Why Small Businesses Fail - 6 Problems That Can Kill A Start Up

Why Small Businesses Fail - 6 Problems That Can Kill A Start Up
Dustin Clendenen
on March 20, 2020
Read in 3 min

If you’re wondering why small businesses fail so frequently, you’re not alone.

It’s become conventional wisdom that 90% of new startups fail.

But why is this so?

When your startup fails, a little soul-searching is inevitable as you try to find out what went wrong.

We reached out to the wide world of entrepreneurs to find the most common reasons startups fail, from the people with the most insight as to why:

1. Why Small Businesses Fail – Founder Burnout

Total exhaustion can be put off (or even avoided entirely) the faster an entrepreneur learns to delegate.

“There seems to be the idea that you should do everything in the business from marketing to finance to HR,” says Eugene Gamble, a business and entrepreneurial coach.

“The reality is that you may need to start out lean which requires wearing a number of position hats.

However you should look to leverage other people’s skills and talents to assist in growing the business quickly.”

Working alone not only limits success, but exponentially increases the likelihood of failure as you risk burnout.

2. Why Small Businesses Fail – Lack of Differentiation

Ultimately, the most successful businesses are those that outshine their competition.

This is done through everything from branding, to offering the highest quality product or service, to the providing convenience, to selling at the best price.

Oftentimes, these shining qualities are captured in the company’s value proposition.

But if you have trouble articulating what that value proposition is, it’s a sign your company is in trouble.

If you don’t even know what a value proposition is, sound the alarm.

“Most startup businesses fail due to a lack of a clear and strong value proposition,” says Yousif Hazboun, a Marketing Manager for GotPrint.

“[The] value proposition (VP) dictates the longevity and attractiveness of your offer in the marketplace. The uniqueness of your VP is one of the forces that will define the attractiveness of your offer.”

3. Why Small Businesses Fail – Failing to Pivot

Flexibility not just in attention, but in strategy, market positioning, and sometimes actual product can be crucial to success for entrepreneurs.

“If you are looking to grow a business, [you must] adapt to change,” says Serena Holmes, founder & CEO of Tigris Events.

“[Many companies] are not able to survive more than 10 years because they are not flexible and do not adjust to market shifts and increasing competition.

In order to grow our business over the years, we have had to alter our company image and marketing strategy.”

RELATED: 10 Entrepreneurs & Inspiring Stories of Startup Success

4. Why Small Businesses Fail – Running Out of Cash

It can be hard enough to manage personal finance, but keeping a company out of the red requires some serious accounting chops.

The importance of maintaining cash flow can’t be overstated.

“There are no problems a startup cannot solve if it has customers,” says Nishchal Dua, Founder of The Remote Life.

“Having a sustained growth will keep the team’s morale up, maintain cashflow through revenue or investors and provide enough room to experiment & pivot from time to time.”

If you’re having a cashflow roadblock or want to hold on to as much equity as possible, a small business loan could be the solution.

5. Why Small Businesses Fail – Not Serving a Market Need

Not all companies can be Twitter…

“The number one reason start-ups fail is that they make a product that people aren’t willing to pay for,” explains Mark Somol, Co-Founder and CEO of Zeal.

“You can describe it many different ways: lack of product-market fit, not filling a market need, etc.

But the bottom line is that, to build a business, you need to provide something that people will pay for.”

6. Why Small Businesses Fail – Not Collecting Feedback

If you’re having trouble locking down a value proposition or understanding what your customers need, it would serve your company to investigate these issues the old-fashioned way.

Unfortunately, many companies fail simply because the owner doesn’t collect feedback.

“Too few entrepreneurs test their business idea with actual potential customers,” says Nicole Royer, a marketing and business insight expert.

“Many startups are founded on passion and ideas, but it’s necessary to take your product or service in front of your target audience early, and often.

Failing to do this means that the startup won’t have the right feedback to make changes needed to sell to the audience you want to serve, ensuring that your business fails.”

Why Small Businesses Fail & How You Can Avoid It

There’s many reasons why startups fail, but many of them boil down to the founder having a focus too narrow or too broad.

Not paying attention to the bottom line (or revenue sources) can also quickly end a company of any size.

Avoiding failure eventually means having to face your own perceived limits…

So don’t fall into any of these traps and don’t delay until a problem becomes pressing.

The best way to stop your startup from failing is to move bravely out of your comfort zone now!

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Dustin Clendenen Finance Journalist

Dustin Clendenen is an LA-based screenwriter, editor, and all-around storyteller.

He spends most of his time thinking about the “Big Picture” and obsessing over its details.