledge is power, and we must understand it.

To share knowledge and help people understand why new businesses fail, we have discussed all the primary reasons which cause business failure. So that whatever business you start, you avoid those mistakes and make your business successful.

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